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Cracking the India Code

In my last podcast (Impatient for Growth) I mentioned my frustration at Apple’s slow entry into emerging markets outside of China. I cited Tim Cook’s comments that he did not see an opportunity there in the short term. He mentioned the multi-level distribution challenge which I took to mean the difficulty in setting up Apple stores (in itself due to restrictions on foreign owned retail chains) and the absence of device/service bundling.

This requires more analysis and the best place to start is to look at the data available.

The market potential is enormous. Globally, there are 6 billion mobile cellular subscriptions (end of 2011, ITU) and 86% penetration, but only 1 billion have mobile broadband subscriptions (which make ownership of a smartphone worthwhile).  In India there are 893 million subs (vs 986 million in China).

In 2011 142 million mobile cellular subscriptions were added in India, more than in the Arab States, CIS and Europe put together.

So the potential and growth are spectacular. But that is just 2G. Mobile broadband (i.e. 3G) is rare. Globally, developing countries have only 8% mobile broadband penetration vs. 51% in the developed world. Mobile broadband is a proxy for mass adoption of the iPhone (though perhaps not for Android inasmuch as it’s employed as a feature phone).

The situation for 3G in India is even worse than the overall developing world. 3G licenses were only first awarded at the end of 2010 and the process was fraught with allegations of corruption. In the year and a half since, there came to be an estimated 10 million HSPA connections in the country.

The potential therefore is huge but the timing is difficult. Analysts are projecting 100 million mobile broadband connections by 2014 and over 350 million by 2016. Apple can affect this rate of growth as it’s not only enabled by the network roll-out but can affect the take-up rate by consumers.

It’s a chicken-and-egg problem. No network means no devices but no devices may mean the network cannot be paid for. In the initial phases, the economics of mobile broadband are still dominated by the incentives for operators to pay for the infrastructure rather than for consumers to pay for the service. The iPhone will have a role to play and the question is whether 2014 or 2016 are the dates when Apple will be able to claim that they’ve cracked the India code.

  • famousringo

    Another emerging market I hear very little about is Brazil. I understand the country has massive tariffs on imported electronics, making it a challenge to sell in that market… unless you assemble your product there. Hence why Foxconn is expanding operations into Brazil.

    I’m not on the up-and-up, though, and I have no idea what kind of progress those Foxconn factories are making or what Apple’s penetration looks like in that country.

    • WaltFrench

      I suspect you actually are: “on an honest or respectable course.” Maybe not on the inside.

      • famousringo

        Replaced my erroneous jargon. Thanks.

  • http://www.facebook.com/namasteindians Namaste Detroit

    In near future, network will not be an issue in India. India’s richest man with proven track record is on the case. http://www.brw.com.au/p/sections/fyi/meet_the_man_building_wireless_nbn_2Gxk6PUnRjYLfuLHNYaBCI

    • http://www.asymco.com Horace Dediu

      Is that like when America’s richest man with a proven track record was on the case of tablet computing?

      • kgbraund

        :)

      • Mike Wren

        But he’s not building a tablet. It’s a lot easier to build telecom infrastructure because it’s just a matter of spending money. There is no creativity involved. And he’s spending $10 billion. India started emphasizing telecom once they got a little past their early Soviet style system. That, English and good technical universities was why they were able to make outsourcing their biggest export, especially in IT. I don’t know of any other emerging market that made services their primary export to begin with. It’s almost always manufacturing and/or commodities. Indians that can afford it will get on 3G as fast as they can, then make the jump to 4G. Indians want those IT and other outsourcing jobs so they are devoted to whatever technology they can afford.

        The rest of the infrastructure is pretty bad mainly because of corruption in their imminent domain purchasing of poor people’s land. And then the poor people vote for politicians who are against it so it’s hard to get anything done. China has the same problem, but because China is not a democracy there’s not much the poor people can do about it other than demonstrate which they often do. The middle class and companies in India all have generators. The manufacturing industry is weak because of poor infrastructure. So they went to services as exports.

        India is hard to figure out because of the contradictions. In China the technocratic government is smart and just does things to benefit the Communist party. They pay savers an interest rate below inflation to subsidize loans to state owned industries so the Communist party officials that are its executives can get rich. That’s why they have the property bubble because it’s the only way to make enough money to live in retirement since it’s four grandparents to one child. In India you have to convince poor people to go along.

        One of the founders of Infosys is working on a biometric unique ID card system so that poor people can get welfare payments, do mobile banking and get on computerized land records. 170 million have it so far. The current welfare system is notoriously corrupt because the officials claim they made payments and there is no way to confirm it. As poor people see the benefits of the free market they will go along more with reform.

        india is working with what they have.

        And I think they will buy lots of iPhones, iPads and Macs if they can afford it like the iPhone 3GS without a contract for $181 with a $54 deposit on airtime/data I mentioned in my other post. They just buy regular English language apps unlike the Chinese.

      • b.s

        More White Man’s Burden confusing your brain is more like it.
        Sorry that you won’t be able to read rest of my post.

        “Soviet Style System” US was helping India. India was buying
        US Weapons until 1960s when US shifted to China and Pakistan
        forcing India to go the Soviet Union after India-China War.

        Indian people remember East India Company, the first Corporation
        the one which stripped India of all the natural resources and shipped to the West. So obviously India is mystery to you.

        There was economic blockade by the West from 60s-90s because
        US sided with Pakistan for Cold War and because India wanted
        non-aligned status. India only opened because their main source
        of oil was Iraq and 1991 Gulf War stopped any oil from coming.
        India had to go begging to Saudi Arabia to get some oil after It shipped bunch of its Gold to World Bank.

