Will the iPhone SE Sell Because of Its Price, or Its Size?

The newly launched iPhone SE combines the design of the iPhone 5s with the internals of the iPhone 6s. Its battery actually gives its bigger siblings a run for their money, which is quite a surprise. We used the phone for a little while, and our first impressions of the iPhone SE were that it feels like a premium device, but that by now we, like most consumers, are very used to larger devices.

Before it launched, there was also a lot of speculation that the iPhone SE would be a 'cheap' iPhone. Launched for $399 (Rs. 39,000 in India), it's the least expensive new iPhone you can get, and while it's not 'cheap', it is relatively affordable. But does this mean the phone will be a big hit? Are there really lots of people who've been holding off from upgrading because they don't want to get a bigger phone, and is the price low enough that the iPhone SE will be a hit in markets such as India and China, where Apple now needs a win?

"I think Apple was quite intentional in mentioning that 33 percent of first time iPhone buyers have come in on the smaller 4-inch form factor," says Ben Bajarin, Industry Analyst at Creative Strategies and the founder of Tech.pinions. "Much of this has to do with the price more than the size, but I do feel Apple is positioning this product as the entry level iPhone with current generation specs at mid-range $399 pricing. Which means they are looking for new customers, which exist less in developed markets and more in markets like urban China, India, Indonesia, and even Brazil. So in short I think more emerging markets are the primary target for the SE."

"At lower price points, Apple faces strong competition from vendors like Samsung and Huawei which offer larger screen smartphones at these price points, unlike the higher price segments where Samsung is its only major rival," adds Kiranjeet Kaur, Research Manager, IDC APAC. "While Apple had been in competition with these vendors in the $400-600 segment with its older iPhones till now, now it has a new iPhone in the category which fares well on all aspects except the screen size."

On the other hand, Bajarin does not believe the iPhone SE has a large audience in the US. "I think the number of people who are committed to staying on the 4" size is relatively small in the US market," he says. "However, there are still entry level customers to still grab as well as a maturing off contract purchased phone where price matters. Apple is competitive at $399 for this segment of the US market"

It is outside of the US, Bajarin believes, that the phone will do best. "I think parts of China, Indonesia, Brazil, and even India will find customers who want a device of this power and at this price point," says Bajarin. "Apple remains a desirable brand in many markets but prices themselves out of many buyers by not offering a latest generation device at the mid-range price. The SE solves this problem of their lineup."

"The iPhone SE will help Apple broaden their market segment. Users will be able to buy a phone with latest features which is very different from buying an older version at lower price," adds Anshul Gupta, Research Director, Gartner. "I think this will appeal more people to buy an Apple phone who otherwise couldn't afford their flagship phone. This will make market more competitive at that price point as Apple is preparing to take more share."

Bajarin adds that he believes the iPhone SE will be successful in China thanks to an appealing design, and bets that Gold and Rose Gold will help in that market. India will however remain a more tricky bet for now, he added. "Apple needs to play a patient game to grow their share. I do think on paper on all specs but screen size, the SE is well positioned to compete at this price in India," he says. "Ultimately I do think this product will help Apple's case in India, but their growth rate there is simply not what was in China. If they had a 4.7-inch phone at this price it would do very well in India, but that would cannibalise their high-end phones too much, which makes this strategy unlikely."

IDC's Kaur is less confident about the phone's success in China though. "We don't see a smaller screen iPhone will play a key role in this expansion or demand generation as the trend has already moved towards larger screen phones leaving little space for the 4-inch category to grow," says Kaur.

She also voices one other note of caution about the iPhone SE - that it is addressing a market that does not seem to be growing, unlike the larger sized models the company introduced last year. "The bigger challenges for Apple still remain. It's going to be very difficult for Apple to match the success it saw during the iPhone 6 and iPhone 6s release period," says Kaur. "There was clearly a huge pent up demand for larger screen iPhones, not just from the existing iPhone users but also from its rival phone users. Whereas, the iPhone SE really targets a shrinking segment. There are users who still prefer smaller, more pocketable phones, but by and large the consumers in mature and emerging markets now prefer larger screens."