11 May 2017

Stratechery: “Apple’s China Problem”

That, though, is a long-term problem for Apple: what makes the iPhone franchise so valuable — and, I’d add, the fundamental factor that was missed by so many for so long — is that monopoly on iOS. For most of the world it is unimaginable for an iPhone user to upgrade to anything but another iPhone: there is too much of the user experience, too many of the apps, and, in some countries like the U.S., too many contacts on iMessage to even countenance another phone.

None of that lock-in exists in China: Apple may be a de facto monopolist for most of the world, but in China the company is simply another smartphone vendor, and being simply another smartphone vendor is a hazardous place to be. To be clear, it’s not all bad: in China Apple still trades on status and luxury; unlike the rest of the world, though, the company has to earn it with every release, and that’s a bar both difficult to clear in the abstract and, given the last two iPhones, difficult to clear in reality.

Ben Thompson

Every time I hear this argument about Apple’s ecosystem advantage it rings more hollow. I’m reasonably sure it’s a clever rationalization from Apple analysts trying to justify its success with a grand unifying theory instead of many small factors (carrier subsidies, brand loyalty, consumer inertia and, as hard is it to stomach, hardware) – a theory with little real evidence.

iOS may be exclusive to iPhones, but it’s by no means superior — and neither are iOS apps. The latest iOS update is inferior to the predecessor in almost every way. Apple’s own apps have never been top of the line, precisely by virtue of being installed by default, and it’s become a running joke for people to share their iPhone home-screens and try to count how many Apple apps they use (usually very few). For each service Apple provides, you can find a better one that works cross-platform. iTunes is such a horribly bloated piece of software, that it feels like punishment for buying into Apple, rather than reward. And the App Store has slowly, but surely drained third-party apps of value, promoting the same low-value experience, supported by ads or in-app purchases, that Apple fans like to criticize about Android.  

No company has done as much damage to the perceived value of software, and the sustainability of being an independent developer, as Apple.

Matt Gemmell

Let’s look at other products in this grand Apple ecosystem; surely they also benefitted from the exclusive qualities of iOS. What? iPad sales have been in decline for the past three years? Surely that can’t be right! Or maybe iOS is just not exclusive enough for the iPad.

And the Mac? Granted, it’s not running iOS (yet…), but what were users complaining about most loudly? The lack of a hardware refresh. When did sales and selling prices jump considerably? When Apple finally launched new laptop models, however flawed and criticized. Here it’s still hardware that drives the upgrade cycle, not some mystical software quality. I’ve personally known people using Macs alongside Android phones because they simply don’t see any value in buying an iPhone. Overall, only 1 in 10 iPhone users has a Mac as well, so the ecosystem argument falls flat again from this perspective.

Apple retention rates by region
Apple retention rates by region Source: UBS Evidence Lab

Ironically, it’s only with the introduction of Apple Watch (and more recently AirPods) that Apple has seriously started to build an ecosystem around the iPhone that may sustain it for the long term. An old-fashion ecosystem of accessories, similar to the interchangeable-lens professional cameras, but with greater potential for customer retention.

It seems the article tries to imply that Chinese buyers are superficial, making decisions based on the overall appearance of the device rather than long-term value. I would argue they are actually pragmatic: having tried the iPhone, they found its value doesn’t merit the higher price compared to other models. The rest of the world may not have a strong software platform as WeChat in China, but outside the US people are not nearly as locked in to Apple as analysts like to imagine. Apple should be careful that its China problem doesn’t become a worldwide problem.

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