How Apple miscalculated the iPhone’s debut in China

Tue, Nov 10, 2009

Finance, News

Last week we reported that iPhone sales in China got off to a lukewarm start, with China Unicom reporting that they only sold about 5,000 devices in the first week since Apple’s iconic smartphone officially went on sale.

When the iPhone typically goes on sale in a country for the first time, scenes of crowded Apple Stores and mobs of eager customers can usually be expected – a fact which makes the slow start for the iPhone in China that much more conspicuous.

But China isn’t exactly like every other country out there, and there are a few reasons which might help explain why Apple’s success there hasn’t been overwhelming.  As we’ve noted before, the Chinese version of the iPhone comes without wi-fi, making the device crippled in comparison to the reported 2 million bootleg iPhones already in circulation in the country.  Also a factor is that the monthly iPhone plans in China are relatively expensive, and on that note, Shaun Rein of Seeking Alpha postulates as to how Apple miscalculated its long anticipated entry into China.

Rein first writes that Apple failed to take into account the culture of phone usage in China, where pay as you go phone cards are preferred over the monthly plans typically used.

The phone is being sold packaged with monthly subscription plans, just as in the U.S., but the vast majority of Chinese prefer to buy pay-as-you-go charge cards. Top-up cards can be bought and recharged cheaply at street vendors everywhere in less than 30 seconds, with no identification required. Subscribing by the month is a pain. You have to go through a mountain of paperwork. Often you need to get sponsored by your company or, if you’re from another area, by a friend officially born and registered in the city you’re in. This can take hours, if not days. It isn’t worth the hassle.

Rein goes on to write that while many Chinese are willing to pay top dollar for top of the line smartphones, “most are extremely price-sensitive when it comes to talk and data plans.”

Rein also brings up an interesting point – that many of the early adopters in China who would ordinarily be psyched about the iPhone may be apprehensive about signing up for multi-year phone contract.  On the contrary, these eager tech beavers want to remain unattached, and free to move onto a new smartphone every few months.

Next, and this isn’t really Apple’s fault, is the fact that Apple struck a deal with China Unicom, the second largest mobile carrier in the country.  China Mobile is the largest carrier in the country, and Apple was obviously unable to come to an agreeable contract with them.  Being the second fiddle in a country as populous as China is nothing to scoff at, as China Unicom still commands an impressive number of subscribers.   But Rein points out that China Unicom subscribers, on average, tend to be less wealthy than their China Mobile counterparts.  Moreover, China Mobile apparently has “better signal stability than China Unicom, especially in regional cities beyond Shanghai and Beijing, where more and more business trips and vacations are taking place.”  Hmm, now doesn’t that sound familiar?!

For the most part, Apple has been able to go into any market of its choosing, strike an iPhone deal with a large carrier, and sit back and watch the money roll in.  China obviously poses some different challenges and offers a set of unique roadblocks, and it could very well be that in their zeal to finally get the iPhone into China that Apple didn’t take the time to factor in local customs and practices.  It’s still early in the game, though, and the iPhone undoubtedly has a lot of potential to still be a game changing and financially lucrative device for Apple in that part of the world.  As Rein notes, the fact that there’s already over 2 million hacked iPhones circulating in China just goes to show how strong the demand is there for the device.  All Apple needs to do going forward, says Rein, is “do a better job of taking consumer preferences into account, and to work with its partner, China Unicom, to better deliver what Chinese want.”


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