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Phablets Are So 2014, and That's Why Apple Shouldn't Make One

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Correcting the iPhone's limitations may well make it less unique, more commoditized -- more like the iPad.

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Apple's (NASDAQ:AAPL) Worldwide Developers Conference is underway, and so far the company has unveiled two operating systems, a slew of apps and cloud services, and even a new programming language. The elephant in the room, however, is what Apple won't show off in San Francisco: a new iPhone. These days, WWDC is notable mostly as a sneak preview of the fall iPhone event, and even now, iPhone 6 rumors are stealing the spotlight.
 
The bulk of Apple's business depends on keeping the iPhone sexy. Building nice hardware isn't enough; HTC (TPE:2498) continues to put out great handsets that just don't sell. Over the last year, Apple has positioned the iPhone as a jumping point for car audio and home automation, and it looks as though mobile payments is in the works, but practical considerations like these don't explain -- and won't preserve -- the crazy success of Apple's handset. The iPhone is a cultural icon and a status symbol, and keeping it that way won't be easy.
 
In fact, the challenge gets tougher every year as tastes evolve and markets move away from Apple's seven-year-old smartphone. For one thing, consumers are opting for cheaper handsets. IDC says that average selling prices fell 13% last year, and it expects these declines to continue. Screen sizes are also growing -- as demonstrated by the success of Samsung's (OTCMKTS:SSNLF) Galaxy line -- and phablets have become so popular that they're now weighing on tablet sales. Several months ago, the Apple/Samsung patent trial brought to light an internal Apple presentation, which stated bluntly that "consumers want what we don't have."
 
The problem with chasing markets is that it's not sexy. I argued last year that building a low-end iPhone would devalue the entire brand. This turned out to be a moot point as the iPhone 5C was little more than a repackaged iPhone 5. Rumors this year have Apple splitting the iPhone into 5.5- and 4.7-inch versions -- both larger than the 4-inch screen on the 5s -- and this, too, has its dangers. Last week CNET ran an article with this wonderfully descriptive headline: Real People React to iPhone 6 Concept: 'It's Like a Samsung Phone.'
 
Correcting the iPhone's limitations may well make it less unique, more commoditized -- more like the iPad. Apple split the tablet line in 2012 hoping to capitalize on a trend towards smaller screen sizes, but the Mini has done little to reverse the iPad's declining market share. Rather, while Google (NASDAQ:GOOG) search interest in the iPhone remains relatively strong today, the iPad has languished in the 18 months since the Mini's introduction. Expanding the product line may have done more harm than good, and all for the sake of a sales trend that didn't last two years.
 
"Coolness" often comes from intangibles, like the ability to stand out in a sea of rivals, or to implant a simple idea -- iPhone -- into the heads of countless consumers. A brand can't offer five different models (as Samsung does with the Galaxy S4) and then claim to have built "the best" smartphone in the world. That introduces subjectivity and complicates the storyline Steve Jobs may have been wrong when he insisted on 10 inches as "the" right size for a tablet, but there's something attractive about stark choices and uncompromising visions. Watch a fashion show; go to an art gallery; you won't find bland. The difference between following fashions and starting them really comes down to a willingness to be different -- and to own it.
 
There are other drawbacks to diversifying the iPhone. With a single display size, software design is simple. Developers can optimize for a single form factor rather than compromising between two or three. Accessories are universal, and as a consequence, the iPhone may well be the most adaptable handset on the market. There are supply chain and R&D efficiencies, too; the iPhone 5 was famously difficult to produce, and it took Foxconn (TPE:2317) months to perfect the process. Quality control and user experience are an important part of Apple's claim -- sometimes implicit, but always there -- to be the best.
 
Perhaps the biggest danger from rolling out multiple iPhones is the message it sends to investors and customers. Apple's statement of philosophy used to be that "people don't know what they want until you show it to them." The idea that consumers actually want what Apple doesn't have would signal a pretty big shift in attitude. In the end, market share is a lot like fashion: Those who chase it often end up its victims.
 
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Apple WWDC 2014: The Six Things You Need to Know


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