        India wanted to License digital Switching technology from American companies which refused to sell it and also was cost prohibitive, required air condition rooms. So India had build it with help of Indian who was working in US as Telecom engineer named Sam Pitroda in 1984.

      • Mike Wren

        Learning about India and expressing opinions about it is just part of cultural interchange. There was an American network sitcom called “Outsourced” that ran for a single season set in India with a mostly Indian cast that did the same thing. It was about the fact that Americans were talking to Indians on the phone and the manager of the call center and two other characters were Western. So many cultural misunderstandings did arise which was the source of the humor. Indians are the only overseas people that I know of that Americans commonly talk to on the phone. India will be a major market for Apple so it’s important for Horace and Asymco commenters to understand it. It’s very different than China. It’s hard to know the whole long, complex history of past cultural interchange such as all the elements having to do with the “white man’s burden”, The East India Company and American and Indian diplomacy.

      • Tatil_S

        Oil is fungible. If you have the money, you can buy any grade of oil from almost any source. If India was not able to buy oil, it was not because Gulf War stopped shipments from Iraq, it was due to lack of money. Let’s not get opinions get ahead of facts.

      • http://www.asymco.com Horace Dediu

        I apologize. I could not resist noting that money and a track record does not amount to much when disruption is done by the least advantaged.

      • Mike Wren

        Part of India is highly technical. Part of India is very poor and often illiterate. It’s those contradictions again. Even in manufacturing which isn’t India’s strong suit they sometimes do well. Indian Tata is the largest private employer in Great Britain. They own Land Rover, Jaguar, Tata Steel (formerly Corus Steel) and other companies. They bought them partly to learn, kind of like in China when they do joint ventures with Western companies.

      • http://www.facebook.com/namasteindians Namaste Detroit

        Disruption is a good theory as long as it is not applied to anything and every thing. I dont think it applies to highly capital intensive Telecom Infrastructure.

        Warren Buffet told Charlie Rose after he bought Burlington Northern Santa Fe for $26 Billion. I paraphrase, “If someone wants to compete, they better come with deep pockets and a lot of patience. ”

        But i have been wrong in past.

      • http://www.asymco.com Horace Dediu

        Competition in a market where sustaining innovation is the basis of competition requires capital and competence. For competition in a market where disruptive innovation is required, capital and competence are likely to steer decision making in the wrong direction.

      • http://www.facebook.com/namasteindians Namaste Detroit

        He has already build one telecom company and lost it to his brother in inheritance split. So this time it will be easy and better.

        It perplexes me as to why apple is selling cheapest 3GS in India if they are not serious ? Tim Cook’s comments on India have left me confused. I think he is doing what Jobs did (we are not building phone), telling the opposite of what he is going to do. But why ? I predict some sort of partnership announcement for India.
        Please mark you calendar for followup on this article year from now. Thanks.

  • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

    Well. Law of large numbers be damned, eh?

    Thanks for making the point I tried to get across half a year ago.

    • https://twitter.com/#!/azulum azulum

      The law of large numbers should only be applied to Normal, or Gaussian distributions. Just about all of the interesting aspects of business are happily outside of “normal” despite the econometrician’s pontifications.

      This reminds of the class I had to take while pursuing my “certificate of over-/under-/non-qualification” entitled Statistics for Business and Economics Majors — the name says it all — I asked why I could assume Normal distribution with a sample size of 30 or greater. “The law of large numbers” was the sole answer given. What an utter failure — on so many levels. Any wonder that such an answer could be given to “Why did the credit crisis of 2007-2009 happen?” when poor, unsuspecting business school students take this “law” as given and apply it to all matter of ill-fitting domains, like mortgage-backed securities and credit default swaps.

      So, yes, law of large numbers be damned, but that has little to do with the price of tea in India (or cell phones for that matter).

  • r.d

    2G was given away free. 3G was supposed to be auctioned
    but was really bribed by the main players.
    Only BSNL (government owned) has nationwide 3G allocation
    which does not carry iphone.
    Most of the private companies only want fat city spectrum which they
    can milk from spoiled fat-cats.
    LTE is a pipe dream when the the auction price is passed down
    to the consumer as well as normal taxes that government India
    will get addicted to just like US, along with privacy info and wiretapping.
    It can’t even get states to put up VAT system without problems.

  • theothergeoff

    Horace, are you saying the ‘Multi-Tier Distribution’ reason that Tim Cook spoke is not the root cause of the lack of iPhone Penetration in India.

    Or is that a generic problem (hard to sell any device in India due to MTD) and the iPhone is further constricted by lack of network infrastructure. In other words, would we won’t see iPad growth in India either until the MTD is dealt with, as it’s too expensive with all the layers of distribution vs Apple Shipping direct to retailers (including itself).

    • http://www.asymco.com Horace Dediu

      Multi-tier distribution is a cause, but it has a cause in itself which may or may not be the root cause. In other words, why is it that it’s not possible to get a package of iPhone+3G data to a majority of consumers at a reasonable price per month? The answer cannot be simply “because the operator’s don’t have that option”. One has to ask “why don’t they have that option”? “What could compel them to have that option?”

      • Rahul

        Horace,

        The ‘jobs to be done’ on smartphones in India is limited to telephony, texting and gaming. Computing is still not a favoured job to be done on mobile. (I am speaking about the mass market) Wifi is still a new concept. High costs, piracy (unlocked phones available easily), lack of awareness and low bandwidth (not enough infrastructure) are hurdles in choosing iPhone + data option.

