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Cracking the China code: Microsoft vs. Apple

In 2011 Microsoft’s CEO bemoaned that revenue in China was about 5% of what it obtained in the US. Yesterday Apple’s CEO suggested that revenue from China will overtake the US in the near future.

The contrast is even more stark when one considers the time and effort each company has made in China. Microsoft has been investing and promoting itself in China for decades while Apple barely had any presence 3 years ago.

To put a finer point on this I show below Apple’s sales by region:

Screen Shot 2013-01-11 at 1-11-10.08.26 AM

Apple’s China net sales in fiscal 2009 were only 769 million. In 2012 they were $22.8 billion. That is a figure greater than US sales three years earlier. Put another way, China sales grew in three years as much as they did in the US in 33.

The growth rates were astronomical: over 250% in 2010 and 350% in 2011. In 2012 the growth slowed to 83% but that is still almost twice the US or the global average. The growth rates are shown in the following chart:

Screen Shot 2013-01-11 at 1-11-10.09.19 AM

I added an estimate for growth into the future moderating to 50% for China and 20% for the US. If that happens then China will become the largest market for Apple by 2016 as shown below.

Screen Shot 2013-01-11 at 1-11-10.10.46 AM

The reason for this growth is, of course, the iOS product lines. Growth started when the iPhone was introduced and surged with the iPad and every time updates were released.

The contrast with Microsoft now comes back into focus. China and the US have a roughly equal number of PCs but the mobile users in China exceed the US by a factor of three to one. The pool of users is so great that Apple obtained its growth even with reaching only 30% mobile network distribution coverage.

Without a mobile portfolio Microsoft is severely hampered. Of course, Microsoft is trying and has made several attempts to place its Windows Phone in the hands of Chinese users. It’s a tough sale however because Microsoft must work through partners. They need to get vendors to license the OS and the operators to range the devices and retailers to push it. Given the flood of “free” Android variants they are having trouble even starting down that long road.

But more fundamentally, Microsoft’s software licensing business model is severely limited in China because what it offers is not what is valued. Both on the PC or on the mobile device, what China values is the tangible. Software can be made valuable only if it can affect the purchase decision of hardware and it can do so only if it’s sold as part of an integrated product. With Surface, Microsoft shows that it understands this. What does this imply for a Microsoft phone?

 

  • skc

    Do you have any idea how rampant software piracy is in China? Let’s be clear here, Windows is very, very, very popular in China. It’s also very easy to pirate. You’re comparing Apples and Oranges here, literally.

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

      I’m not comparing popularity. I’m comparing revenues and business models. Business models can be vulnerable to variances in laws or culture by country. That does not suffice as an excuse however. Management needs to deal with anything and everything. As a side-note, Apple has not cracked the India code whereas, arguably, Microsoft has.

      • r.d

        What has Microsoft done in India besides
        sending Bill Gates every six months.

        PC may be still growing India but
        everyone is moving to mobile
        but that means Samsung and Nokia
        not Microsoft making billions of rupees.

    • http://twitter.com/FarshadNayeri Farshad Nayeri

      Your statement is consistent with the article’s concluding remarks that China does not value software. (As such allowing to be “stolen” is not as a big deal.) By extension Microsoft’s position as a software *licensor* becomes weaker.

      • JohnDoey

        Nobody values software. Bill Gates famously wrote an open letter to the Silicon Valley Homebrew Computer Club in like 1977 saying “please start paying for software!”

        People value SOLUTIONS and most cannot even identify which part is hardware or software. Most Chinese piracy is done by the person who builds the PC hardware. They are essentially outlaw HP’s. An iPad doesn’t require that because it arrives out of the box with OS and every app essentially already on it. The user basically only has to activate the apps they want to use, and that activation costs free or 99 cents in most cases, and where it is more (say, $10 for Keynote) it is still significantly less than the Windows alternative and a significantly better app also in most cases for most users.

    • Javbw

      Everything piratable is popular in china. Horace is talking about what will work as a business model – “…what [Microsoft] offers is not valued.” When you have rampant piracy the value assigned is very low – not zero, but low. Horace went over why Microsoft has been so profitable selling windows licenses, but to break even with $15 Windows phone liscences is impossible. If microsoft offered $15 Windows liscences, I don’t think people in china would bite, seeing as it is probably XP.

      Apple “hides” the cost of iOS develpment in the purchase cost of the hardware.

      And Apple uses iOS to differentiate the hardware from their competitors.

      And Apple uses the compatibility with the Appstore (where the average selling price of software is 24¢).

      Microsoft is having trouble getting the phone off the ground because the 1st party devices don’t have any advantages (yet), and the 3rd party manufacturers are balking at making liscensed equipment (Samsung recently stated it will not bring RT tablets to the US, for example)

      So Microsoft currently can’t sell liscences for it’s Legacy software, and their 1st party devices – the Nokia Phones and the Surface tablets – are not selling, and they are having trouble attacting (chinese) vendors to license their newer (mobile) OSes.

