Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
After months of speculation Apple announced on Dec. 22 a long-awaited agreement with China Mobile, the world’s largest mobile phone carrier. With more than 760 million subscribers (including 181 million 3G subscribers), China Mobile holds a substantial growth opportunity for Apple. Even with those staggering numbers, Apple still has a long way to go before it can consider itself a power player in the world’s biggest smartphone market.
It is no secret Apple needs this deal, perhaps more than China Mobile. Apple is no longer on a massive growth trajectory. And industry analysts predict the company is approaching maturity. Holding onto its premium brand status has so far served the company well, but with the smartphone market in the United States and Europe, Middle East and Asia reaching a saturation point, APAC nations and emerging markets – especially China – are a primary target for growth.
Apple’s expensive products are its largest hurdle in capturing a bigger portion of the Chinese smartphone market. In China, where wireless carriers do not subsidize phones, the iPhone 5C costs more than $700 – that prices out a large portion of China’s population. According to recent research commissioned by Upstream with YouGov, The “2013 Emerging Markets Attitude” report found that one-third of emerging market consumers would pay no more than $100 for a smartphone, while half of respondents would spend up to $300.
The iPhone 5C, which many analysts expected would be a cheaper device for China, turned out to be an expensive plastic version. In fact, the iPhone 5C has largely been a flop around the world and apparently stalled early negotiations between Apple and China Mobile due to a lack of demand.
Beyond price, Apple’s toughest uphill battle will be against China’s Android makers who offer devices that are much more affordable than Apple’s iPhones. Apple is currently the No. 5 smartphone manufacturer in China with just 6% market share. Samsung has a substantially larger market share at 21%, followed by local Chinese brands including Lenovo (13%,) Yulong (11%) and Huawei (9%.)
Further, China Mobile just announced it has signed strategic letters of intent with 10 Chinese mobile device partners, including Oppo, Vivo, Gionee, D.Phone, Suning, Gome, Lenovo, Xiaomi, JD and Tmall. These deals represent further competition for customers for Apple in China – at more competitive price points.
Demand for smartphones in emerging markets such as China is enormous, but Apple may have missed the China smartphone boom. According to early reports, a fourth-quarter slowdown in smartphone growth is either a sign of a maturing market or temporary, as China’s mobile consumers wait for new phones that run on its faster LTE networks that will soon debut. Either way, Apple will continue to find itself in a familiarly expensive battle with its main smartphone rival, Samsung, to win over customers in the higher-end of the market.
Clearly, Apple must adapt its strategies in order to maintain market share and continue to grow, from markets including China and beyond. If the China Mobile deal fails to bring great gains, then Apple will once again miscarry its play in the biggest market of mobile growth in the world and the only region to boast double-digit annual revenue growth in 2012 – Asia. The brand will then simply be even more unlikely to become a major player in the market not only now or in the future – if ever. If Apple fails to capture a larger percentage of the consumer base in China, then it will also fail to create a valid customer base. Growth predictions can then only become stagnant – not good news for the company at all. Needless to say, Apple has much to gain from the deal, but they also have more to lose.
Marco Veremis is founder and CEO at Upstream, where he sets the company’s strategic direction and spearheads expansion. He has also been Chairman of the Board since 2002. Marco is a mentor for Endeavor and Openfund, and serves as Vice Chairman of the Board of HAMAC and as an angel investor and board advisor in Workable HR.