      • http://www.asymco.com Horace Dediu

        There lies the rub. The Indian market is not yet capable of absorbing mobile computing. This is nothing to be ashamed of. In 2003 the US was a market that could not absorb text messages.

      • GaneshNayak

        India cannot have carrier subsidy model, since people will just re-sell the phone and stop paying the contract. Reliance tried this years ago and made huge losses.

      • http://twitter.com/narenbalaji Naren Balaji

        I can get Samsung Galaxy S3 + free 3G data
        I can get Samsung Galaxy Note + free 3G data
        I can get HTC One X + free 3G data
        I can get Nokia Lumia 800 + free 3G data

        But, can’t get iPhone 4S with free 3G data – in fact, it costs $150 more than unlocked US iPhone price without any free 3G data!

        Whoever is advising Tim Cook on India & whoever was leading the negotiations with the Indian operators have to be blamed to this mess.

      • KirkBurgess

        What do you mean by “free 3G data” ? Is it free when purchasing a unsubsidised phone? So in fact the phone subsidizes the network connection?? The exact opposite model of the US system, interesting.

      • http://twitter.com/narenbalaji Naren Balaji

        It is an operator subsidy. They give free 3G data for few months as an incentive to choose their network over the other networks (there are 5 large mobile operators in India + few small players).

        It’s not Samsung which advertises this – It’s the operators who advertise the free data part.

        Operators desperately want people to use 3G phones – since they’ve bought over-priced spectrum & invested heavily in 3G infrastructure.

  • Mike Wren

    India is a land of contradictions.

    I have been reading books and articles about India and watching the Indian branch of CNBC streamed on the Internet most nights. I even have some insights into how India deeply affected Steve Jobs in his early adult years on his seven month visit there and thus Apple’s approach to business to this day which I plan to eventually post. (Hint: Steve Jobs held back. Apple could have been much bigger than it is now.)

    A British multinational corporation, The East India Company, colonized India starting in 1612. The British government only took over in 1858. Gandhi’s famous salt march in 1930 was a mass march to the sea to make salt. Indians were required to buy salt from the British monopoly or pay a tax. On the shore, the salt marchers built a mountain of salt. The British arrested and imprisoned thousands as a result. It was the turning point toward Indian independence in 1947.

    After independence India modeled their economy after the Soviets and only started serious reform in 1991 when forced to by the IMF due to a balance of payment crisis. Their GDP has been growing at an average of 7% a year since. Almost all their politics to this day is a tension between reform and the perception of scheming, greedy capitalists, especially foreign ones, that become successful primarily through corruption. The 2G spectrum license bid rigging scandal is an example of that. It’s estimated that the Indian government lost $39 billion because of it. It was discovered when the fair 3G bidding brought in much more revenue than expected.

    The huge contradiction is that in the private sector companies try to outdo The East India Company with large conglomerates, one of which is coming to dominate Great Britain in a case of turnabout is fair play. Indian Tata is the largest private employer in Great Britain with Jaguar, Land Rover, Tata Steel and smaller companies. The largest conglomerate in India, Reliance, is making a $10 billion investment in 4G in 700 cities and will push it hard to the rapidly growing middle and upper classes. The magnate of Reliance, Mukesh Ambani, is India’s richest man with a net worth of $22 billion. He lives in a 27 story, billion dollar house like a Gordon Gekko on steroids — “Greed is good”. It is the most expensive house in the world. Reliance also owns iStores which sell only Apple products.

    Aircel, India’s seventh largest carrier is selling the iPhone 3GS without a contract for $181 with a $54 deposit on airtime/data.

    I think India will eventually have a larger GDP than China because of democracy, rapid copying of the developed world, strength in the free enterprise and demographics. China is corrupted by the patronage system of it’s inefficient state owned companies, is devoted to excessive and wasteful investment and exports versus domestic consumption. A significant amount of Indian English media are joint ventures with American companies, like CNBC, CNN, Forbes and Fortune. China restricts their media and forces it to be completely home grown which limits copying of developed world business models, strategies and tactics. India just got started reforming later than China so they had a head start.

    Mukesh Ambani Plans Huge 4G Wireless Network in India – WSJ.com : http://online.wsj.com/article/SB10000872396390443295404577547002264600084.html

    Commenter Namaste Detroit also posted a link to another article about Reliance 4G plans.

  • http://twitter.com/alexwtda Alexander Thompson

    If the network and distribution channels are the problem in India, why shouldn’t Apple creat an Indian company /subsidiary to creat a new communications network and distribution system. Why not disrupt the system that doesn’t seem to be working and start fresh with something that works for them and consumers in India?

    • http://www.asymco.com Horace Dediu

      Operating a cellular network is not a business one enters into lightly. It’s not a technology business and every resource, process and priority is different. But most pertinent to the discussion, it’s a regulated business where your performance and existence is subject to political review. This is why operators are local players and there are few cross-border success stories (Europe being the exception; one which is guaranteed by supra-national regulation.)

      • dbkahn

        Except that this is not the case in emerging markets Horace.

        In Latin America a Mexican company and a Spanish company operate (and “compete”) in dozens of markets.

        In Africa there are French (Orange), English (Vodafone), South African (MTN), and now Indian (Airtel) companies competing across many geographies.

        And on the sub-continent we see English and Norwegian MNOs with more than 100M subscribers each…

    • Tatil_S

      In response to the regulations that do not allow a foreign company to open its own stores, are you suggesting the company start its own mobile phone company?