      Microsoft is trying to follow the 1st party (Apple) route – but no one is going along with them.

      The point is to ponder what MS will do to drive adoption of their Mobile OSes when their current business model – bulk licensing – won’t work, and their 1st party devices aren’t selling.

      • Ian Ollmann

        Perhaps Microsoft products are valued. They just can’t compete with pirated Microsoft products. We have a similar problem here, though the low priced disrupting competitor appears to be XP.

      • Ian Ollmann

        This /might/ be a sign that Microsoft products are overpriced. :-)

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

        By valued I mean more than being useful or creating value, but going all the way to getting paying for it. Creating value without capturing it is a failed business model.

      • JohnDoey

        But iPad apps *can* compete with pirated Windows apps. The iPad apps are much better, much more mobile, and the price you pay for them is basically a tip. And anyone can install apps on iPad, no piracy skills required. And the device remains secure.

        A legit Windows system with $1000 worth of 3rd party software can be replaced with an iPad running $100 worth of 3rd party software and the iPad is better.

      • SSShu

        I assume – the cost of developing an app on the iPad seems to be a lot smaller as well after taking into account distribution, hosting, payment tracking etc (which are handled by the Appstore for the iPad).
        This can also mean that there will be a lot more local developers pitching in and developing the apps that are sorely needed by the local population in any area. And developed natively in their native language with local (relevant) information.

      • JohnDoey

        Cheap and easy is what is popular, not piracy. People who got free music on Napster went wholesale for 99 cents per song on iTunes because it was cheap and easy. People who got free Windows software on BitTorrent are going wholesale for 99 cent apps on iOS because it is cheap and easy. I have apps that I paid 99 cents for on my first iPhone and they are still running on my third iPhone, I didn’t have to pirate that app 3 times. Even on a low budget, it is much, much better.

        iPod was better than piracy. iPad is better than piracy.

        BETTER always wins over time.

      • insanedreamer

        “Everything piratable is popular in china.”

        Not necessarily. The iPhone is a good case in point. Despite the fact that fake iPhones/Apple Stores are much publicised in the Western media, most Chinese don’t buy a fake iPhone, they buy the real deal (at a higher price than in the US).

    • http://www.isophist.com/ Emilio Orione

      No Horace is not. He is saying that revenue in China comes from tangible things and Microsoft has not a viable business model to create revenue in China.

      If you like you could say that the tangible effect to revenue in China is due to piracy, since tangible things are less easy to pirate, revenue can be made, on the contrary with software, piracy stoles revenue.

      Perhaps but that does not change the article reasoning about what business model is better in China.

      If you are true, things would be better for Microsoft, since it is easier to combat piracy then to create an integrated business model in my opinion, at least for a company like Microsoft.

      • Tatil_S

        “it is easier to combat piracy then to create an integrated business model in my opinion”

        I doubt that. Combating piracy means changing legal frameworks and law enforcement priorities, as well as what is socially acceptable. It needs to make people think of it as akin to burglary while the prevailing attitude would call it dumb or at least naive to pay for software, exerting subtle peer pressure on consumers to resort to piracy. Nothing about that task sounds easy and MS cannot do it alone, it needs a lot of partners to accomplish these changes. If getting partners license software and carriers approve devices was too much, this gets as close to insurmountable as possible.

        Changing business models is usually difficult, as companies are loath to risk an existing income stream while the new one is not online yet. Low income in China means MS would not be risking much if it wanted to create an MS branded phone just for China. As it already has produced Surface, the sacred cow of not doing hardware and competing with its licensees has already taken a beating.

      • http://www.isophist.com/ Emilio Orione

        Or you could combat piracy with commercial practice, like different price points, advantage for registered users, better sw antipiracy, hw dongle etc… Simpler

      • Tatil_S

        @Emilio & JohnDoe: I understand, but to me these examples falls under changing business models, rather than changing the culture of piracy.

      • http://www.isophist.com/ Emilio Orione

        A pirate is an underserved customer.
        There are pirates that are just thief, people who can pirate software as well as stole goods from a shopping centre, but the numbers of piracy are vastly superior to the numbers of criminality.
        Lot of pirates could be customers if served in the right way, they are an opportunity, a market. You see them as a plague only if you are not able to serve them.
        The culture should change at corporate level.

      • JohnDoey

        I don’t think it was easier, but Apple did change the culture with iTunes+iPod, and with App Store and iOS. They offered a legit way to get music and apps that is better and cheaper than stealing them. There is just no reason to spend 15 minutes pirating Keynote when the legit version costs only $10 to run on all of your iOS devices for many years at a time.

