I’ve been looking at a lot of iPhone news in the last week or two, and one thing has been predicted almost everywhere; there are new tiers of iPhones on the horizon. Certainly the now-expected iPhone 5S is coming, but also an ‘iPhone 5C’ of sorts; flush with a cheaper price, a new plastic shell and some neat colour choices. Basically, it’s the iPod mini of the iPhone product line.

Ben Thompson of stratēchery makes some interesting arguments about this new tiers of iPhone today. Here’s the meat of his predictions:

iPhone 5S: aluminium, in-cell touch screen, high-end camera, dual flash, A7 processor, LTE – $650

aluminium, in-cell touch screen, high-end camera, dual flash, A7 processor, LTE – $650 iPhone 5: aluminium, in-cell touch screen, current camera/flash, A6 processor, LTE – $550

aluminium, in-cell touch screen, current camera/flash, A6 processor, LTE – $550 iPhone 5C LTE: plastic, separate touch interface and screen, mid-grade camera/flash, A6 processor, LTE – $399

plastic, separate touch interface and screen, mid-grade camera/flash, A6 processor, LTE – $399 iPhone 5C: plastic, separate touch interface and screen, mid-grade camera/flash, A6 processor, 3G – $299

This post really got me thinking. This is the first time I’ve seen the iPhone 5C with-or-without-LTE question broken down.

It makes sense that Apple would want both; the LTE version as an no-plan/outright option in established markets with LTE infrastructure (ie US, UK, Australia & many more), and the non-LTE version as a wedge into emerging markets without 4G.

I have one qualm about this idea; SKU complexity (that’s stock keeping unit or unit variants for those playing at home). Ben has the same reaction, and says:

Still, this is the prediction I’m the most uncertain about. After all, the additional cost of LTE is a cost that will assuredly decrease over time, thanks to Moore’s Law and Apple’s scale, and Apple’s operations are predicated on decreasing SKU complexity, not increasing it.

I wanted to see exactly how much more complex this would make Apple’s operations. So, let’s do a bit of analysis around this. Currently, I count a total of 26 iPhone SKUs: 18 iPhone 5 (16/32/64, 3 networks), 4 iPhone 4S (16GB only, 2 networks), and 4 iPhone 4 (8GB only, 2 networks) variants. Let’s compare this to what may come.

iPhone 5S & 5 SKUs

Let’s say the iPhone 5S has 3 colours; black, white, and ‘champagne’, and comes with 16GB/32GB/64GB storage options. There are 3 variants in the global market right now for the iPhone 5 (look for yourself—GSM-only, GSM & CDMA and CDMA China) so I would expect the same for the 5S. That’s a total of 27 models; quite a lot!

The iPhone 5, moving down the tier, would shed the variable storage options and move to 16GB only (as is typical in Apple’s product cycle), but keep the colours & network variation. This would give it a total of 6 versions.

That means both the iPhone 5S would have 27 variants, the and iPhone 5 would have 6, for a total of 33.

iPhone 5C

An iPhone 5C LTE with say, 5 different colour variations and 16GB/32GB (no 64GB, that’s for upper-tier only) storage that will come on all networks, like the iPhone 5.

That’s another 30 SKU variations. Yeah, lots of colours means lots of versions.

Add to that a cheap baseline iPhone 5C without LTE, in 5 colour variations and only an 8GB storage option on all networks. That’s another 15 variants.

So all told, the iPhone 5C could have as many as 45 SKU variants.

Total: 78?

Suddenly, even though the picture looks fairly clear at the top —iPhone 5S for the high-end, iPhone 5 for the mid-range, iPhone 5C for the budget-option—under the surface there’s an absolute glut of variable SKUs. If that analysis above is even anywhere near correct, it would mean 78 possible versions of the new iPhone product line; a tripling of the amount of SKUs in the market. I think this is far too many, so let’s revise.

What’s realistic?

There is certainly wiggle room in these figures. I think it’s possible that if Apple wanted to do all of these tiers, but reduce the number of variants, they could trim off the 16GB lineup for the iPhone 5S. That would reduce this number by 6, for a total of 72 SKUs.

(Another possibility is the ‘champagne’ edition as a 64GB-only colour, but I consider it unlikely)

They may also further opt for a single storage option on the iPhone 5C with LTE (I’d guess 16GB), which would leave them with only 15 variants of that model, for a total of 57 SKUs.

There could certainly be other variables, such as the non-LTE iPhone 5C coming in with less network variants; let’s say 2. Another possibility; to skimp even further, Apple could only opt for 2 colours on the barebones iPhone 5C; which leaves us at 48 total.

(If the ‘C’ stands for colour though, that runs contrary to what the whole pitch of the product is; a cheap, colourful iPhone!)

If you’re introducing a new tier of product with a range of colours, perhaps a doubling in the amount of market SKUs is not so bad. I’m sure there was a similar bump when the iPod line diversified into the iPod mini. Certainly other companies (Samsung is a good example), deal with many, many more versions of their products than that.

A final variable to consider; there could new cellular technology employed that bundles these network variations together and renders the different network SKUs obsolete. I won’t consider that here, but it may be a possibility.

More, but less

If you think about it, there’s lots of benefits for Apple inherent in his change. Even though this means lots of different boxes on shelves, from a manufacturing perspective, this change looks great. You could streamline a lot of the production process that were otherwise split. Think about it; no more 30-pin connectors to assemble on a different line, no more smaller 3:2 screen to deal with, no more separate charging cable to make— all efficiencies employed at massive scale.

From a sales perspective, obviously this change looks good. It means that the iPhone will be able to reach customers it has not yet targeted in the past. People who can’t afford an expensive plan. People in emerging markets. People who like colourful phones!

It may even have unintended benefits like re-harmonizing the currently fragmented accessory market — no more 30pin/lightning cable split, no more tallphone/shortphone size split.

September 10th

That’s when we’ll know what their plans are. I think if I was to settle on a defined product line for the upcoming event, I would add in 16GB variant on the iPhone 5S, and my final tally would be:

iPhone 5S, 3 colours, 16GB/32GB/64GB

iPhone 5, 2 colours, 16GB

iPhone 5C LTE, 5 colours, 16GB only

iPhone 5C, 5 colours, 8GB only

With 3 network variants of each, that leaves us with a total of 63 SKU variations. It’s certainly a big jump from the current count of 34, but I think it’s warranted given the market opportunity.

Update: Thanks to everyone who read, commented, or tweeted at me yesterday! I’ve learned a lot! From that feedback and discussion, I’ve refined my ideas and written a follow-up post here.