Basically, the iPhone 5c changes Apple's lower-cost offering from a dated model into a new one - a new one that's cheaper to make. That change means that phone buyers choosing between the lower-cost iPhone variant or a similar-priced Android competitor are no longer choosing between old and new.
It also widens the gap between the top of the line iPhone and the less expensive model by changing differentiating their appearance, a factor that's more important to non-technical consumers than analysts are giving credit for.
This isn't the first time Apple has split a product line into two pieces. As Apple follower John Gruber points out on his Daring Fireball blog, Apple has had huge success marketing its computers as a "two-sibling family": with a consumer model that appeals to non-techies and a "prosumer" model that packs more horsepower.
Apple took its successful approach to iPhone's mid-cycle refresh, and improved it. So, why did shares sell off? The price.Pricing the iPhone 5c This iPhone launch was unique because it was the first time that Apple-watchers were able to get ahold of so many leaked photos and specs before the company had a chance to announce them. Ahead of Tuesday's event, we already knew that Apple was announcing a plastic-shelled product called the iPhone 5c. And it didn't take long before the media had made up the narrative: it was going to be a super-cheap iPhone targeted at boosting sales in emerging markets. When Apple unveiled a $99 starting price tag for the 5c, people were disappointed. How could a factory worker in China afford a $99 cell phone? But it never occurred to anyone that Apple wasn't courting that market in the first place - it wasn't a failed attempt at a super cheap phone, it was a replacement for its existing lower-cost offering. Investors were mad that Apple failed to deliver on a promise it never made, for a market it never wanted. What everyone forgot is the fact that Apple didn't earn its success as a high volume low margin tech manufacturer. It became the biggest technology company in the world by selling (relatively) expensive products with extremely high margins.
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