Can Apple teach China about quality?

Can Apple teach China about quality?

Summary: The doom and gloom about Apple's future contimues. The party line goes that Cupertino must repent of its ways and make a New Year's resolution to produce cheaper and cheaper systems. How else can it really succeed?

TOPICS: Apple, Android, iOS, iPhone, China

Apple recently admitted that in mid-January iOS devices would be sold for China Mobile networks in China. It's the world's largest mobile network and Apple will offer iPhone 5s and iPhone 5c for the market. And yet by the accounts of many analysts, this China Mobile deal may be something just short of disaster.

Can Apple learn China about quality?

The word "premium" is a curse. Here are a couple of examples of the many posts:

At Forbes, Mark Rogowsky warned that Apple can't make it selling expensive units.

Instead, Apple is likely to reap the benefits of simply selling more pricey phones through more carriers in its current fiscal year. While China Mobile won’t help this holiday quarter, it will likely help smooth some of the seasonality that has recently seen Apple revenues fall off significantly into the new year. (The China Mobile rollout coincides with Chinese New Year, not a big time for gift giving, but the exchange of money is common. And with excitement over the iPhone, initial response is likely to be strong.)

From here, Apple is back at a crossroads. It can continue pursuing its current premium-price course, with the risk that a maturing smartphone market makes even that unsustainable.

Over at CNN Money, David Goldman said that without a low-cost iPhone, Apple won't make a mark in China.

Apple CEO Tim Cook has discussed gaining a stronger foothold in China as a major priority for the company. The China Mobile deal will help Apple accomplish that.

But unless Apple changes its strategy and offers a low-cost iPhone for the Chinese market — something the company has proven unwilling to do — it's unlikely that Apple would become a top Chinese smartphone player.

However, all of this fretting by business analysts misses the mark: Yes, Apple is the high-end play with mobile devices and with its computer lines. This is the brand, as the marketeers say. But it's also strategic.

In a post to the Monday Note blog, Jean-Louis Gassée said that mobile carriers in the U.S. and Japan have followed Apple's "slow-but-steady, surround-from-below approach" and that China is now following the pattern.

Apple is master of the slow-but-steady, surround-from-below approach. First, sign up a weaker player who will accept Apple’s stringent control in exchange for the opportunity to take business away from the dominant player who balks at Cupertino’s terms. After enough customers have switched to the smaller competitor, the market leader changes its mind and signs up with Apple — on Apple’s terms.

This only works if – and only if – the iPhone is a great salesman for the carrier. Apple extracts a higher price for its iPhone for two reasons: strong volumes and higher revenue per subscriber compared to other sets.

Gassée then quotes analysis by Asymco founder Horace Dediu about the differences between the iPhone and Android customer. He says that Apple customers are better customers in that they use their phones more, browse more and pay more for services. This demand leads to greater network investment by the carriers.

If there is no additional browsing then there is a far smaller economic incentive to network operators to invest in infrastructure. It is this link between usage and revenues which I hypothesize drives operators to carry, subsidize and promote the iPhone. And the resilience of this link indicates that it still works.

If there is something to be concluded it’s that not all usage is created equal. The data regarding how apps and ads are consumed is consistent with a qualitative difference between iOS and Android. This data is more of the same.

It’s something of a cliché to say that audiences vary in terms of quality, but that does not make it less true. Indeed, network operators depend on it being true. And so does Apple.

And it is true. Apple customers have always done more with their computing devices, such as creating or editing content, not just reading or viewing. They purchase more software and use that software. This was so back in the days and it's true nowadays.

As I mentioned in a post this year, Paul Krugman is (finally) wrong about something: Apple Macintosh, PC analysts have internalized the commoditzation of the PC market over the past 15 years and made this the highest value. In this viewpoint, all computers are alike and the cheaper the better. And there's no point in buying a more-expensive brand. What was true for computers is the same with mobile devices.

But behind the scoffing, we can sometimes see a bit of envy. For example, in his Anandtech holiday review of the Best Tablets of 2013, Jarred Walton said: "For the budget conscious, let's be frank: Apple isn't for you. “Budget” and “Apple” are like oil and water – they don't mix."

I'll be honest here: I'm not devoted to the Apple ecosystem by any stretch of the imagination, but mostly that's because I tend to gravitate more towards the affordable end of the spectrum. That said, if money were no object, I'd go out and buy the iPad Air 32GB or maybe even 64GB.

In my opinion, the combination of SoC, industrial design, display, performance, and other features makes it the best current tablet on the market. That's not to say that I don't like Android options, but as someone that has never actually owned an Apple product other than a 4th Generation iPod Touch, I still envy those that apparently can afford the latest and greatest Apple smartphones and tablets.

Need some help understanding the difference between Apple and the rest of the industry, between their takes on their customers and the solutions they provide? Take a look at their holiday season television campaigns.

Topics: Apple, Android, iOS, iPhone, China

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  • title?

