By financing iPhones directly, Apple locks in iPhone users to a rolling subscription, enters the second-hand market in a big way and removes a piece of mobile operators' relationship with usersRead More
Looking at the Chinese mobile market today reminds me a lot of looking at the Japanese model in 2000 or 2001 - lots of very interesting stuff is going on, but getting reliable data is very tough.
One triangulation point comes from app analytics platforms. You need to have some caution as to how representative they are, but the big ones give a good directional steer. Umeng (think Flurry for China) is one of the biggest. It puts out statistical reports every quarter or so - these are some of the key charts in the latest.
First, platform size - this is their estimate of active devices that are using apps (not total devices), including tablets.
Both iOS and Android are growing fast, and Android faster, as one would expect given the range of prices that Android devices are offered at. However, on this data there are probably more iOS devices in China than smartphones in the USA.
Second, handset brands. Apple is the largest single brand in this data set, but shrinking. This of course is users, not ongoing sales, so some recent suggestions that (for example) Xiaomi outsold iPhone in the run-up to the iPhone launch may be compatible with this.
Finally, and perhaps most interestingly, a window into the state of Android in China. As most people know, the great majority of Android devices sold in China are built on AOSP and have no Android services pre-installed (indeed, I've used a Motorola phone with no Google services present) - instead they have a range of apps from the local internet giants.
This means that most Android phones have no Gmail, Google Now, Google Maps or, of course, Google Play, and most apps are installed form third party app stores or side loaded, either pirated or downloaded directly from publishers' sites. Some handsets do have these, either because people added them afterwards (which is not easy) or because they're using grey market imports. Estimates of the total with Google apps on them are mostly in the 20-30% range. However, on Umeng's data, Google Play amounts to just 5.6% of Android app installs in China. OEM app stores are 8.5%. This, for example, is why Baidu paid $1.8bn to buy a couple of app stores earlier this year.
Things I am wondering today: how exactly do these three charts interact? What decisions made while looking at the first two resulted in the third?
Apple, obviously, blew the doors off with opening weekend iPhone sales - 9m units in 3 days, up from 5m last year. Having day one launch in China and adding DoCoMo to distribution obviously helped, but there's clearly still strong underlying organic growth. And it appears that this is without substantial demand for the 5C (which is not an early-adopter/queue overnight sort of product).
However, the really interesting thing is that there are now 200m people using iOS7, where last year 'only' 100m people upgraded to iOS6 in the opening weekend. The chart below shows what this means, as compared to Android, the other platform.
Google, of course, is trying to address the fragmentation embodied in these charts with a shift to Google Play services, as neatly explained by Ars Technica here. But though this means Google itself is less subject to fragmentation, it isn't much help to a developer wondering whether to use APIs that are only in Android 4.2 or later - let alone one wondering why their app crashes on one Android 4.2 phone but not another.
This issue makes it hard for Google to drive the agenda for new mobile technologies within Android: it will take at least a year after announcement before a meaningful part of the base has access to anything new. Hence the focus on Google Play services and on the cloud with things like Google Now - moving everything several layers up the stack from the intractable fragmentation problem, and making the hardware OS less relevant. But of course, this reduces further the reasons to upgrade your OS, and makes it much less likely that third party apps will do anything on Android that they don't do on iOS (system utilities and other minority interests aside).
Conversely, a developer can use anything that Apple announced in iOS7 and be confident it will work on all their users' devices. So anything innovative Apple does takes effect right now. Apple does have some fragmentation issues - some of the coolest features in iOS, such as Airdrop or iBeacon, have chipset dependencies that rule out older hardware. But Apple's integration means that it can drive innovation on the device much faster than Google. It can do Airdrop - putting that in the next version of Android and expecting it to work predictable for a meaningful proportion of the base any time soon would be much harder.
Hence the paradox: the open platform is actually slower-moving in some ways than the closed one.
Incidentally, the fact that Google seems to be moving more and more innovation away from the OS poses interesting questions about future roadmaps. Will 'Android' still be the main platform in the future, or will it be Chrome, or something else, with Android buried underneath?
Someone once pointed out that Apple's obsessive secrecy was wasted on the iPad, since even a year after it launched most of the competition had no idea what the iPad was or why anyone would buy it.
I was reminded of this while puzzling over Apple's new iPhone launch, because much the same issue applies. What, exactly, has Apple just done?
