iPhone Growth in China: It Isn’t What You Think

iPhone Growth in China: It Isn’t What You Think:

The 8 million iPhones that Apple sold in China last quarter are a lot like exotic pets: They’re cute and they make great gifts for rich young men to give to their girlfriends. But outside of their native ecosystem, their survival prospects don’t look very good.

Nathan T Washburn

The unexpected sales boom in China (8 million is my rough estimate) went a long way toward offsetting the company’s less-than-robust performance in the U.S. market and helps explain Apple’s record-breaking profits. Analysts and investors are excited by Apple’s performance in China, but predictions of the company’s sustained growth there are premature.
In its native U.S. ecosystem, the iPhone functions beautifully. But take it to China and the device just isn’t very happy. To start with, more than half of the 30 million iPhone users in China have unlocked their phones (a hint that something isn’t right) and are using them on an unauthorized network (China Mobile) that until recently limited them to 2G data speeds. Try accessing Youku (China’s version of YouTube) on a 2G network. Probably not going to happen.
And then there’s the problem of input. Apple’s U.S.-centric R&D efforts have failed to produce a Chinese-friendly input system. This is a serious problem, because texting is an integral part of Chinese life. Rather than use the laborious system that Apple designed (reminiscent of early Chinese input systems), many Chinese iPhone owners jailbreak their phones and install third-party software that drastically simplifies the process.


Jailbreaking is wildly popular for other reasons too. It allows Chinese users to download any of the App Store applications for free and facilitates access to third-party applications, which is important because applications designed specifically for China are few and far between in the App Store. Music and movies also can be downloaded for free and shared with others on iPhone user forums.
Siri — the most attractive new feature driving iPhone 4S sales — does not work in Chinese and even struggles in English if you have a strong Chinese accent. Finally, warranties are invalidated by the unlocking and jailbreaking, which is a good thing since 30 million iPhone owners would quickly overwhelm the six official Apple stores in China.
So Chinese users are cobbling together an iPhone experience from a variety of sources, and the overall experience is not very good. The comment Tim Cook made to analysts recently suggesting that Apple is focused on delivering a phone with “off-the-charts user experience that customers want to use every day of their lives” sounds like pure hyperbole from the Chinese perspective.

A lot (if not most) of the new iPhone users in China are women, and many women I spoke to said they had acquired their phones as gifts from husbands or rich boyfriends.

The iPhone may very well be the best smart phone on the planet when it’s living in its own ecosystem, but its functionality and user experience quickly dissipate when it leaves its natural environment. And then there’s the price — $700 in a country where managers typically make $1,000 a month.
Who in their right mind would buy this phone? I asked 70 mid-level Chinese executives in a class I was teaching. None of the 45 men owned (or wanted to own) an iPhone. But ownership was almost universal among the 25 fashionable women.
The stunning results of this impromptu survey prompted further investigation. Apparently, a lot if not most of the new iPhone users in China are women, and many women I spoke to said they had acquired their phones as gifts from husbands or rich boyfriends.
For a gift that exudes exclusivity, functionality is secondary; slow downloads, sparse content, and kludgy fixes may not be important. Maybe on the next quarterly call, Tim Cook will tell analysts that Apple is now focused on selling expensive fashion accessories.
Recently, when shopping for a phone in the United States, I was tempted by the large, vivid screen of the newest Samsung device. However, I will probably purchase another iPhone instead, because I am locked into the ecosystem. My investment in music and applications, the seamless interface with my other Apple products, my familiarity with the system, all ensure that I will not leave. But in China, where users build their own structures (or opt to only superficially utilize the device), this lock-in does not happen.
All of this is good news for competitors like Samsung, HTC, and Microsoft/Nokia. Chinese consumers are waiting for someone who understands their context to develop an ecosystem that makes smart phones easy to use. It may be that local players like ZTE and Huawei (whose very functional smart phones cost $150) are best positioned to get this system right.
In any case, the winner certainly will not be a company that develops hardware, software, and an ecosystem from a U.S.-centric perspective. With its recent explosion of sales in China, Apple looks like the dominant force in the global smart-phone market. But that dominance could be very short-lived.
Nathan T. Washburn is an assistant professor at Thunderbird School of Global Management.
This post first appeared on the Harvard Business Review Blog.