Apple's China Factor

Earlier this week, Asymco’s Horrace Dediu wrote a wonderful post about the huge differences between Microsoft and Apple in China. He makes a very strong case for how difficult of a position Microsoft is in. I encourage you to the Asymco post in detail to understand his arguments. Pretty compelling stuff.

Tim Cook was recently quoted in the media as saying he believes China will inevitably become Apple’s largest market. Currently China is their #2 market behind the USA. Asymco predicts that the crossover could happen in 2016 given the incredible strength of Chinese growth for Apple. Seems reasonable to me.

The interesting thing about China is the number of mobile users. Asymco points out that China has 3x as many mobile users as the US. Reports from China’s CNIC show that China had 538 million netizens at the end of June 2012, with 388 million of these being mobile users. That leaves only 150 million PC users. Obviously mobile use is growing tremendously, while PC growth is not.

So that’s where things stand right now. But will Microsoft be able to make a dent in the market with Windows Phone? Often, I find a good indicator of success comes from Google Trends. This is Google’s tool to measure search queries on certain phrases. So I compared the term “iPhone” to various Microsoft-centric keywords like “Windows Phone”, “Windows 8” and “Windows8”. It’s pretty obvious that either nobody in China wants Microsoft powered phones, or they just aren’t searching for information about them using Google.

We’ve all heard the claims that the world is moving towards mobile computing. I think it’s true, but I certainly have no plans to throw away my Macbook Pro. I wouldn’t be happy with just iOS (or Android, or BlackBerry 10, or whatever). But in developing markets I think the transition is happening much faster. Mobile devices are cheaper, always connected, and (obviously) portable. The majority of Internet connections in China are already mobile. This means app development will concentrate towards this larger user base. In emerging markets, I think it’s fair to say that the traditional PC market is dead.

This is what leads me to believe Apple will build a less expensive iPhone. I have no idea if the rumours of a this-year launch are right or wrong. But I do believe it makes great sense for Apple to capitalize on its strong position by taking its price point down somewhat. We’ll just have to wait and see when and if it happens.

If Apple can launch lower-cost (and presumably lower spec) devices specifically in emerging markets, meaning they are not available in the USA or other developed markets, I think it will really help overall sales and profitability. I’m not saying they need to be sub-$200, but I do think Apple can’t maximize profitability at $600+ in China and other markets.