      • Mike Wren

        India allows foreign owned single brand retail which would apply to Apple. But they require 30% local sourcing which would mean Apple would have to open a factory in India like they did in Brazil. IKEA is coming in to India now. They are a little worried about the local sourcing requirement, but they think they can handle it.

        The big item on the Indian reform agenda right now is allowing foreign multi-brand retail, i.e. Walmart. The mom and pop stores are afraid that if they will get wiped out if that happens, much as Walmart did in the US to small stores in the downtowns of small towns. Walmart has wholesale clubs, like Sam’s though and they offer supply chain management to Indian owned stores. Walmart is getting sued by a public interest organization for breaking Indian law for conspiring to get too close to their Indian partners such that they are actually running things.

        The conglomerate Reliance has iStores that sell only Apply products.

        India is suspicious of foreign run companies in India. A lot of their politics relating to reform is about that. It all goes back to the East India Company that started colonizing them in 1612 and was running things until the British took over in 1858.

      • Tatil_S

        None of the items in this long list of regulations give me any confidence that starting a local mobile phone company is an answer to the problems Apple is facing in retailing its goods in India due lack of full control over the whole chain. Besides, opening a factory would not necessarily get it over the 30% sourcing limit, as final assembly does not really add up to 30% of manufacturing costs.

      • Mike Wren

        “Besides, opening a factory would not necessarily get it over the 30% sourcing limit, as final assembly does not really add up to 30% of manufacturing costs.”

        I didn’t think of that. IKEA did some negotiation with government for more flexibility on the 30% sourcing. I think it’s supposed to also be from small and medium sized businesses. IKEA was afraid that their suppliers would grow beyond that limit at some point as IKEA opened more stores. Maybe Apple can sell a boatload of accessories made in India in Apple Stores. :-) But it looks like Apple will have to take the closer partnership with Reliance route with the iStores and finely predict the sensitivity of the public interest organizations so they don’t get sued and have the negative PR. And India does reform its laws over time to be more free market oriented. But it’s like slogging through molasses.

      • Tatil_S

        “The point of all these laws is to build up Indian companies without being dominated by foreign ones.”
        Every protectionist policy claims that, but most are done to allow well connected commercial interests fleece trapped customers through either low quality products or high prices. Or both… Small store owners are afraid of being wiped out by Walmart, not because Walmart will come in and burn their shops to ground, it is because Walmart will offer customers lower prices, bigger selection or better quality goods than they can get at the small stores at the moment. They are using their political clout to force the consumers suffer in the name of patriotism.

      • Mike Wren

        India, China and Brazil are all protectionist in various ways. I don’t know about other emerging markets but I assume they are too. As they develop they open up more. I don’t think India will revisit the single brand retail law that affects Apple anytime soon to adjust the 30% sourcing rule. They just passed it in January 2012. They will probably see how it’s going to work with companies like IKEA first. They will probably allow foreign multi brand retail that affects Walmart at the federal level before too long. And then they will let the states decide whether they want to allow it. Some of the more free market, middle class states have said they want to try it and have been lobbying the federal government to allow that. Most Indians don’t shop at supermarkets anyway because they are too far away, many of them don’t have cars and traffic crawls if they do have cars so it’s not worth it. So they go to the equivalent of the local convenience store. And think many of them do that nearly every day because they don’t have refrigeration. So they feel close to the local grocers.

        And Reliance will lobby against allowing Apple to have stores since they want to get mentoring from Apple in running their iStores which will also help them in their other five retail ventures. The government will go with Reliance’s interests versus Apple’s and the interests of consumers since Reliance is the largest private company in India. Reliance is also the one that will spend $10 billion to set up 4G in 700 cities. Apple doesn’t use the nonstandard TD-LTE that there using, but I assume Qualcom will come up with a new universal chip that integrates it with the other LTE types.

      • Mike Wren

        Back in the Roman times there are several instances of Roman officials complaining that their wives lust for Indian silk and spices requiring much gold and silver to be sent to India was hurting the Roman treasury. The Indians weren’t interested in any Roman goods as usually happens in trade relationships. They just wanted gold and silver to wear as jewelry as a status symbol. That cultural imprint (meme) is just as strong today. The American TV news magazine show 60 Minutes did a story on the prominence of gold as a status symbol in India especially at weddings and as a source of security since Indians can sell their gold if they have financial difficulties.

        Tata being the largest private employer in the UK is an example of the pride and confidence of Indians in business due to their long experience with capitalism. It’s also a case of turnabout is fair play to get back at the UK for the East India Company.

        There is no Chinese company that is the largest private employer in a large developed country or even a developed small one. They are strong in Africa though because of their need for commodities. I’ve heard that Chinese private company CEOs lack confidence and access to the capital markets since banks mostly loan just to state owned companies so they don’t make major overseas strategic acquisitions. I think many ambitious Chinese MBA students join the Communist Party and become executives with the inefficient state owned firms where they get rich due to the loan subsidies as a result of state owned banks paying below inflation rate interest to Chinese savers. Savers have to save a significant amount of income because there is no social security and public health insurance system in China and because of the four grandparents to one child issue because of the One Child policy. Because of this consumer spending is significantly hurt and China isn’t turning into a “normal” economy but is still focussed on investment leading to such problems as ghost cities and too many state owned steel mills.

        And now Apple is going to have to mentor Reliance and perhaps other large retailers. So maybe the Indians know what they are doing in playing their long game to again be major players on the world stage like they were in Roman times.

