How Apple Can Surge In China Yet Lose 30% Of The Market To Android

Author

Matt Asay

September 24, 2014

My iPhone 6 arrived last week. Perhaps yours did, too. But we’re increasingly the exceptions, not the rule. The rule? That’s Android, and it’s becoming clearer every day.

No, not in Western markets like the United States. But as much as we like to think we’re the center of the universe, Google just demonstrated that it knows how to compete where volumes are massively high but margins are vanishingly low. With a $105 high-end smartphone launched recently in India, Google just set the standard for what it takes to compete.

An Expensive Luxury?

Apple’s problem, as mobile strategist Curtis Prins points out, is that it’s cool with the rich kids, and rich-kid markets are heavily saturated. Google, by contrast, expects to sell two million smartphones in India by the end of 2014 at price points that Apple refuses to match.

Prins elaborates:

In Apple’s primary market—the US—it controls 42% of smartphone sales. That’s a problem because the US is saturated with smartphones—roughly 75% of Americans own one. Most developed economies have similar ownership levels. When you factor in that growth within the high-end smartphone market—their sweet spot—has plateaued, Apple should be exploring new markets.

Instead of adapting to price sensitivities within emerging markets, Apple’s iPhone 6 starts at $649 (without contract) and tops out at $949. That’s an impossible purchase when the average household income in India is just US$7,700.

Again, this may not be a problem for you. Or for me. I signed up for AT&T’s Next plan, which lets me buy my iPhone on an installment plan of sorts. I pay $30 or so each month and in return get a $949 phone. It’s a decent way for Apple to keep charging comparatively rich people for premium products, but it’s a bad strategy globally.

The easy counterargument is China, which has seemed to be a strong market for Apple (and where Google is effectively blocked from erecting its Internet toll booth). Apple CEO Tim Cook tackled the Android market share story for China head-on:

When you really back up and look at what’s happening in China the usage numbers are staggering. Fifty-seven percent of the mobile browsing in China is done on iOS devices. Now there are many different views of unit market share and you can choose to look at whichever one you think is most reputable, but for us that is not our North Star, we don’t get up in the morning saying we want to sell the most, we get up saying we want to make and create the best, and so that’s our strategy and it doesn’t change.

That was in January 2014. Since then, as Prins highlights, Apple actually gave up 30% of its market share in China to Huawai and Xiaomi. This despite selling lots and lots of iPhones in China. 

In other words, there are lots of rich folks in China. But there are orders of magnitude more poor people.

Putting A Price On The Internet

Part of the reason that Google can charge so little for a high-end phone is that it doesn’t need to make money on the hardware. Google monetizes use of the phone, and not the phone itself. Every time someone uses the Internet, they’re likely to pay Google in some way. 

How much? As Asymco uncovers, excluding China, Google earns roughly $6.30 per Internet user per year:

Source: Asymco

A mere 2.2 billion people have access to the Internet today. That leaves another 65% of the world’s population that would likely love to have access … if only they could afford it.

Enter Google, which makes it cheap to buy a device. 

Google can also charge so little for the Google One because it’s getting good at streamlining manufacturing. The company looked to India-based chipmakers and OEMs to build its Google One for the India market. Apple builds in China, yes, but charges Western prices, even in China. It can’t afford to sully its brand as it seeks premium margins.

Google, as noted, doesn’t have that pressure. 

As VisionMobile illustrates, the platform wars are increasingly a local affair:

Source: VisionMobile

A Global Business Model

One size does not fit all when it comes to smartphones, any more than it does for other areas of technology. Apple has a great strategy … but it’s not for everyone. It’s not going to get the farmer in Zimbabwe using a smartphone. It’s not for the vast majority of the world’s population that struggles from paycheck to paycheck.

And maybe that’s OK. Apple styles itself an aspirational brand, and that means maintaining profit margins and a certain mystique.

Google, however, doesn’t mind selling to the rest of the planet, and has a great model to monetize low-cost and high-cost smartphones alike.

Lead photograph by Global X

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