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Apple’s China Problem Redux

This Ben Thompson column from May 2017 is worth a re-link given today’s no good very bad earnings warning, which Tim Cook made clear was almost entirely about slow sales in China:

That, though, is a long-term problem for Apple: what makes the iPhone franchise so valuable — and, I’d add, the fundamental factor that was missed by so many for so long — is that monopoly on iOS. For most of the world it is unimaginable for an iPhone user to upgrade to anything but another iPhone: there is too much of the user experience, too many of the apps, and, in some countries like the U.S., too many contacts on iMessage to even countenance another phone.

None of that lock-in exists in China: Apple may be a de facto monopolist for most of the world, but in China the company is simply another smartphone vendor, and being simply another smartphone vendor is a hazardous place to be. To be clear, it’s not all bad: in China Apple still trades on status and luxury; unlike the rest of the world, though, the company has to earn it with every release, and that’s a bar both difficult to clear in the abstract and, given the last two iPhones, difficult to clear in reality.

By Thompson’s logic the iPhone X should have done well in China, because it looked new, and the XS/XR would disappoint in China because they didn’t. And, well, here we are.

Apple does make great hardware — hardware so good that to some extent it sells itself. But the core of Apple’s platforms are the OS’s — the software, not the hardware. I’d much rather run MacOS on a ThinkPad and iOS on a Pixel phone than run Windows on a MacBook Pro and Android on an iPhone XS. If the appeal of iPhone in China is only or even just mostly about the hardware — because the software that matters is WeChat (or anything else that is cross-platform), not iOS and its native exclusive ecosystem — then China is never going to be a consistent market for Apple. It could be (and remains today) a lucrative market for Apple, but if all that matters is the hardware, Apple products are going to fluctuate sales-wise in China in ways they don’t in any other country.

Wednesday, 2 January 2019