        So to think of India as “disadvantaged” is misleading. That’s looking at India by taking an average and putting too much emphasis on the bottom and not look at what’s happening at the top.

        And Apple products will become status symbols in India. And Indians are even more into that than in most emerging markets. Even the poor save up to buy gold in India and so will also buy Apple products even if it’s the low end iPhone model.

      • http://www.techstarvation.wordpress.com/ Sumit Gupta

        Awesome comment, being an Indian i can already see this happening, people are saving money to buy Apple products.

      • http://twitter.com/narenbalaji Naren Balaji

        @Mike Wren

        iPhone is already being sold as a luxury product/”status symbol” – by tweaking the pricing.
        The base model of iPhone 4S retails at ~$800 (while the same unlocked iPhone 4S costs only $630 in the US)

        People don’t buy iPhone through retailers in India. Anyone who wants an iPhone – either gets it through friends/relatives in the US or through eBay (I’m using eBay as a proxy for gray market).

        iPhone’s biggest problem in India is Samsung.

        Higher end Samsung smartphones (S3, Note) are also viewed as luxury products/”status symbol” – & they retail at only a slight premium above the US unlocked phone price.

        Also, Samsung has a better relationship with retailers since they sell other consumer electronics (TV etc.) through the same retailers.

      • http://twitter.com/handleym99 Maynard Handley

        “Someone should do a academic business study on why India has conglomerates and the US no longer does except for GE to some extent.”

        My guess is that it boils down to well-functioning and trusted capital markets. When capital markets don’t work well, the natural way to grow a business is as a conglomerate, rather than creating new businesses, because different parts of the conglomerate can provide cash for each other. Likewise they act as insurers to each other.

        It’s a sad thought that the rest of the world has even more dysfunctional capital markets than the US (and it may not be true in 20 yrs) but that has been the history.

      • Mike Wren

        I also think that it’s also hard for a businessman to get strong CEO skills in India. So the ones that get it just keep spinning off companies and become huge conglomerates. Back when everything was regulated when India had a centrally planned economy much like the Soviets they would give anticompetitive licenses to the companies of the politically well connected families. It was called the License Raj. That’s how they got their CEO experience. And they just passed it down to their family members.

        That doesn’t explain the Richard Branson Virgin Group empire of 400 companies though. Maybe Branson is just some kind of super-CEO like Steve Jobs. Steve Jobs didn’t want Apple to turn into an empire that dominated everything in technology much like IBM did in its heyday. Also I think he was influenced by the dark history in India of the East India Company that colonized India from when he spent seven months in India in his early adult years.

  • Rahul

    Horace,

    Nice post. In Mumbai, I see people adopting smartphones rapidly.

    “In the initial phases, the economics of mobile broadband are still dominated by the incentives for operators to pay for the infrastructure rather than for consumers to pay for the service.” – Here, mobile operators in India had to resort to kickbacks and bribes to ensure that they get the bigger size of the pie (spectrum). Moreover, the cost got spilled over to consumers and the adoption has been low. The government saw this as an opportunity to lessen deficits and revenue was substantial.

    Regulators (TRAI) – Some of their regulations may not favour rapid adoption of 3G mobile broadband.

    Therefore, today the urban class (cities) adopting smartphones are unable to consume 3G mobile broadband due to high cost of the network infrastructure. Here RIM scores as its unique proposition helps consumers to compute as well. Thus the adoption of Blackberry is high. The rural class is a step behind as the high cost of devices prevent them from adopting smartphones.I believe it is a matter of time when rural population starts adopting smartphones.The ‘apps’ ecosystem will benefit them a lot.

    The government is facing problems in opening the retail market to the outside world. Even if they do (which should be soon) retail giants are mandated to source 30% locally. Additionally, the culture and political climate is also not favorable at this point.(They do not favor foreign brands entering India in a big way and want to protect the small indian retail shops.) Many Indian owned retail organizations have either scaled down or shut shops as they lack capital to grow. After all, the value chain in retail in India is non-integrated and highly fragmented. Therefore cost just adds up. This is what causing problems for Apple.

    India is a democracy. The economy is dependent on consumption unlike China, and there lies its advantage. I believe Apple will enter India but after 2014 when general elections will be held. Moreover, the world economic situation can be expected to improve. Lets keep our fingers crossed.

    Cheers
    Rahul

    • http://twitter.com/narenbalaji Naren Balaji

      Rahul,

      It’s the regulator which pushed for 3G adoption.
      Also, costs have NOT spilled over to the customer – In fact, 3G data costs are now lower than they used to be!

      • Rahul

        Naren,

        Thank you for your comment.

        Yes, the regulator has pushed for 3G adoption. However, intra state (province) sharing of spectrum is in a mess. The regulator needs to take some accountability in this regard. Your 3G bill explodes (considering computing is an essential part of your life) and performance of 3G networks is questionable. Since I travel across the country frequently, I am unable to rely on 3G for my computing needs due to bad network quality and coverage.

        Yes, the costs are lower than they used to be but not as low to enjoy a seamless computing experience on your mobile device. Basically, “The technology is not good enough.” Even though you may consider costs to be low (I believe data plans are absurdly priced resulting in higher costs), performance of networks is less than average. I say this because I have stayed in Europe for 3 years and used 3G. I can feel the difference.

      • http://twitter.com/narenbalaji Naren Balaji

        Price – 2GB cap 3G data plan monthly ~$4.5 compared to $30 on Verizon!