We know perfectly well what it has not done: it has not released a dramatically cheaper phone that could sell to the prepay market or even to mass-market contract customers outside the USA. This was widely rumoured and I myself thought Apple would go significantly cheaper, but it didn't.
But what did it do?
The obvious answer is that Apple continued the existing strategy. A new high-end iPhone, with new cool tech (camera, 64 bit, fingerprint) that makes it the phone to beat for the next 6-9 months until Android catches up and overtakes it in the annual game of leapfrog (though matching 64 bit might be rather more difficult). Plus, last year's phone sold at a discount. This time, last year's phone is in a different case (and gets more LTE bands and a bigger battery), but the price is the same, so it's clearly not a step change. The 5C is really just last year's phone. And historically the old models have sold well in the USA (non-LTE iPhones were half of Verizon Wireless iPhone sales in Q4 and Q1), due to the unique US pricing structure that makes them look cheap, but don't appear to have sold well anywhere else.
For investors, the fundamental question is whether Apple is still a growth stock. This doesn't look like a growth move, and the lack of a China Mobile announcement (so far) doesn't help, so the stock went down.
But I'm cautious of applying the word 'just' to anything Apple does. The iPad, after all, was 'just' a big iPod Touch. 'Just' works well when you're looking at a company that launches dozens of products (Samsung now, Nokia in the past) - many of them are experiments, not all are expected to be hits, some are niche. But when you only make a handful of products, all of your moves are carefully considered. All of them have an agenda, and all of them are intended to achieve something. Hence, I'm cautious of applying the word 'just' to anything Apple does. There's generally a plan.
And then we have this.
Apple did not spend the last 12 months running advertising for the iPhone 4S. That was an 'old phone', and it was a phone you bought if you wanted an iPhone 5 but couldn't afford it. The 5C is different. It's a new iPhone, and indeed I think it's the main iPhone. The iPhone 5S is the high-end one for people who want the latest tech - the 5C is the one for normal people. The same money now buys you a cool new phone, not a discounted old one.
If you spend all of your time looking at this space you can miss this point. You know that the iPhone 5c is mostly the same as the 5 - 'just' the 5 in a new case, more or less. But consumers neither know nor care. They don't go into the shop and ask how new the chipset is - they look at the phone itself as a buying proposition.
The fundamental characteristic of the mobile and tablet business is that consumers do not buy 'feeds and speeds' - they buy experiences, and they buy in person, in the shop, holding the thing in their hand. Feeds and speeds matter, behind the scenes - because they change what experiences are possible, but they're not the deciding factor at purchase in the way that they often were in the PC market.
Hence, if you look at Apple's Youtube channel, there are videos talking about the 5S fingerprint scanner and the 5S camera, but not the new 64 bit chip (though this enables both). The same applies to Apple's (relentlessly hammered in) talking points:
- "iPhone 5C - an advancement of iPhone 5 with an entirely new design that feels great in your hand, and colour that only Apple could do
- iPhone 5S, the most advanced iPhone ever, with our most forward-thinking technologies. "
So the 5C is the new iPhone, and it's $100 cheaper, while if you want the supercool new tech you pay more for the 5S.
What does this mean for sales? In the USA, Apple has effectively halved the price of a new iPhone, from $200 to $100. It already has 40-45% of contract smartphone sales - this move will take another big bite out of US Android sales.
It's worth thinking about what that would do to the Android ecosystem. Apple already has a systemically disproportionate share of the kinds of users who download apps. If, in the USA, where so many developers are concentrated, it went to well over 50% share, that could have a big impact, not so much in support from large companies but from all the cool new startups that do much to drive a platform forward.
Elsewhere, $550 for the 5C is still expensive, especially for the 50% of Europe and 90% of China that's on prepay. Android averages $250 to $300, in contrast, and Xiaomi's new flagship phone is $330. But that doesn't mean it's out of reach for the other 50% of Europe, or for the 2-300m people in China who buy expensive consumer goods.
This is where the real question arises. How much price flexibility will we see? How many more people will pay an extra €5 or €10 a month for the 5C over a cheaper Android? What will happen to sales of the Galaxy S4, which is notionally a higher-end phone at a similar price? How much will the 5C take from sales, not just of $550 Android, but of $400 Android? That answer could make a big difference to Apple's market share. And it's worth noting that even with the previous pricing strategy, Apple's market share was growing steadily.