Carrier Contracts and iPhone Upgrades

by Matt Klassen on October 7, 2011

(Note: This post was written before the news of the passing of Steve Jobs on Wednesday)

If you’re still fuming over the fact that Tuesday didn’t deliver the iPhone 5, don’t blame Apple, blame the wireless carries and those pesky two year contracts we’ve all locked ourselves into. The reality is, the iPhone 4S isn’t designed for those who trapped themselves in a binding contract last year when the original iPhone 4 was released, but for those whose contracts are expiring this year.

Facing the reality that most of its passionate user base is already locked into two year carrier contracts, it would make sense for Apple to offer a mere incremental half-step upgrade for the iPhone, offering just enough of a lure to those who may have shied away from the original iPhone 4 or who simply were already committed to a different phone when it was released.

It’s a strategy that allows Apple to limit its production costs while assuring that it continues to sell phones every year, but it’s also a strategy that comes with significant risks.

The truth is, it’s doubtful any reasonable iPhone 4 owners would pay the exorbitant opt out fees to break out of their contracts just to get their hands on the iPhone 4S, and that’s okay, it wasn’t made for them.

As CNET writer Molly Wood explains, “The 4S isn’t meant to be an upgrade for iPhone 4 users–it’s a lure to get new iPhone users in the door, and you iPhone 4 folks will get your iPhone 5 upgrade just in time for a new contract. And if you decide you can’t wait and spend big bucks to break your contract or buy the iPhone 4S at full price…well, that was your choice, wasn’t it?”

The strategy is simple, offer a faster more powerful version of the phone all your friends got last year and it may be just enough to get you to buy the iPhone 4S. Of course next year when all your Apple fanatic friends get their hands on the brand new iPhone 5, you’ll once again wonder why you just couldn’t wait one more year before locking yourself into that annoying contract…but I digress.

In fact, as much as I blame Apple for being manipulative and often times disappointing, I truly can’t argue with the logic here. Apple’s staggered upgrade schedule means that those who purchase the truly upgraded iPhone (the iPhone 3G, the iPhone 4) will be ready just in time for the next big upgrade, while those who find themselves trapped in between the big upgrades get the reward of a better version of the original (the iPhone 3GS or the 4S).

But of course there are some serious risks inherent in this strategy, the foremost being Apple’s increasing dependence on customer loyalty in the face of technologically superior competition. Unwilling to dedicate the R&D resources needed to truly advance the iPhone line, the iPhone 4S will almost immediately find itself antiquated in a fast-paced mobile market, as Android devices are pushed to market sporting the bleeding edge of mobile technology.

Want a phone that is NFC ready, or perhaps one that is LTE compliant? With Android as your only option, at least until we see the iPhone 5 in a year’s time, why would anyone settle for a middling upgrade to the iPhone?

In the end, Apple is banking on the fact that its customers will stay loyal, and that potential customers will be attracted to the incremental upgrades offering by the iPhone 4S, should either of those things waver, the 4S will likely prove to be a flop.

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Written by: Matt Klassen. Follow by: RSS, Twitter, Facebook, or YouTube.

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