5 Reasons a Small, Cloud-Based iPhone Makes Sense

Earlier this week, rumors of a smaller, half-price iPhone from Apple started circulating from the Wall Street Journal. As someone who prefers mobile devices with screens between 4- and 7-inches, I quickly dismissed the idea of a mini iPhone. But after I started thinking about 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 several reasons why a small, cloud-dependent iPhone makes sense.

1. It’s all about the price. The cost of the phone affects both Apple and consumers. Apple needs to find a way to keep its profit margin high while still reducing the price consumers pay, or risk not having a product that competes 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, and the two most expensive components are the very ones that would be cheaper on a smaller iPhone with less onboard storage: the display and the 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. But that doesn’t mean a cloud-based iPhone has to be limited to a certain number of apps. This rumored device could re-energize 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 things. Or Apple could open a new door for developers by supporting application subscriptions much like it’s doing with in-app content purchases: Users purchase an app for use during a month, for example, after which time, they either re-subscribe or the application is cleared from memory to regain space. Perhaps that’s too radical of a change for some. A more realistic strategy may be Apple encouraging developers to build cloud storage within their apps and offer a minimal amount of local storage.

3. Goodbye computer. One of the most common criticisms of iOS devices is that they’re not truly stand-alone machines: all of them require a computer connection to iTunes before you can get started. An iPhone dependent on connectivity for everything removes that criticism because it can be tied to an iTunes account in the cloud. Instead of device activation and synchronization requiring a tethered connection to a computer, it could be done over-the-air, much like Google Android devices do, which addresses a long-standing 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 collectively could take the place for a lack of storage in a smaller iPhone. I’ve called for iTunes in the cloud since December of 2009 (subscription required), and 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 move computing beyond the individual capabilities of the phone.

5. Apple as MVNO? This is a bit of a stretch, but the idea of a smaller iPhone that’s 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 that current iPhone owners. Knowing that, Apple could pitch plan-sharing deals to carriers, or even work out wholesale data plans to resell directly for additional profit, much like mobile virtual network operators do today. If you tie in both old and new reports of Apple working on an embedded or universal SIM, it lends credence to this possbility.

Obviously, none of these reasons verifies that Apple is working on or will offer such a cloud-based iPhone. We won’t know about such a device until or if Apple announces it, pending someone leaving an iPhone mini at a bar, that is. But I can see why Apple might want to sell one. Can you?

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