Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are involved in a smartphone batle that gets more pitched each year. (In and out of a courtroom.) With the Android and iOS operating systems taking more than nine-tenths of the smartphone market, it really has become a duopoly, and both companies are finding their shares of the market in different ways.
Google Inc (NASDAQ:GOOG), for the most part, has been successful at getting Android penetration in the price points that Apple Inc. (NASDAQ:AAPL) has not touched historically – the mid-range and “budget” range. Apple, meanwhile, has continued to own the higher-priced, premium market. We all read those market surveys that say that Android is dominating 
But historically, Apple Inc. (NASDAQ:AAPL) has been known to discontinue older versions of iPhones as newer versions come out, and that seems to be the case again this time around when the company finally releases its iPhone 5S and a still-rumored budget iPhone – the one that will finally bring Apple to a wider consumer audience.
While Google Inc (NASDAQ:GOOG) still puts out a wide variety of Android devices across several price points, there is not much fanfare about devices being discontinued as new models are introduced – it just seems that Google attaches a newer fragment version of the current OS and makes sure those are not compatible with too many older versions and let the discontinuation happen on its own.
There does seem to be a big difference this time around when it comes to Apple Inc. (NASDAQ:AAPL), at least if the latest rumor is true. A Chinese website is reporting (interpreted through our friends at PhoneArena.com) that instead of retiring an iPhone 4 or 4S when the new iPhone launches, Apple may instead decide to discontinue the iPhone 5 – essentially using the S as a direct replacement in the market.
Why would this happen? If one thinks about this and looks to the most recent quarterly earnings report to see the sales breakout, one could see how this might make good business sense.
While Google Inc (NASDAQ:GOOG) missed in its recent earnings report, Apple Inc. (NASDAQ:AAPL) did better than expected during the quarter in terms of sales. But the company reported lower margins. Why?
Part of the reason is that sales of iPhone 4 and 4S devices, which are cheaper, cut into iPhone 5 sales, and the fewer of the high-priced models were sold, the lower the margins. With the iPhone 5S being more of an internal upgrade than an external one, the new model could in effect replace the iPhone 5 as the premium-priced model in the market. That then leaves the 4 and 4S to take up the mid- or low-range price points, and the budget iPhone would be somewhere in the middle.
Having three price points in the market without having to spend the money making two phones that are similar to each other in order to achieve that may likely help improve margins while (hopefully for Apple) not disrupting sales numbers adversely.
What do you think? Should Apple Inc. (NASDAQ:AAPL) adopt this approach for its business model? And if this becomes reality, do you think this tactic will work for Apple in the long run? If you are an investor like fund manager David Tepper (see his full equity portfolio), would you approve this approach for sales and margin considerations? Let us know your thoughts in the comments section below.
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