Is the iPhone going the way of the iPod?

Cheap iPhones make sense for emerging markets

Apple's latest earnings report has an interesting story to tell, and it's one you might have heard before: a single high-end product becomes an entire product line, the market matures and explosive growth slows down. We saw it with the iPod, and now it appears to be happening to the iPhone.

Apple's hardly on its death bed, but things are changing: while iPhone sales are up (31.2 million compared to 26 million in the same period last year) the average selling price is down ($581 / £380 / AU$630 compared to $608 / £400 / $660) and overall profit margins are down too (36.98% compared to 42.8%).

Apple is selling more phones, but the phones it's selling are cheaper.

Take India, for example, an area Tim Cook singled out for particular praise. According to the Times of India:

"Apple has started marketing its products aggressively and brought trade-in and instalment schemes to make its smartphones more affordable. Currently, the company offers up to Rs 8,000 discounts to users who exchange their smartphones for the three-year-old iPhone 4."

The iPhone 5 remains Apple's most popular phone, but Apple's also aggressively targeting first-time smartphone buyers with the iPhone 4 - and it'll continue to do so with the cheaper iPhone we know it's building.

Then what?

History repeats

Those cheery plastic cases leaking from Apple's supply chains don't just look like iPod cases; they reflect an iPod strategy too - a strategy that's crucial for markets where people aren't keen on dropping huge sums on new phones.

Apple isn't suddenly going downmarket, but it's trying to do exactly what it did with the iPod: that too started off as a single high-end product, but as the market matured Apple widened the product range to attract a wider range of buyers.

If history really is repeating, it's worth looking at where the iPod is now: while it remains a great little device its glory days are long gone and sales are down 31% year on year.

Steve Jobs saw that decline coming, and knew that eventually the smartphone would kill off the music player - so Apple set out to create the iPod killer itself. I wonder, has Apple worked out what's going to do the same to smartphones? Is the next killer product category already up its sleeve?

Find out everything we know so far about the upcoming budget iPhone