Why It’s Now or Never for an iPhone Lite

According to Gartner, mobile phone sales for the first quarter totaled some 428 million devices, with just 23 percent being smartphones. With so much room to grow, there would appear to be room for many competitors, but an expansive market is still a finite one. That’s why market share also matters.

Nokia (s nok) sold 107 million freaking phones last quarter, as many as the next three competitors combined. Nonetheless, Nokia’s market share reached its lowest point since 1997. Likewise, Samsung, LG, and RIM (s rimm) also saw declines in market share year over year.
Only Apple(s aapl), selling 16.9 million iPhones during the quarter and doubling sales year over year, saw its market share increase, from 2.3 to 3.9 percent. That made Apple the fourth largest purveyor of mobile phones. Considering the average selling price for an iPhone is about $650, that’s great news for Cupertino.

The bad news is Android(s goog). In terms of operating system market share trends, Google’s Android has won the platform war. For the first quarter of 2009, Android was powering just 1.6 percent of smartphones sold. Just three years later, Android is now running on more than a third of devices sold.
Against the Android onslaught, only iOS has manged to increase smartphone market share over the last three years, from 10.5 to 16.8 percent. Everyone else has seen their share plunge, with Symbian seeing the biggest drop, from 48 to 27 percent. But other competitors are no better off. RIM, which saw BlackBerry OS fall from 20 to 13 percent, is transitioning to its QNX operating system, but not until 2012. Microsoft(s msft), which launched Windows Phone last year, has thus far seen weak sales, with just 1.6 million devices in the first quarter. However, Gartner suggests that the transition by Nokia from Symbian to the Windows Phone operating will increase momentum for the platform.
While that’s possible, Gartner also asserts there is a shift towards an “ecosystem focus,” making users of a platform’s apps and services less likely to switch. That’s why Google and its free Android have such an advantage now, with only one real competitor, Apple, and only at the high end; but it doesn’t have to be this way.
Earlier this year, comments from Bernstein Research analyst Toni Sacconaghi in a meeting with Apple executives suggest that Apple may yet contest Google for Nokia’s market share. According to Bernstein, Apple COO Tim Cook said the company does not want its products to be “just for the rich,” and that Cook “appeared to reaffirm the notion that Apple is likely to develop lower priced offerings” in smartphones.
That sounds great, but simply offering an iPhone free with a contract, instead of for $99, won’t even slow Android down. We’re already seeing Android phones for a few hundred dollars without a contract. What Apple needs right now is a cheap iPhone. Really cheap, like about the price of an iPod touch, but more importantly it needs to be available without a data plan. While carriers would hate such a device, it’s hard to imagine them denying one access to their networks under regulator scrutiny. Those iPhone Lite users could access the Internet using Wi-Fi, and more importantly for Apple, the App Store, too.
“Ecosystem focus” is what matters as consumers abandon failed platforms like Symbian, Windows Mobile, and BlackBerry OS. Google knows that. Apple does too, but an iPhone Lite without contract or data plan for $299 would reinforce the point.