Apple is doomed in China

Nathan T. Washburn is wrong. As is the case with most Western “analysts” (in this case, “analyst” stands for “assistant professor”) commenting on China, he betrays his ignorance about China fairly quickly.

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.

First of all, China Mobile still “limits” users to 2G data speeds because its data network uses TD-SCDMA—a 3G format that the iPhone doesn’t support. As for the unlocking issue, many of the iPhones in China were purchased before Apple started selling them officially within the mainland. Of those phones, the cheapest were American iPhones, which, until recently, were locked to AT&T. Therefore, in order to use those phone in China at all, they first had to be unlocked. The high incidence of unlocked, gray-market iPhones in China shows the overwhelming demand for them here. It is not, as he implies, a sign of Apple’s impending doom in this market.

To be fair, I’m nitpicking. However, these factual errors impinge the man’s credibility, which is important to think about when considering his overall point.

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.

Mr. Washburn makes this assertion based on an “impromptu survey” he took of 70 midlevel Chinese executives. This research led him to conclude that:

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.

He’s right. A lot of Chinese women have iPhones. Do you know what, though? Tons of Chinese men also have iPhones. Since Mr. Washburn is making broad assertions based on anecdotes, let me share a few of my own. Nearly every guy in my gym has an iPhone 4/4S. Nearly every one of the male small business owners I know who can afford an iPhone has an iPhone. My Chinese friends who have iPhones love them. They use them all the time. They use them far more than they used their feature phones. Contrary to what he says, pretty much every major Chinese website (Youku, Tudou, PPTV, Sina, QQ, etc.) has good, frequently-updated apps on the App Store. To say that the iPhone’s “functionality and user experience quickly dissipate when it leaves its natural environment” is absolute nonsense.

I agree with one thing he says. Chinese language input in iOS is by no means perfect. Apple has made great strides since iPhone OS 3.0, however. Today, writing Chinese on the iPhone isn’t too painful, but it’s certainly not ideal. Since iOS’ Chinese input method lacks autocorrection, a user has to be very accurate when typing. Mistyping is easy to do on the iPhone’s small keyboard, and, since every mistyped letter must be corrected manually, writing in Chinese on the iPhone can be quite a time-consuming process.

Contrary to what Mr. Washburn says, I see a lot of encouraging signs for Apple here in China. One of the most positive signs is that the Apple brand is widely admired. I’ve never heard any Chinese people speak negatively of Apple. Another positive sign is that iPhones and iPads are beginning to make their way into the hands of the average consumer. Young office workers and even college students are starting to buy iPhones. Most analysts miss this point and just focus on the purchases of iPhones by urban elites. When I bought my first iPhone in China (the iPhone 3G), it cost nearly $1000. My most recent iPhone (the iPhone 4S) cost only $700. During the same time period, my poorest Chinese friends’ salaries increased from about $200 a month to $500 a month (this increase is due to both their increasing salaries and the decreasing value of the US Dollar compared to the Renminbi). An iPhone is still a luxury item, but it has become an affordable luxury item—one that many, many Chinese people desperately want to have.