Benedict Evans delivers a compelling argument on why a cheaper iPhone is essential for Apple:
A new, cheaper, high-volume iPhone would have the potential to mitigate or even reverse this trend. Clearly, like current low-end Android, it would sell to a demographic with a lower average engagement and purchase rate and so the average iOS rates would drop. However, it would mean that iOS’s reach would expand significantly at the expense of Android. How would a $200 or $300 iPhone sell? Easily double digit millions, possible up to 50m units a quarter.
This means that the financial value of a cheaper iPhone cannot be considered in isolation. A large part of its purpose is to defend sales of the high-end model.
via Fred Wilson