        Travelling between cities is a special case. That’s not what most people do. Most people travel within the same city.

    • http://www.techstarvation.wordpress.com/ Sumit Gupta

      Well Said, Rahul. Good to see you here.

  • Soma

    Another important factor that comes to play when a consumers buys phone in India is that “there is no contract with the operator”. People do not buy phones at Operators’s outlets. People buy phones at outlets which only sell phones. They can compare different devices side by side and there is no rebate when you buy them. You then take a contract with the operator( prepaid or postpaid). You can terminate your contract any time and switch operators ( retaining your phone number ). Most operators are GSM. Any GSM devices can work with any of the GSM operators. The call rates are dirt cheap ( 1 Cent per Min )
    The most important factor that comes to play when buying a phone is the price ( devices are not subsidized by operators ). $200 – $400 is the optimal price for a device that most people (with a data plan ) would likely pay. Unfortunately, Apple’s premium models do not fall in this price range. Hence, in a device to device comparison, Android wins out as there are devices with higher hardware configurations then Apple’s products in this price range. During my last visit to India, I have seen android devices start from $100. There are wide number of android devices ranging from $100 to $600 in the Indian Market currently.
    Another important factor to be considered is piracy. India has rampant piracy problems when it comes to software. Android apps can be pirated very easily while Apple apps cannot be. In my conversation with some college kids, they all preferred to have android phones as they can easily get pirated Android apps. Even premium games. I think that is a significant factor too.
    I am an Indian and have been watching its mobile market since the last 5 years. I feel Apple cannot have the kind of market share it has in the US there. India is a significant market for Android models and will remain to be so.

  • GaneshNayak

    This story really happened… We group of friends met. One had just bought a Galaxy Note and another iPhone… My friend showed off the Note and we were all impressed… By that time, the iPhone guy realized how stupid his decision was to buy an iPhone.. he even refused to take out his iPhone to show us.

    The thing is, when one can buy a phone with bigger screen, larger battery, expandable memory for 30% cheaper, why would anyone go for iPhone?

    Apple business currently is relying on carrier subsidy (there is a high correlation between iPhone market share and subsidy index of a country) and more importantly ‘Brand’ (which most tend to ignore). Unfortunately, India does not have both. In these circumstances, Apple would do insanely good to get 10% market share.

    • https://twitter.com/#!/azulum azulum

      Bigger is always better. (Where is the former regional manager of the Dunder Mifflin Scranton branch when you need him?)

      —That’s what she said.

      (There he is.)

    • Bernhard Grabowski

      “The thing is, when one can buy a phone with bigger screen, larger battery, expandable memory for 30% cheaper, why would anyone go for iPhone?”

      Because not everyone wants a dramatically bigger screen, needs expandable memory or cares about the 30% lower price tag in relation to the content one already owns on a different platform.

      Price alone just isn’t a factor to win or loose. You can only undercut the competition so much on hardware (Kindle Fire) unless you expect to make the loss up with content sales (Kindle Fire).

      The Galaxy Note is a nice device, no doubt, so is the Galaxy S3. Yet the Galaxy Note is cheaper than a Galaxy S3 which still sells a boatload and more.

      I personally have no issue pulling out my iPhone in a room of Android preachers. To this day I like the design, the UI, the user experience, the app store, iTunes and what not. Furthermore I find my iMac, my MBA and my iPad very pleasing to use by all accounts. Especially the iMac works well in a living room compared to the WinBox I had before. I still maintain a 2007 WinBox for a few things, but admittedly I haven’t switched it on this year yet.

      There’s a fair share of users who just enjoy one particular Apple device and then they get drawn into the whole package for ease of use and much less worries. Since my parents switched to Apple there are no more “support” calls for neither device. They’re my yardstick for mass appeal and essentially how personal computing is supposed to work for the masses.

      When I meet my sysadmin friends who only talk precompiled Linux I take much heat for using Apple over Android (the notion of Windows is frowned upon, that’s just something evil they have to integrate into the corporate IT even tho it’s 90% of it). Yet none of them has one single compelling argument why anyone should use Android over iOS or Windows over Mac OSX. There’s the frequent listing of the usual suspects: Not open, can’t root iOS, app store reviews apps, no row of connectors for a bazillion of things, no SD slot, no replacable battery…
      Now that’s their opinion and yes – they’re all very valid. Comparably valid as if you ask a Formula 1 driver how to choose your next Prius – you’d get answers like: can’t adjust the aerodynamics while driving, the nose can’t get replaced under 5 seconds, changing tiers takes an hour at the craft-shop… All valid.

      But ask around like: Hey would you rather administer a million locked down iPhones or an Android environment, then well… Apple wins by a margin.
      Same with: Hey would you think a computer illiterate is better off with an iPhone or an Samsung Killer Hx7 V1 zb9 3D? Then the answer again is iPhone.

      I remember the dreadful nights when the family sat around the 1st generation VCR 2000 system, armed with handbooks, glasses and lights, to program a recording (which usually went wrong). They, we, would have died for a one button device and guess what – many people still do.

      Therefore I fully agree with you – for a specsheet buyer a topline Android device is the absolute way to go! No doubt about that. They can root, and tweak and extend and crack open what they want, the whole Android app store is only one click away to download for free on Usenet and devices like an Asus Transformer appeal even to the geek in me.

