Apple's iPhone Strategy Raises Concerns

Conventional wisdom has it that Microsoft doesn't innovate, opting instead to protect its dominant products. Apple is guilty of the same behavior, but that firm is taking this dubious strategy to absurd new heights. And the reaction to last week's announcement about tepid new iPhone upgrades shows that the firm is finally starting to get some pushback. That might be misguided.

Apple's inability to respond quickly to a changing market stands in sharp contrast to the firm's image as an innovator. Indeed, by taking existing markets for MP3 players, smartphones, and tablets to new heights (iPod, iPhone, and iPad, respectively) over the past decade or so, Apple has in effect created new markets and established blueprints for competitors to follow.

Related: "Apple Announces iPhone 5C, iPhone 5S"

Perhaps because no competitor emerged to seriously threaten the iPod, Apple forgot—or at least ignored—the lesson of its previous key product, the Mac: When a throng of competitors emerges, all based around the same platform, that market becomes commoditized. Prices fall. And Apple's dominance ebbs and then disappears. It has happened with the iPhone, and it happened with iPad, both of which are now underdogs in separate battles against Android-based devices.

And now we have the new iPhones. Flying in the face of market realities—the smartphone market has coalesced around low-cost devices that are ideal for some of the world's biggest markets, like China, as well as the emerging markets that will drive growth going forward—Apple did not in fact release a low-cost iPhone. The "C" in iPhone 5C stands for "colors," not "cost." And rather than price the device at a reasonable premium over competitors such as the Lumia 520—which costs $99 without a contract—Apple simply forged ahead with its usual pricing structure. The iPhone 5C starts at $550 without a contract, and costs even more in China, where Apple's products are already stumbling badly.

News of Apple's continued inability to meet customer needs—heck, a $300-to-$400 iPhone 5C would have received a standing ovation at the announcement press conference—has sent the firm's stock price reeling 11 percent ($56) in the past week. Chinese interest in the device is lackluster. And Apple, which normally proudly announces preorder statistics within days of product unveilings, has been uncharacteristically mum about iPhone 5C preorders.

More troubling to technology fans, however, is that Apple appears to be standing still and riding on its past successes. The iPhone 5C is identical, internally, to the iPhone 5 that was released a year ago, though its cheaper plastic parts are also decidedly down-market from the high-end glass and metal that graced the original device. And it's no less expensive, in a real-world sense, to end users. In fact, you can still preorder most iPhone 5C versions now, a week after the product was announced. That is unprecedented.

Related: "iPad, Mac, and iPod Sales Fall as iPhone Soars"

And yet. This is Apple—the company that's been releasing lackluster product upgrades since the explosive and trend-setting original iPhone back in 2007. Its share of the smartphone and tablet markets might be waning, but the firm still earns more profits and revenues on these device types than any other company. And by staking its claim at the high end of the market (the iPhone 5C is more entry-level BMW than rental-fleet Chevy), Apple is adhering to principles that are simply lacking elsewhere, and doing so amidst a race to the bottom.

If I've learned anything about Apple over the past decade, it's that my logical expectations have rarely if ever met with the reality of the firm's almost magical successes. The iPad was essentially a bigger iPod touch, and it triggered a complete recalibration of the personal computing market, one that has almost brought Microsoft to its knees. And these new iPhones? We're going to discover, I bet, that people don't actually mind plastic when it has an Apple logo on it. And check out those colors!

Think different, indeed.