    Do you mean "lean from China about quality" or "teach China about quality"? The current title doesn't make any grammatical sense.
    • Thank heavens!

      I'm so happy someone else picked this up as well!

      You 'teach' someone. A person 'learns' from you.

      It's not that effing hard!
      The Guv
      • Ditto!

        And is the theme of the article suppose to be the cost of the product or the quality? It is possible to make a quality low cost product. Or is the implication that Apple should make expensive, poor quality products?
        • Title corrected

          The title's been corrected. Thanks for the spot!
          • You should have left it as it was, Zack...

            Morgenstern deserved the criticism, as sometimes his comments about Apple users being better educated kind of rub people the wrong way! Hehe...yes, I am a twisted individual!
          • This one isn't better educated

            (A case of I should be so lucky!) :-) Happy New Year everybody. And now I'm off for my first breakfast of 2014.
            Laraine Anne Barker
          • So, what are the not so educated Apple trolls having for breakfast?

            Careful who you flag as spam...moderators receive alerts about spam flags.
          • Facts wrong about the article

            As a first generation Chinese, I can speak with certainty that Chinese do exchange presents over Chinese New Year, not just "lucky money". The iPhone is the top of the heap in terms of desirability. Workers often gift high end items to their bosses hoping to get on their good side. Getting an iPhone instead of an Android....any Android.... Is like getting a Rolex vs a Timex.

            Sure, Apple can make a cheaper phone, and sell zillions of them. But that will cheapen their image, and lower their margins. Only a critic who has no ROI responsibilities would come up with such a lame suggestion.
          • I never got presents

            I'm first gen chinese as well and I never got a present. But we were all poor growing up so maybe that had something to do with it.
            new gawker
  • Apple will be a niche market in China

    Having spent most of last year moving between Hong Kong and mainland China, I think Apple has a tough road ahead. The Chinese have fallen in love with large screens. I cannot believe how popular the note 2 and other large screen devices. It's funny because the size seemed to be a detriment in the eyes of reviewers, but I see scores of Chinese teenage girls with their Note 2 hooked up and watching a movie or playing a game. The same is true obviously with the guys. Apple is definitely hot in Hong Kong (witness the 2 story Apple store in Central) and among the very wealthy it will be a status item, but among the vast majority of Chinese, I think they will balk unless it is heavily subsidized.
    • Even in Western countries will Apple get problems

      My employer for example offer the choice between windows phone and Android. No iPhones supported, since poor value för the money.
      • Stay away from employers like that

        They're almost invariably cheapskate.
        Laraine Anne Barker
      • crappy company you work for

        How unprofessional your tech team is moved by emotions.
        new gawker
        • IT is outsourced

          Hard to convince management to pay extra for iPhones when no logical arguments in favor of purshase...

          We run on Windows with Office 365. Most other software is special programs for research and manufactoring, which only runs on Windows.

          Summary: No Apple products today, no logical reason to pay a premium for these at the moment
    • Fortunately, the way you keep score in this

      game is profit. Not market share.
    • They only need niche market

      Obviously apple will have a small part of the 700 million consumer market. But that's all they'll need to rake in 10's of billions in profits while everyone else fights for the rest of the market. Pretty much like in the US where only Samsung makes a profit in the android phone market.
      new gawker
  • Quality is not the issue.

    I got a Huawei smartphone before. Was well built and so on. I think Apples problem in China will be that iPhone 5C is priced wrong compared to iPhone 5S. And if you look at sale numbers it seems like a fiasco already. Nobody here in Europe buy that model.

    It would be at a similar price like the Motorola Moto G, Nokia Lumia 520, 521 and 525 etc...

    If so many younger people and those who never owned a iPhone would have gone for it.
    But Apple doomed themselves now.
  • Bizarre Article

    You change the thrust of your argument midstream, first saying that Apple charges too much, and then "admitting" that Apple makes better products that people value and use more. You merely imply that business-wise they are raking in cash like there's no tomorrow.

    You are incorrect on what carriers want. They want as much money they can get while providing little to no service, which is why there are data caps. They want you to buy an expensive device and an expensive plan to guarantee a steady and strong income stream and then for the customer to never use it — that would be the ideal for them.

    No one can really know how much owners of devices actually use them if they are not online. If people are constantly playing games that do not interact with the internet then there is no metric to measure that activity. The data dictates that Apple users — myself included — that Apple mobile users take the lion's share of usage and spending. This may be true, but the yardstick is seriously flawed unless every device is secretly reporting all offline usage and I doubt this is the case. So no one really knows whether some devices are being used as doorstops or are being used all day, all we can do is measure online usage and spending.
    Jim Gramze
  • Sorry but it's another way around

    Take a look at Oppo's handsets for example, they have made every single iPhone looks like a joke.

    Oh you think iPhone was the world thinnest smart phone? That was a lie.
    It was Oppo Finder.
    • Oppo Finder?

      Who cares?