So, Apple won't sell cheap kit? Prepare the iOS garden wall WRECKING BALL

It can throw the low cost race if it looks to the cloud

The rise of Android

Much of that Android growth, which resulted in shipments of 255.3 million units for the Google operating system, came from lower end models for emerging economies. “With the recent introduction of Android One, in which Google offers reference designs below $100 to Android OEMs, the proportion of sub-$200 volumes will climb even higher,” commented IDC research manager Ramon Llamas.

Android ended the quarter with an estimated 84.7 per cent share of shipments, compared to Apple’s 11.7 per cent (and tiny percentages for everyone else), and IDC estimates that, in Asia-Pacific (excluding Japan), 81 per cent of Q2 shipments were in the sub-$200 category.

That is not good news for the iPhone, and nor is the pattern in India and other major Asian economies. In India, smartphone shipments were up 84 per cent year-on-year, yet growth potential is still huge, since over 70 per cent of users are still on featurephones. But even Samsung is struggling to address the low end and is losing share to local vendor Micromax, which ousted Nokia from the number two spot in the market. It now has 18 per cent share, and is gaining on Samsung’s 27 per cent, while other Indian manufacturers, Karbonn and Lava, come next.

Apple has seen growth in India, estimated at about 55 per cent in Q2, though the vendor itself did not break out the figure. That has generally been fuelled by last year’s introduction of a buyback scheme for the ageing iPhone 4, and some new financing options, rather than by the newest models, say local analysts. However, of 18.42 million units shipped in India in the quarter, less than 2 per cent were iPhones.

And although Apple trumpeted Chinese growth in its most recent results call, that is mainly coming from the affluent sections of society, which can afford a 5S, according to observers – and there is also the impact of new financing schemes and older models.

The device which was particularly designed to appeal to China, the 5C, is caught in the middle. According to Creative Strategies, using data from the ecommerce giant Alibaba, the 5C has been a weak performer.

The firm said that the 5S accounts for about 25 per cent of the Chinese iPhone base, compared to 5 per cent for the 5C, which sells at $665 for the entry level model.

Analyst Ben Bajarin commented to Computerworld: "I think part of the initial assumption was that it was targeting China, but those who assumed that didn't necessarily grasp the aspirational brand Apple is in China. For the 5C to have been a success in China it would, and would need to be, priced around $350 to $400."

In effect, Apple’s older models are its entry level offering, but as the pace of change picks up and low cost brands add to the functionality of their handsets, this strategy could fall apart, with users preferring a fully-featured Android device to an outmoded iPhone. If the company does not release something with genuine ability to compete in the $300-$400 range, if not the ultra-low cost sector, it must be assumed that it is intending to accept dilution of overall market share in favour of preserving its premium brand appeal, and its margins.

There would be nothing wrong with this approach for a firm which, before the iPod and iPhone, has never sought to be the volume leader in its categories. However, it will have to set expectations carefully with regards to share, and ensure that its premium offerings continue to increase their presence in the high end brackets.

Dilemma 2: The cloud

That brings us to the second big challenge: modernising the user experience for the cloud. Larger screens will only be a small step in that direction. The real breakthrough Apple needs, but has failed to deliver with the 5 and 5S, is a compelling transition of its famous user experience to the cloud-based world, retaining its distinctive look and feel but with a radical refresh.

Some of the new features that debuted with iOS 8 do point this way, and Apple needs to announce devices which fully harness those new functions, offering a cloud-oriented platform which maintains its seamless hardware/software integration – which re-mains its calling card, as highlighted by the failed attempts of Google and Microsoft to copy it in their more fragmented device worlds.

When it was unveiled in June, iOS 8 was seen to be far more radical than its low key design changes initially suggested. While iOS 7 made significant changes to the visual impact, iOS 8 is important for opening up new areas to third party developers, with more than 4,000 new APIs to help services leverage the OS in new ways. And even more importantly, it attempted the same balance of openness and control with iCloud.