        Changing apps from something that a computing priesthood guards with optical disc and serial numbers and arcane installation processes and you can pay them to install on your one crappy Windows PC which will expire from a virus shortly and leave you dead in the water over to apps being as easy to install as a song and the app stays installed not only for 2 years of reliable iPad use, but also on your next iPads for years to come — that is changing the culture. An iPad app is hundreds of times more valuable than a Windows app, yet costs only a small fraction of the price, and anyone can install it.

        Microsft could also have built an iPad but chose not to.

    • FalKirk

      “You’re comparing Apples and Oranges here, literally.” – skc

      Even if your contention is correct, it’s still figuratively, not literally. :)

      • Joe_Winfield_IL

        Unless he’s referring to Steve Ballmer’s bald, round, orange head. In which case, his comment somewhat bridges the divide between the figurative and literal worlds.

    • GG

      software versus apple cell phones is a very different business model. you can’t pirate the hardware so easily. plus the mechanisms of revenue flow for both models are very different and one is more optimized for the china market…

      • JohnDoey

        Apple doesn’t make cell phones. They make a cell phone software app that runs on their tiny computers.

        Windows PC’s are being replaced right now by iOS computers in wholesale numbers. Windows has changed in the latest version to be an iOS clone in addition to Mac clone as a result. It’s the biggest trend in COMPUTING. The fact that the cell phone was killed by it is irrelevant to the fact that Windows is being killed by it.

    • stefn

      Software valuation is dropping everywhere, headed to zero. It’s not just China that values atoms hugely over electrons. We love our appliances; we couldn’t care less about the current they run on.

      • JohnDoey

        It is not headed to zero, it is headed to cheap.

        OpenOffice is free and sucks and nobody uses it. Keynote is $10 for all your iOS devices at once, and $15 for all your Mac devices at once and it is great and popular and profitable and we can expect to be running Keynote in 2020 — that is very valuable. OpenOffice also requires hundreds of dollars in I-T hours to setup, while Keynote installs like a song on an iPod. So paid Keynote is actually cheaper than free OpenOffice.

        The computing market is expanding from 10% of humanity (computer nerds, mouse users) to everyone, who use touch. The cost of apps, music, movies can drop a lot, but not to zero. To levels that are like tipping, but not zero.

      • stefn

        Misses the point: Zero or cheap, software is not valued as highly as hardware is, as Horace notes. I’m merely saying that’s true everywhere, not just in China.

      • Jerome

        “software is not valued as highly as hardware is” I don’t know if that isn’t too simplified. I understood it as “software alone” is valued less, commodity hardware is valued a bit more, but an integrated product is valued very high.

        The value of iOS devices is based on the integration of hardware & software as opposed to commodity hardware with a generic OS.

        The app ecosystem on top of that increases value exponentially. My ipad is very valuable to me because of the apps it runs. It makes a huge difference in my day-to-day life.

        A commodity android tabled would, hardware-wise, be comparable – but without the iOS integration and the apps, it’s more of a portable video player and not very useful for me.

      • stefn

        Well put. Electrons have little value as consumer products. Atoms have some value. Solutions have significant value.

    • JohnDoey

      No, the comparison is valid, because with iPad’s $10 office apps, $5 creative apps, and 99 cent everything, you don’t have to pirate software. It is the antique nature of Windows software distribution that creates the need and opportunity for pirating apps and even the OS on Windows. iPad is designed not to have that problem. It is winning in China because of that design, because of iPad’s unique features.

      There is this thing called a “general purpose computer” that is made to run software apps. The Mac is one, and so are its Windows-based clones, and so are its iOS-based decendents. They are all made to run native C apps and HTML Web apps. They are all the exact same fruit. The way you can tell that even if you are ignorant of the technology is that since iPad shipped, Windows PC sales are down significantly, and the whole net book form factor has been retired, even though in 2009 it was the only Windows form factor with growth. Dollars and users that were earmarked for $500 Windows PC’s in 2009 have been spent on iPads since.

  • datasmog

    Everyone wants something for nothing, or as close as is possible to nothing.
    Android costs phone and tablet manufacturers nothing.
    iOS is included in the hardware cost and only Apple manufactures and sells the iPhone and iPad.
    Whereas Microsoft wants manufacturers to pay a licence fee for the software.
    Producing its own hardware like Apple is Microsoft’s only realistic long term option in order to compete.
    Or abolish software licensing but that’s not going to happen any times soon.

    • JohnDoey

      I would argue that Microsoft always made hardware and always has to.

      In 1995, Microsoft shipped the optical discs that contained Windows and Office. Optical discs have been replaced today essentially with iPods: SSD, $5 ARM computer, Wi-Fi, and secure downloads from a central server like iTunes or App Store. That created what is essentially an optical disc that can rewrite itself securely over the Internet to turn, say, iOS 3 into iOS 4, or Keynote 1.6 into 1.7, with all the legitimacy of a branded optical disc with hologram and serial number and activation server.

