I doubt there’s any way for apple to keep their profit margins high in china, but if the goal is to preserve or increase their chinese market share, one option is to let chinese integrators sell apple-certified hardware that can run ios.
This strategy would maintain some app store revenue, though homegrown skins and app stores will eat their lunch over time, in the same way chinese android isn’t google play store android. It may also appeal to china’s appetite for technology transfer, though this may be a technology chinese companies don’t want that badly.
- Why would consumers want ios on a 3rd-party handset
- Operational questions
- What were they thinking this year
- What’s next
Why would consumers want ios on a 3rd-party handset
Apple is one of the biggest hardware brands in china by # of devices. But brand != platform.
I think that story has both good and bad news for apple:
- Good: there isn’t a clear winner currently
- Good: wechat isn’t tied to a platform and is already available
- Bad: developers (of native apps) are targeting android, but potentially an android with fragmented development frameworks
Ios devs have been telling me for years that apple has better low-power performance, particularly for animation. Low-power performance is presumably more important in india & china than in the US, so power / performance is potentially an area where 3rd-party ios hardware can win. Notwithstanding apple’s recent history of battery throttling that slowed down old devices.
Fraud and PII are areas of concern for chinese consumers. Apple has been plying developers with the ‘android is for pirates’ PR story, but app piracy affects developers not consumers. For consumers, apple’s luxury branding may be convertible to a reputation for digital trust. As electronic payments take over, digital trust may belong to AliPay or WeChat pay, but apple may be able to use their branding to become a contender here.
- will apple be willing to allow competing app stores on their software, or to partner with local app stores
- will apple cooperate with the chinese government when they want authoritarian frills in the software? signs point to yes
What does supporting different hardware look like? Does it compromise apple’s software quality, impose additional testing costs, or increase the cost of development in general? Can they simplify this by supporting multiple screen sizes but the same set of chips?
How long would the lead time for this be? Chinese factories are fast: in 2007 they made gorilla glass happen overnight. And the silicon is already coming from TSMC in taiwan.
I’m a paranoid luddite so I like the idea of BYO hardware because it has, in the past, led to bring-your-own software; in theory the IBM compatible platformed is what enabled microsoft to beat IBM at its own game and also allowed linux to happen.
But for the same reason it could be a strategic mistake for apple – publishing hardware compatibility standards for their OS could lead to flashable devices running homegrown OSs.
What were they thinking this year
Did apple know their new device would too expensive? I can think of a bunch of retail arguments for pricing their phone so high:
- This is a 2-year capital investment and people who can’t afford $1000 are already using android
- They’re competing with flagship android devices
- This price is justifiable for consumers who replace their phone every 2 or 3 years
- They never caught on in india, and in china it’s just the luxury crowd; might as well double down on the rich west
- Lock-in; switching platforms is perceived as a hassle (‘people hate that green bubble; be prepared to lose 5 friends’ says one friend who is an android developer)
- This is the only way to properly measure the demand curve for their product
Maybe the answer is just hubris. Maybe it’s incompetence, either at the strategic level (let’s release something nobody can afford to milk our customers) or lower down (couldn’t build this product for less than a G).
Most new handsets are android, and most of the profit in handsets goes to apple. Maybe this is perceived as an unstoppable trend, and apple is doing the responsible thing: managing down their market share with max profit to shareholders. Maybe this is true not just for apple’s handset stratosphere but for handsets in general – phones will be fully commoditized soon.
Maybe apple is about to get kicked out of china (retail AND manufacturing) or dumped by a vendor, and is doing this to test the waters for a much more expensive device, or as a power play to prove to their vendors they don’t need this relationship.
To me this feels like a failure of vertical integration; if they can’t make a profitable device for cheap, what’s the point of owning the whole supply chain?
The curse of success is that every profitable product line has to be wound down eventually. Every company is racing to diversify before their goldeen goose runs dry.
Apple, like every place you or I have worked, won’t be selling iphones forever. If they don’t want to go the way of blackberry they need to search their core competencies (and their souls) and figure out what’s next.
Without hardware dominance, I don’t believe they can maintain their app store revenue. Companies are already flexing their muscle: netflix (by removing support for ios subscription payments), epic games (by distributing fortnite in its own installer on android), and even wechat (they stopped apple from taking margin on tips).
Apple TV & siri aren’t competing well with the rest of the field so it’s unlikely apple’s next step will be UX for lux homes.
I think the likely scenario is a slow decline as apple becomes the new sun / cisco. They’ll spend down their cash reserves keeping the lights on. They’ll acquire innovative startups and then dismember them while jamming their business model into the mold that worked in apple’s glory days.