Five Cheers for a Small, Cloud-Based IPhone

Early this week, rumors of a smaller, half-price iPhone broke in The Wall Street Journal. As someone who prefers mobile devices with screens ranging from four to seven inches, I quickly dismissed the idea of an iPhone mini. Then—after I started pondering Apple's various revenue sources, the fact that the current Apple TV is a streaming device, and how Apple manages the iPhone experience through iTunes—I began to see why a small, cloud-dependent iPhone makes sense.

1. It's all about price. The cost of the phone affects both Apple and consumers. Apple needs to find a way to keep its profit margin high, while reducing the price consumers pay, or risk not having a product to compete against Android phones in the free-to-$150 price range. One way to accomplish this: Design a smaller iPhone with less internal storage while squeezing component suppliers for better pricing through large prepayments.The bill of materials for Apple's iPhone 4 is a reported $187.51, according to iSuppli. The two most-expensive components are the ones that would be rendered cheaper on a smaller iPhone with less onboard storage—display and flash memory.

2. Changing the app game again. Clearly, a smaller iPhone will still need some amount of flash memory for the operating system and for application storage, among other things. This doesn't mean a cloud-based iPhone has to be limited to a certain number of apps. The rumored device could reenergize the Web app market, which is in fact how third-party apps were originally intended to appear on the iPhone platform.What's different now? Web standards have matured, allowing for support of offline storage, better video playback, and improved graphics capabilities, to name a few changes.Apple could even open a new door for developers by supporting application subscriptions, much as it's doing with in-app content purchases: Users would purchase an app for a month, for example, after which they'd either resubscribe or clear the application from memory to regain space. That could be too radical a change for some. A more realistic strategy might involve Apple encouraging developers to build cloud storage into their apps while offering a minimal amount of local storage.

3. Goodbye, computer. One of the most common criticisms of iOS devices is that they're not truly standalone machines; all of them require a computer connection to iTunes before you can get started. An iPhone dependent on connectivity for everything would obviate that criticism because it could be tied to an iTunes account in the cloud. Instead of device activation and synchronization that requires a tethered connection to a computer, it could be done over the air, much the way Google Android devices do it. This would address a longstanding iPhone user complaint.

4. Broadband is the processor. It's no secret that Apple is building a billion-dollar data center in North Carolina, which could compensate for the lack of storage in a smaller iPhone.I've called for iTunes in the cloud since December 2009 (subscription required). Even though it's not here yet, the idea can (and should) be expanded to MobileMe activities. By storing media, mail, and other data points online, mobile broadband and the data center would move computing beyond the phone's individual capabilities.

5. Apple as MVNO? This is a bit of a stretch, but a smaller iPhone that would be more reliant upon Apple for data storage could allow Apple to earn additional data-plan revenues from the carriers. It's not impossible to imagine that users with a cloud-based iPhone would use more data than current iPhone owners do. Knowing this, Apple could pitch plan-sharing deals to carriers or even work out wholesale data plans to resell directly for additional profit, much as mobile virtual network operators do today. If you tie in both old and new reports of Apple working on an embedded or universal SIM, this possibility gains credence.

None of these rationales can prove that Apple is working on—or will offer—such a cloud-based iPhone. We'll never know if such a device exists until Apple announces it. Unless, that is, someone leaves an iPhone mini at a bar. I can see why Apple might want to sell one. Can you?

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