      On replaceable batteries: essential for some, irrelevant to most. Yes, I do fly very often for 12 hours and more, I know when I rather want to have one – like when I forgot to charge my iPad finding myself in economy class without a power outlet.
      This issue set aside – ALL vendors will be very well advised to research longer lasting batteries vs. offering replaceable ones. And of all my genetically tech oversavy sysadmin friends there’s this argument too – no battery replacement. I asked them how often they change the battery: Never, they rather stay close to a power outlet. Most of them don’t even own a replaceable battery, yet it’s an essential feature for them, cause, you know, it’s a line in the specsheet that would otherwise stare empty at you with a missing checkmarkt – much like the Flash on mobile checkmark.

      To make a long story short, and I hope you have not take any offense, there’s nothing stupid about owning the device that does the job you want it to do. If not, then go and get a different one.

      Regarding carrier subsidies – I don’t understand the issue no matter how hard I try to wrap my mind around it. Maybe it’s because I’m from Europe.
      You know, carriers do not really subsidize anything. You get a two year contract for x and if you want a phone you pay y on top (available via a special plan that’s only available with a specific phone or the other way around).
      So what you get is the price of the phone stretched over a 24 months period on top of whatever service package you choose. There’s no one who gives away anything for free, ever.
      In that regard carriers make a phone more affordable (like 30 per months is less scary than plunging down 700 on just a phone), but no, you don’t get it for only because they don’t squeeze the 700 out of you.
      In Germany for example increasingly more people joyfully line up now to buy high end devices vs getting them simlocked from a carrier. Why? Because it’s basically just the same and it allows them to trade their phone via ebay each year for the latest and greatest (which in case of Android would mean every month). I personally would have never seen that coming – people just buying a phone for 600 to 800 and be happy about it since they escape the carrier death grip of cutting services while maintaining price levels.

      Did I say “to make a long story short”? Sorry, that might have been premature…

      • GaneshNayak

        @60bdafe0d26e88c2233ce9ea84c90127:disqus First of all, no offense taken :)

        I was taking about Indian context only. I completely understand why iPhone would be popular in other countries especially in US.

        In India Windows control 90% of OS market share. Hence people intuitively understand the Windows paradigm as compared to Mac. Probably because of this they would find Android more simple and straightforward than iPhone.

        For example my neighbor was gifted an iPad. After few days I asked how he is it going? He gave a long rant, saying that he cannot ‘normally’ connect his iPad to his PC and it has to be always routed through iTunes and now he is using his iPad only for browsing. I tried to tell him that iTunes actually simplifies sync, but in vain.

        Hope you see my point. Indian customers need and what they ‘value’ in a phone may be vastly different from rest of the market.

        I have no qualms about anyone buying iPhone, as long as they understand what they are buying and it perfectly fits their needs. Similarly, I hate when people assume that India is a predominantly Android market, because India is a ‘poor’ country. Android is a hit, because it genuinely provides best ‘value for money’ for an average Indian customer (again, I am talking only about India). Samsung sold 100,000 S3 in last one and half month and all those people voted for it with their wallets, paying full $700.

        To clarify, I am saying that iPhone’s ‘value proposition’ is not obvious in India.

      • Bernhard Grabowski

        Well, I’m glad you took no offense.

        90% market share of Windows in India? Wow, but how does that differ from the rest of the world? Does it? No, not really.
        Global estimated Windows market share:
        http://www.netmarketshare.com/report.aspx?qprid=8&qptimeframe=M&qpsp=161

        So your neighbor doesn’t understand that there’s a program that synchs his device which annoys him specifically about the iPad. I was living under the assumption that even the magic Android device needs something like a “program” on the other side of the cable to synch with whatever you try to synch it.

        I know India is (still) a poor country with very very different issues from the rest of the world, but I fail to see how Android provides any other value but a lower price point and remarkably easy to obtain pirated apps.

        Also, to be honest, 100.000 sold S3’s in a country the size of India is what? If anything it shows that 700 is just too much for most people in India, so people better go and get one of these giveaway Android devices (most of which do an excellent job at bringing personal computing to lower income areas).

        I don’t know much about India, only what my Indian friends told me, and the question of S3 or iPhone will remain a very low importance decision for the majority of the population for 10 years to come.

      • GaneshNayak

        Android does not need any ‘program’ to connect to PC. Just connect the cable and the phone appears like a drive, just like a USB stick. If SD card is installed in the phone, then it appears as additional drive. One can then simply do any operation.

        Regarding S3, yes I agree with you. I was referring to the highest value phone. Samsung has various models are different price points.

        Anyways, we can continue back and forth, but at the end, hope we can agree that both iOS and Android are great platforms depending on ones need.

      • Bernhard Grabowski

        @GaneshNayak:disqus We can absolutely agree on that.

        Who would have thought, that the “one laptop for everyone” initiative would take such a turn and twist to arrive with smartphones?
        So I dare say the introduction of smartphones, no matter which vendor, is a very good thing for everyone.

  • Jim Zellmer

    Somewhat related: I found Patrick French’s “India” to be a worthwhile read.

    http://www.economist.com/node/17956721

    http://middlestage.blogspot.com/2011/03/on-patrick-frenchs-india-portrait.html

  • KirkBurgess

    I wonder how the iPod touch & iPad sell in India…

    • http://twitter.com/saumilzx saumilzx

      Not sure in terms of numbers. But the iPad is in demand. The stock runs out frequently. One reason is that many who have never used a computer are getting in to buy an iPad, as opposed to a laptop. So price-wise an iPad is seen as a cheaper option than most laptops. Besides, the iPad costs about the same (slightly more) than in US. (and of course, it helps that there is no competition for iPad as a tablet).

      iPod touch is seen as a fancier product. If Apple were convert that into a phone, even with just wifi (no 3G), they will disrupt Asia. Or they may try to do so with the 3GS.