Previously an Apple-only environment, its back end has now been opened up to make it more competitive with Dropbox. Apple now needs to keep customers within its walls by offering a superior experience, not by locking the gates – a profound transition which it will make only gradually – but by carrying it through to its new hardware if it is to revive its old magic.

The company is gearing up for a world when its famous store may be less powerful, and it will need a fully open web apps platform to stay competitive with Google (the purchase of Beats and its music streaming service is another symptom of this reluctant long goodbye to the downloads model).

One of the features of iOS 8 is to introduce web-like capabilities which will appeal to Android users, even when they take place in native apps. An example is Extensibility, which lets apps communicate and share data, but in a sand-boxed way which maintains secure walls between them.

These changes will help modernise the iPhone experience and keep developers and users loyal, but they will not, on their own, expand the appeal of the products significantly, especially among users who are turning to fully cloud-based environments. This is where the hopes of the new breed of HTML5-based browser/OSs, such as Firefox Mobile and Google’s own Chrome OS, lie.

The transition of handsets to such environments will be very gradual, because of the entrenched position of Android and its own ability to embrace web services and streamed content. But in categories where many customers will buy devices for the first time – "post-PC" large-screened gadgets like tablets, cloudbooks and convertibles and wearables – there will be far greater room for a new platform to attract strong support.

Dilemma 3: Which new devices?

That leads to the third challenge for Apple – how far to pin its growth strategy on new types of devices, and whether its traditional iOS approach can translate effectively into post-PC products and wearables, the two main areas of near term consumer and business growth.

Where's the Apple 'Chromebook?'

In the post-PC area, Apple defined the tablet market with the iPad, though recent performance has been disappointing as, predictably, the slate comes under pressure from lower end Android models. It also effectively created the ultraslim mobile PC category with the Macbook Air, now emulated by the Ultrabook. But while it is converging its iOS and OS X platforms to a greater extent, it has not played in the crossover PC/tablet hybrid area, nor does it have a "cloudbook" – an always-on, low cost browser appliance with a large keyboard and screen, epitomised by the Chromebook.

Chromebooks initially looked like niche items, but have recently been growing rapidly, to the consternation of Microsoft, since they are looking capable of replacing PCs in some scenarios. This will also be bothersome to Intel, whose strong position in Chromebooks is being threatened by ARM-based chips from Nvidia and others. But Apple also needs a response – this is another area where it must decide between clinging to its high end heartland, by evolving Macbook Air to be more cloud-oriented and by bringing it closer to the iPad – or playing in the super-cheap market along with Google.

Gartner figures suggest that Chromebook sales will grow from 2.9 million units last year to 5 million in 2014 and 14.4 million in 2017 – still a tiny proportion of the PC market, which was 315 million in 2013, but nevertheless indicating a robust growth rate when other PC types are in decline.

Microsoft is responding with low-cost or fee Windows licences and lower end Surface devices, but what about Apple, which will be very aware that two of the leading Chromebook vendors are its iPhone arch-rivals; Samsung (market leader in Chrome OS); and Lenovo? If they can extend their ranges to the new form factor, will they need a browser machine of their own?

The more that users find web apps which are of equal quality to native software, the more they will resent the $800 price difference between a Chromebook and a MacBook Air. And if Apple decides to continue to ignore the low end market, even as this sweeps up more and more of the total devices base, it will have to open its walls further to allow users to mix and match their low cost gadgets with their Macs and iDevices – or risk losing them in the premium segment too.

Here is yet another big balancing act for the firm. It remains vital to Apple’s proposition that users largely live within an Apple environment and have little temptation to stray (hence the increasingly convergence with OS X, and hence the claim that it sells a complementary Mac or iPad with most iPhones).

But while seamless working across iOS and OS X will be a great boon to Apple loyalists, Apple will have to face up to the fact of a multiplatform world, or risk making the same mistakes that BlackBerry did – relying for too long on users’ past love for its hardware, while the next generation of users raced towards freedom from lock-in. It is certainly opening up to multiplatform developers, but it has difficult dilemmas over multiplatform consumers.