      So basically your $399 Windows Ultimate DVD changes into a $399 Windows iPad. They are the same thing from different times is all. And both are a kind of hardware — you have to physically receive your Windows DVD and hologram and activation code and so on. The authenticity cannot be sent over the phishing-friendly bit-agnostic Internet. A Mocrosoft-branded DVD is different and more valuable than a DVD-ROM with the same bits — same as iPad is more valuable than the contents of its SSD.

      And HP hardware is just a Windows DVD accessory, same as anything that plugs into an iPod dock connector or Lightning plug.

      The same process that spit out Windows DVD’s should be spitting out Windows SSD/iPods. That is just basic progress.

  • snoof

    Tim Cook said that China will become Apple’s largest market THIS year. That points to massive growth. Greater than Horace’s projection.

  • nuttmedia

    “What does this imply for a Microsoft phone?”… An eventual takeover of Nokia, sisu or no sisu ;-)

  • Henry

    Very interesting post as usual. Your very reasonable forecast is that China will overtake US in three years. However, three years is an eternity in the mobile industry, which seems inconsistent with Tim Cook’s recent “near future” statement:

    “I am convinced that in the near future, China will become Apple’s largest market.”

    Does this strike you as inconsistent? Maybe it doesn’t. But if so, any idea how to reconcile the two?

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

      I don’t see an inconsistency. Three years fits within my definition of near future. Three years is also what I would call near past. It would imply for example that the iPad is relatively recent. If you thought that three years is not nearly recent then you’d also have to say that the iPad is quite old.

      • Henry

        Ok, good to hear your thought here.

  • mieswall

    If an agreement with China Mobile is done soon, the growth could be higher than 50%. Apple could easily capture a 7% of CM users; that would be 50m phones/year; at a ASP 630= $31billion. Almost double of whole 2012 Asia sales (33b).

    Granted, it could be hard to find 50m people in China (those 1300million people are ranked 91st in per capita income) to make such an expensive purchase; but that’s the matter of that difficult agreement with CM, imo. One important fact is that smartphones could be perceived as an investment in people’s development, I think that may be the China’s government view on this issue.

    On the other hand, that could be precisely the argument to avoid Apple (luxury) and commit a massive program with cheaper androids (resources effectiveness). Or, to settle that agreement with a cheaper phone by Apple (goals effectiveness). In which case the numbers would be higher, but revenues similar.

    • http://www.isophist.com/ Emilio Orione

      You say apple is going for luxury, it is not, it is going for quality.
      Quality costs and high price is assumed to be a niche market, it is not and apple’s numbers say it all.
      A luxury product is unnecessary expensive, like a gold iPhonee case, a quality product can have the cheaper price for it’s category, like ipad or air whose price has not yet been matched by competitors.
      Apple goes for quality and margin not for share, everyone else seem to go for share, but only one is making a margin from share, only samsung, everyone else is loosing money.
      Going for share seems to be hard. Samsung has to spend a lot of marketing money to keep up, more than the sum of all the competitors together. To win the commodity war a lot of money is needed.
      To gain a quality big niche a lot of talent is needed.
      Today luckily talent is winning in the phone market and I really would like a talent company could win it’s big niche in every market.

      • mieswall

        I agree with your definition. The purpose of the term in my post was the way an eventual China public program may view current iphone line, vs android.

        All in all, your own post seems to reinforce what i’m saying: It is no mystery that the nature of China society seems to be more suitable to mass market strategies, with quality as a second consideration. Either Apple believes there is a sizable niche for quality products there (those 50m/yr phones, to really become a market bigger than America), or it does plan a mass-oriented product.

      • http://www.isophist.com/ Emilio Orione

        They do plan mass-oriented “high quality” product. That’s all they do. You mean cheaper price point products like the ipad mini is for the iPad line
        Actually cheaper’s price point are made with older phone models, the mini is a different story, a mini is a new product with stripped features that cost less than full features’ one.

        I believe they will take the iPad mini road also for the iPhone, it makes a lot of sense, but it will be done when they will be able to make an high quality less capable phone (with respect to the full iphone), that is when the iphone will be partly good enough for most people.
        There have been signs that the ipad 3 was too good for consumers, mainly the high sell rate of the ipad 2, the answer has been the ipad mini.
        The iphone 5 is a different story, it is a great improvement over the iphone 4, an improvement that is well understood by users, so there is not an hurry to go with the iphone mini.
        I guess the end of these year with an iphone 5s in spring.

      • Sacto_Joe

        Quality is exactly Apple’s cachet, and it is Apple’s cachet that is propelling it upwards. A lower price point product (let’s avoid the term “cheaper, shall we) that maintains quality is a no-brainer for Apple. An excellent example would be an “earphone”, a bluetooth-and-Siri-enabled phone that hangs on or in the ear that can interface via software with a LTE-enabled iPod or iPad. It could be low cost and yet high quality and high margin.