      • http://twitter.com/handleym99 Maynard Handley

        I have long believed that a product with MASSIVE potential in the 3rd world is a ruggedized digital audio player with good spoken word support.

        The model I have in mind is that you buy the device at a low price, then once a month or so you reload it with new audio (podcasts, audiobooks, lectures, whatever). You do this either at kiosks in towns, or via itinerant salesmen who go from village to village selling various things with, among the things they sell, audio content. People who are compelled to walk long distances, or work in the fields, or whatever, now have something to do during all those hours.

        This is not a desirable market for Apple — it doesn’t involve high profits, it doesn’t play to their strengths like design and control of the entire OS, and the audio content download may well involve transactions of dubious legality. But it IS (IMHO) a viable market doing good in the world. It would make sense (IMHO) for Nokia to look into it, but I suspect what will actually happen is that at some point some smart Chinese manufacturer will do it, making a waterproof DAP that looks like a brick but has 100hrs of battery life and costs $15, and it will then be local entrepreneurs in each market that handle content distribution.

        Relevant to this post is that Apple doesn’t have to solve every problem in every market. It doesn’t make sense for Apple to go after anything but the upper and upper middle class in India, and to complain that their products are not suited to poor India is somewhat to miss the point. Heck, their products aren’t even tailored to poor America. It’s not an issue of snobbery, it’s an issue of matching your skill set to your customers. You can have “no compromise quality” or you can have “as cheap as humanly possible” but you can’t have both at the same time.

  • Arun

    Horace, It is the 2G license distribution which happened in 2007/8 in India which has been embroiled in corruption scandal and those licenses were all cancelled by the Supreme Court of India this year. The 3G ‘auction’ process which happened in 2010 is so far outside of any corruption allegations.

    Though Apple products have become more ubiquitous here in India than they were during the last decade (you can see iPads in offices, while commuting, iMacs/MBPs in movie scenes/TV Adverts, etc.), iPhone is an unmitigated disaster for Apple here. I feel, India being a price-sensitive market, unless Apple devises an India-specific strategy with or without their own stores, Apple should simply forget India, as a market for iPhone.

  • kankerot

    Just try to sue the competition out of existence seems to be the Apple MO. Or copy other designs and then sue when it happens to them.

    http://blogs.wsj.com/law/2012/07/24/the-apple-samsung-trial-what-samsung-will-attempt-to-prove/

  • KV

    Trending is not useful for forecasting and planning for the Indian marketplace because most data would be stale when
    it reaches you. Living and immersing oneself in the Indian market is the
    best way to understand it. Having lived in Australia for little more than half and decade, I can say that the Indian market dynamics are very different from the OECD market dynamics. This is why I have started to believe that arm-chair-expertise cannot crack the Indian code. It can possibly describe a phenomenon after it has happened.

    The following are my bets in Indian telcom market: Android with its open market place is best suited for rapid growth in the Indian market — Samsung has already established itself as the market leader in India for smartphones. Apple iOS can grow well in India, if Apple decides to concentrate on Indian operations — the Apple stores in India are really nice and I find a lot of visitors to the stores. 3G/4G shall happen in India within the next 3 years.Samsung, Google, Qualcomm, and Indian Network operators will benefit greatly from the growth by serving the people of the market in better and superior manner.

    • http://www.asymco.com Horace Dediu

      Do you expect any emergent Indian software platforms? Will India allow Korean and American vendors to define their future?

      • KV

        I do not expect any emergent Indian software platforms because Android fits the bill very well. There is no competition for Android as far as the Indian market is concerned.

        I sometimes feels that the Indian market may have embraced the concept of a global market more than any other market and in an unconditional manner. The following link provides an example. http://en.wikipedia.org/wiki/Hyundai_Motor_India_Limited

      • KV

        I think that India is more open in trade than many other economies.

  • Mike Wren

    Nevermind. :-)

  • http://twitter.com/handleym99 Maynard Handley

    I suspect Apple would be better off concentrating on Indonesia than India.

    Indonesia is also a large population (240 million, which is not India’s 1.2 billion, but is fourth largest in the world). Indonesia has a well-functioning cell phone system, with 3G and competition. The population is used to smartphones, insofar as Blackberries are reasonably common.

    All in all it strikes me as a substantially easier target. The basics are in place — Bahasa is an iOS-localized language, and supposedly there are Apple stores in Indonesia (though I never saw one). I suspect the lessons that can be learned by expanding outward in Indonesia from some initial bases in Jakarta and Denpasar would be useful in future expansion to most of the poorer countries of the world. This would start with things like deals with local carriers to carry micro-SIMs, and more automated ways for people to activate data on their phones rather than the current, somewhat clunky schemes.

    Never forget that people in poor countries are just like people in rich countries, only with less money. They also want good cameras so that they can take photos and videos of their kids. They also rely on phone numbers (and if they had access, email) for running their businesses. They also like to use GPS and maps to find their way around. They also play games, listen to music, watch movies.
    The same drivers for iPhone in the US exists; the trick is to make the product as desirable in the absence of broadband and a home computer. Apple has a start in the underlying iOS technology, and with the 3GS as adequate hardware, but they need to work on both the carrier side and the content side, so that the entire package (eg web experience including social, movies, books, music, apps) in a place like Indonesia feels as complete as in the US.

  • http://www.facebook.com/namasteindians Namaste Detroit
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