The iBogus or Why iPhone Nano Is Not Coming Anytime Soon

It had not even been two weeks since Apple's iPhone has hit the shelves before some JP Morgan analyst in Taiwan started claiming that "iPhone Nano" is coming. He based his findings on some "contacts in the supply chain" and Apple's recent filing for a patent with the U.S. Patent Office. Many investors believed him making Apple's stock rise yet again. Well, while it is true that Apple is going to introduce a lower-end version of the iPhone eventually, it will not happen for at least another 9-12 months (let alone hitting the shelves).

Before a smart company, such as Apple, rolls out a new product, a number of conditions must be met. The two main market-related conditions for a successful roll-out are a clearly defined niche in market for the new product and strong pressure from competitors.

Market niche is the same thing as the target market. The iPhone currently targets the "young professional" social group, which means people aged 23-35 with at least 4 years of higher education with annual household incomes of over $40,000, which allows them to purchase the higher-priced device. It also targets people who are not that tech-savvy because iPhone's main selling point is the simplicity of use. At the same time, iPhone's limited Bluetooth functionality, non-expandable memory along with the lack of third-party applications support and 3G data do not allow the device to tap into the pockets of tech-savvy shoppers, who are usually interested in multi-functioning highly productive smart-phones.

The iPod Mini was Apple's answer to a market who wanted a small-sized cheaper iPod and were willing to sacrifice storage capacity. It was released with 4GB of memory when the "regular" iPod had minimum of 15GB. At this point, iPhone's storage is either 4GB or 8GB with the operating system taking up about 0.5GB. Given the history of the iPod product line (below), all lower-end models have roughly a quarter of storage of the next level model, which means that iPhone Nano would have no more than 1GB of total storage with 0.5GB available to the user.

Simply reducing the iPhones physical size will not create a viable product. In fact, retaining the already basic feature set and the minimum memory while creating a smaller-sized product will result in cannibalizing on the the existing product. There is no way of introducing a younger sibling to the iPhone family without retaining the same functionality and avoiding cannibalization. Yet, substituting built-in storage with a memory card slot will put iPhone in an already saturated market of music-playback-capable phones that boast features such as Java application support and HSDPA downloads of up to 3.6Mbps compared to iPhone's theoretical maximum of 384kbps, let alone lower costs.

Just like the iPod, which was released with a very basic set of features and minimum storage, the iPhone is the beginning of the family. There is no market space for a lower-end model without cannibalization or entering a highly saturated market. Apple knows that and will be milking the cash from the iPhone for at least another 10 months before introducing iPhone 2.0 with full HSPA support, a minimum 8GB of storage, and the ability to run Mac OS software. Meanwhile, Apple has to address the bug list and the software wish-list, which includes Adobe Flash support, probably in the form of iPhone 1.1. Until then rumors of a lower-end model should be regarded as unprofessional attempts to affect Apple's stock prices.