      • http://www.facebook.com/profile.php?id=741717344 Dick Applebaum

        I am becoming more and more convinced that the disruptive device in China will be the iPad Mini with voice/text capability. It is lower priced than the iPhone than the year older iPhone 4S and supports the 2G and 3G celluar radio bands needed.

        It is mobile enough, yet provides the “personal computer” capability to satisfy most homes and individual needs.

        IDK, if this solution is applicable to countries such as India, Brazil…

      • JohnDoey

        It is true also in the US, where most people cannot successfully operate a Mac or PC, even if they have access to one. Many people in the US are installing their very first native app on their iPads.

        And the majority of iPad users do not have an iPhone.

        Also, even in the US, iPad is the first PC that many people are carrying 24/7 and that enables a whole different kind of PC use than they have done before.

        Keep in mind only something like 10% of humans owned a PC in 2009. iPad is changing that by being useful and practical for the other 90%.

      • JohnDoey

        iPad mini is not a new kind of product. See iPod mini in 2004. Same thing. See “the new” MacBook Air in 2010 (not the original MacBook Air.)

        These are all products for users who are willing to trade power (compute speed, RAM size, storage size, display resolution) for enhanced mobility. The fact that they are cheaper is secondary and has a lot to do with the mass market desire for enhanced mobility.

      • Walt French

        Let’s remember all the people asserting Apple “had to” compete with netbooks, and that it did so by demolishing the market with the iPad. Not an ultra-cheap MacBook.

      • JohnDoey

        China is the same as everyone else. They want devices that solve their problems, not make more problems. Doctors want a device that enables them to be a better doctor, not forces them to learn I-T skills. Same as every other profession.

    • JohnDoey

      iPhone is not a luxury Android phone. iPhone is a cheap, mobile-optimized Mac. If you do not have a PC at all, an iPhone provides you with 1-stop shopping to get a full computer that also includes phone features. The calls, texts, and baby Java applets on Android do not replace a Mac or Windows PC. Android is just a phone.

      In 2010, you could maybe make your iOS=Android BS fly, but today we have years of usage numbers. Android devices are feature phones, bought at feature phone prices by feature phone users, who use them exactly like feature phones.

      So you can look at NOKIA and Samsung and talk feature phones, or you can look at Mac, iOS, and Windows and talk computers. Separate things in every way. Feature phone apps are baby Java toys. The apps on Mac, iOS, Windows are native C/C++ PC apps.

      EVERYBODY needs real PC apps. Everybody. There are no users for whom Java applets with viruses are good enough. Most people do not have Windows or Mac PC’s and never will. An iPhone takes a user from zero to 100 km per hour in one second, no other device needed. Android is the best feature phone ever made. It takes the user to 2005 and makes them go shopping for a Windows PC or an iPad.

  • jambani

    Phil Schiller’s comments yesterday from China were very interesting. He implied they would not make a cheap phone when asked about losing market share in China, but perhaps this is semantics. Certainly the iPad mini is not “cheap” but a more affordable device for an almost (i say almost b/c of the lack of retina display) equivalent user experience. I’m still not sure his comments lead me to believe that there won’t be a less expensive phone offering.

    • stefn

      Schiller’s comment has been withdrawn by reporting media. Apparently it was mistranslated and revised in the original text.

      • Sacto_Joe

        Yes, but the correct translation has not been made available! At least, not as of this moment.

      • Jake_in_Seoul

        Right, for my part, I never trust Reuters on any Apple or Samsung issue. The reporting they do from Seoul is particularly disingenuous.

    • JohnDoey

      The reason for the confusion is semantics.

      Apple was criticized for many years for not getting some cheap Mac cloner like Acer to build hardware for Mac OS and ship a $500 Apple-branded cheap plastic Mac. There are many quotes like this one from Steve Jobs in 2005: “we don’t know how to make a $500 computer that doesn’t suck.” Today, the Mac still starts at $999, so there is no “cheap Mac.”

      However, iPad runs the core of the Mac OS, as well as many Mac apps like Keynote and iMovie. iPad is definitely a $500 computer that doesn’t suck, and is in many ways a cheap Mac. Semantically it is an iPod PC, not a Mac PC. But in sales — it is the “cheap Mac” that so many pundits said would destroy Windows if it ever arrived.

      So we both have a cheap Mac and we don’t have a cheap Mac, depending on your viewpoint. Either way, HP and Dell are being killed stone dead by iPad right now, so the effect is the same as if iPad were marketed as “Mac mobile” instead of “iPod PC.”

      I think there will be a cheap Apple phone in the future, but I think it will be a new device designed to be the best cheap phone ever, rather than a cheaped out iPhone made of plastic and cardboard.

  • Micromeme

    Horace,
    isn’t the bigger mystery in the “other” category? other includes japan + europe + india/brazil/indonesia/rest of south america– why is it so low in number and low in growth rate?

    • Micromeme

      also I might mention that apple is available on 60% of the 3G subscribers in China. The figure of only availble to 30% of subscribers comes from the large 2G set on China Mobile.

    • ChKen

      In Brazil, tariffs on electronics were about 100%, so that hurt Apple sales. Europe has lots of entrenched smartphone competition, mfrs, etc., making Apple adoption slower.

      • Micromeme

        well yes there are clearly difficulties, but brazil aside, overall its not clear to me that they are as hard on growth rates or absolute success as getting into china is. For example europe’s “entrenched” competition was busy losing to samsung/android over the same period covered by horace’s graphs, and Europe is a bigger aggregate market than the US. There are two issues here from the graphs (1) absolute size and (2) growth rate. I would put absolute size in the ‘should be behind started with lag’ class, but I would have expected more growth rate in ‘other’ if adequate attention had been paid.

      • http://www.facebook.com/profile.php?id=741717344 Dick Applebaum

        I did some surfing and, AFAICT, the iPhone, iPad and iPad Mini are being manufactured in Brazil…

        I believe that this would remove the tariffs issue.

      • ChKen

        Yes, of course, that is correct, and one reason why Foxconn built a factory there. I was referring to the historical data Horace was showing.

  • ChKen

    Amazing how well Apple has done in China, and yet, the talking heads on CNBC were interviewing two analysts and coming to the conclusion of how Apple was failing in China, because it was losing share, and HAD to do a deal with ChinaMobile.

    I understand that the CNBC hosts only know Apple superficially, but that doesn’t explain the two analysts’ ignorance.

    • beidaren

      “consultant” or so called analysts are hired huns and they have their own agenda.

      • Walt French

        I don’t care whether “hired huns” is a typo or not: I love it!

      • Tatil_S

        What do you have against Huns?

      • orienteer

        It gets worse. I read it as “hired nuns”.

    • JohnDoey

      They were not ignorant. They knew exactly what they were doing: talking down Apple stock so try could short it.

      • AdamChew

        It is time to attack their credibility as believers of promises and at time empty ones (I am referring to Amazon) and when enough of us are doing I believe their they don’t have much of a future.

  • Robbie in Vegas

    Having spent a good deal of time in Asia the last three years, I find it amazing how many people have iPhones there…and many of them are people you wouldn’t think could afford one. It’s a status symbol. The biggest difference is that most of them do not pay a monthly contract fee; rather they buy minutes as needed whenever their phones run out. Also, as everyone knows, the market of knock-off products is huge. But whether they are clothes, videos, CDs, or electronics, the knock-offs are just not quite the same as the real deal. That knock-off Nike shirt bought in the streets just isn’t exactly like the Nike shirt we buy here in the states, that DVD may — or may not — actually work, and that knock-off phone just isn’t the same. People there instantly recognize whether or not a product is the real deal — and generally they want the prestige of owning the real iPhone, not a knock-off. And while I’m on the topic of Asia, let me note that if employees at the notorius Foxconn “slave” labor factories that assemble the iPhone, are actually earning around $2 per hour, as reported, that’s not bad compared to neighboring countries. (Please note, I’m NOT saying the conditions are good or the pay is good.) In Thailand most garment makers, computer-part manufacturers and other similar type businesses pay about $1 an hour, and that’s only because the minimum wage went up last year. In Cambodia, Laos and Vietnam, the pay is typically about one-third that of Thailand. And many children (12-17 years-old) do work at these jobs (so their families can eat), and many people do work “overtime” hours so they can actually buy something other than life’s necessities. For the media to constantly criticize only Apple on labor issues is not only unfair, it’s ridiculous. Unless we are ready to examine virtually every product we buy, and every company that has products manufactured in Asia, Apple should not be singled-out for criticism.

    • JohnDoey

      What you missed is that iPhones are very cheap PC’s that easily pay for themselves. You are looking at them as luxury phones, but they are cheap, practical, effective PC’s.

      I bought my first iPhone in June 2007. I started a habit of stopping briefly at a park on the way to work and reading and answering job ads with Safari. Then I started getting calls for interviews, followed up by emails to confirm, which I turned into calendar entries and then used the alarm clock to get up at the right time and maps to navigate to the interview, where I took notes with my iPhone. Within a month, I had a new job with $10,000 per year raise. That not only paid for my $599 iPhone, it paid for future iPhone devices and almost 10 years of service, so even today, my third iPhone is not costing me any money, just from what I did with the original in the first month.

      So there are many people who cannot afford to be without an iPhone, even if their budgets are not luxurious, even if they are just starting out.

      And I already had a Mac when I bought my iPhone. If I had no computer, the iPhone would have been an even bigger deal.

      • http://profiles.google.com/simon.hibbs Simon Hibbs

        ~$600 isn’t cheap. I’m pricing up laptops at the moment and a model with 15″ screen, 4GB RAM, i5 processor, 500 HDD and DVD writer costs about half as much as an iPhone 5 32GB. However because you’d also need to buy a phone, and because the cost is often subsumed into a monthly fee, they are reasonably affordable.

      • http://www.facebook.com/people/Carlos-Carbajal/620312515 Carlos Carbajal

        According to NYT article the average factory wage is around $300 per month not counting overtime (http://www.nytimes.com/2010/06/08/business/global/08wages.html?_r=0)

        Let’s double that to $600 a month for factory supervisor or a veteran factory worker at a higher pay scale with overtime.

        That means it take well over a month’s of wages to buy an iPhone for someone at that income level. Incredible but I believe some are doing just that.

        Status may be part of the story but I think the bigger part of the story is the perceived utility value – meaning it makes that much of a difference in a person’s life to justify such a high percentage of income for a purchase. Not many products can claim that kind of value proposition and pricing.

  • http://twitter.com/TMFNewCow Evan Niu

    Looks like a small typo, Greater China revenue in 2012 was $23.8B, not $22.8B.

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

      I see 22,797 million in the 10k.

  • dmx

    Bill Gates once said he prefer China users to pirate Windows instead of using Linux or whatever. Horace is right in so far that Microsoft has failed in China market for many years (considered how many PC users there) yet because Microsoft was doing really good in other markets they ignored the elephant-in-the-room and didn’t work hard to find a solution. Now they are too late to the party. Regarding India, how much revenue does Microsoft get and what is the percentage?

    • rational2

      Don’t have those numbers, but want to comment on piracy. Microsoft has huge development centers in China and India. Strange choice considering the huge lack of respect for intellectual property rights, as clearly demonstrated by rampant piracy in China and India.

    • neutrino23

      I recall some similar discussions a long ways back along the lines of MS was tolerant of piracy in China and elsewhere as they felt it established the mindshare in favor of MS and someday they’d monetize that. Maybe fact, maybe just some analyst talking.

  • http://www.facebook.com/profile.php?id=741717344 Dick Applebaum

    Here’s an interesting article (including linked references) that suggests that the China Mobile migration to 4G is well underway and may take much less time than previously predicted… It involves use of Intel’s C-RAN which is more flexible and easily deployed than other solutions.

    “Our December report showed that Mobile China would have a third of their market on 4G in the coming year which works out to a potential target of 233 million subscribers that Apple would be able to sell into. That’s a market that’s double the current US smartphone subscriber base.”

    http://www.patentlyapple.com/patently-apple/2013/01/china-mobile-admits-to-a-confidentiality-agreement-with-apple.html#more

  • OviP
    • Walt French

      That might be a fair vid for people who haven’t looked at Apple’s market, but for those who come here, the bald assertions — such as the wealthiest billion people in the world will just automatically buy an Apple product every year or two — seems awfully sketchy. (There *ARE* competitors.)

      I stopped reading MDN after some of my comments were deleted — my guess was I was insufficiently enthusiastic in some discussion. (Frequent comment-readers here know I don’t engage in Apple bashing.) I’m no fan of jingoism, no matter what side of a fence.

      So I wonder why you take the line so whole-heartedly.

      • JohnDoey

        No, Apple has no real competitors, only some cloners.

        Google makes ads, Microsoft makes software platforms for hardware makers, Samsung copies everything that somebody else has shown can sell. Only Apple is trying to make the best computer for the user.

        The Mac is untouched in high-end computing (over 90% of high-end computers are Macs) because nobody else is even trying to make a high-end computer. This has been going on for 30 years now. Others made cheap copies of Macs to sell cheap to rubes, same as today Samsung/Google/Microsoft make cheap copes of iOS devices to sell to rubes. I saw a commercial for Windows Phone were they acted like low-light photography is the one and only use for an iPhone, because that is the only thing that Windows Phone does better if running on a giant brick of a NOKIA Lumia. Samsing is still pushing 2005-era Java applets, and 1990’s-era display subsystem and software updates.

        Apple is selling all of the devices that they can make, doubling each year, because they have NO COMPETITION. Same as with iPod+iTunes. Appearance of competition — no competition.

        Samsung iPhone clones replaced feature phones. Apple never had a feature phone. It was Nokia and LG and so on that got crushed by Samsung/Android, not Apple. Apple cooked along the whole time, sales doubling every year. Each new iPhone model outselling every previous iPhone combined.

        The Mac is THE high-end computer and iPad is THE low-end computer. All other computers are Mac clones, iPad clones, or even hybrid Mac/iPad clones. They are 5 or more years behind and take every cue from Apple (for example Galaxy Tab 1 was black only like iPad 1, but Galaxy Tab 2 was black or white, like iPad 2.) The problem for the cloners is that Apple will eventually eat their market with an iPhone derivative that is as cheap as an iPhone clone. In other words, the $200 smartphone market will eventually go to iPhone nano. The $200 smartphone buyer has already said that is what they want by buying iPhone clones. The Mac derivative (iPad) is replacing Mac clones (Windows PC) in that same way right now.

        Nobody is competing with Apple. They are all competing with each other to be the most successful Apple follower. We are only a couple of years away from the day where the majority of all PC’s (low-end and high-end) are Apple-branded, not just the high-end as it was in 2010.

      • OviP

        Walt

        Saylor makes two very valid points. Apple has created an unique and compelling brand that will ensure great profits for many years. But the most interesting part is that a cheaper iPad in the future will open up discovering and learning to Chinese peasants in an incredible way. When TC sees China as the biggest market he is not just spreading wishful thinking.

        I think a cheaper iPhone in Africa and the rest of the third world will have a similar impact. The mobile internet and communication wave I believe is as important to world history as the invention of the printing press and publishing of books in the 1400s.

        Steve Jobs wanted a computer for the masses. His vision is coming true via the iPad and iPhone. Just as the iPod became available to the masses so will the iPhone and iPad.

        Think of Ford 1910 when suddenly everyone can afford a car not just the rich. This is only the beginning of a revolution in tech that will change our planet in amazing ways in the next 30 years.

      • Walt French

        “Apple … brand … will ensure great profits for many years. … a cheaper iPad in the future will open up discovering and learning to Chinese peasants in an incredible way. … a cheaper iPhone in Africa and the rest of the third world will have a similar impact.”

        Both the video and your response are full of presumptions about the future, presumptions that lack ANY indication from Apple when and how they will address these developing markets.

        This is speculation — maybe even GOOD speculation. But it ain’t analysis. Especially as it postulates an emphasis that Apple has yet to show, on the very lowest-income regions and competing with the lowest-cost producers, we shouldn’t swallow it without getting some serious signs as to why Apple will use its talents in this direction more than others.

  • JohnDoey

    Surface implies that a Microsoft-branded phone would be too expensive, have too-limited functionality, and sell only a tiny number of units.

    Building software without hardware has made Microsoft’s software suck. Even if they could make a decent hardware device (doubtful) then ironically they have no decent software. Not just the OS, but also no decent apps, with the possible exception of a handful of Mac apps they got ported. But the Mac is the developer system now, it is for publishers and coders and creative professionals. If you need Photoshop, you already have a Mac. Everyone else needs iPads, devices that are diametrically opposed to what Microsoft builds.

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  • Jake_in_Seoul

    There are many sources of Apple’s current popularity in China, but one that has received only scant attention abroad is the iphone’s enormous popularity as a status symbol with women.

    I first became aware of this last year during a “research trip” to a massive KTV establishment (i.e. karaoke club), employing hundreds of women to sing along with patrons and fill their glasses as quickly as possible. Noticing my own partner’s iphone 4, I asked her if many of the other women there had iPhones and was startled her matter-of-fact response, accompanied with a “duh” rolling of the eyes : “他们都有!“ (“They all do!”). As in, to be caught dead without an iPhone would be tantamount to social death in some circles.

    And in fact if any of you chance to read Chinese it’s trivial to do online research on the great popularity of iphones as the pre-eminent date gift (just try “爱疯5” “送女朋友”). In fact this theme seems so popular it has apparently spawned its own minor internet literary genre: the cautionary sob-stories of young men who lost their girl friends by being too cheap and not giving them the iPhones they so ardently desired.

    Now, I have witnessed many men in Chinese carrying iphones as well, but for young women in urban locales–for the moment at least–owning one seems to be de rigueur, a highly visible fashion accessory that practically screams out “I have a rich and generous paramour.”

    • Simon

      Funny that in Korea the Samsung Galaxy Note 2 took the similar spot among the women.

    • insanedreamer

      True, but it’s not limited to those who have “rich paramours”. The number of people who own an iPhone whose income levels suggest they shouldn’t be owning one is shocking. It’s because the amount of money that people spend on “face” here in China is quite disproportionate to their income. This is because traditionally one’s self-worth comes from the approval of one’s immediate society rather than inner self-esteem.

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  • insanedreamer

    I live in China, and this is unsurprising:
    1. It’s easy to pirate Windows/Office — I don’t know anyone who buys MS software, whether individuals or businesses (except very large corporations). A pirated copy is exactly the same quality as an original.
    2. Apple hardware is much harder to pirate, and if you do, the copy is garbage compared to the original (no incentive to purchase).
    3. Apple hardware has become a status symbol—if you’re not sporting an iPhone4S (or Samsung Galaxy S3/Note2) you’re a nobody.

    I don’t think it has much to do with integration.

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

      I believe you’ve made a very eloquent argument that it has all to do with integration.

      • insanedreamer

        Dammit. You’re right.

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