Amazon launched a Chinese Kindle store, with iOS and Android apps for reading ebooks, in December. The store contained around 25,000 ebooks at launch and is now up to about 47,000 titles. When I surfed around a Google Translated version of the store today, I noticed that the device page translates as “Optional Kindle device,” perhaps to remind users that they don’t actually have to buy a Kindle in order to read ebooks. Most of the books in the Chinese Kindle store are priced very, very low, with the top 15 bestselling books in the store all priced under 3 yuan (USD $0.49) and many at 1 yuan (USD $0.16).

Amazon also launched an Android app store in China last month.

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“Cyber threats are … probably as insidious and real a threat [as there is] to the United States, as well as China, by the way, and every nation,” Hagel said according to a Reuters report. Hagel talked to reporters while traveling to a security event in Singapore on Saturday where he will meet with Chinese representatives.

China has been fingered by many — including some in the U.S. government — as the source of recent cyber attacks on Defense Department contractors. In the most recent incident, the U.S. claims that Chinese hackers stole designs for key high-tech weapons designs including the Patriot missile, the FA-18 fighter jet; and the F-35 Joint Strike Fighter. China has repeatedly denied these charges. 

As GigaOM reported last week, paranoia around data security was fanned with the release of a new report (PDF) from the Commission on the Theft of American Intellectual Property which estimated that the theft of IP costs the U.S. economy $300 billion annually.

It would make sense that Hagel would want to shift focus to how both superpowers are at risk from cyber theft rather than publicly pointing the finger at China, which may be the largest foreign owner of U.S. government debt.. the largest holder of U.S. debt.

This story was updated at 2:47 p.m. PDT to show that China is not the biggest holder of U.S. debt, but may be the largest foreign holder of that debt. Some accounts have put Japan above China on that scale, however. In either case, China is a huge creditor.

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Dan Geer, a superstar among computer security and risk management experts, spoke to me about just this sort of risk last week. The most sobering part of the conversation was Geer’s stated belief that the game has definitively shifted from prevention of attacks to mitigation of their consequences.

In short: if you have something worth accessing, it will be accessed. The only realistic goal now is to make sure you know when that breach happens as fast as possible.  I quoted him on this topic earlier, but his words ring even more eerily true now:

“If your enemy really is the People’s Liberation Army, what can you do? We can sputter about it but they’re serious and they’re good … The most serious attackers will probably get in no matter what you do. At this point, the design principal, if you’re a security person working inside a firm, is not no failures, but no silent failures.”

Of course security vendors have latched onto these threats as a way to sell more stuff and are increasingly glomming onto big data analysis as a way to shorten the time between an attack and stopping it in a high-stakes game of whack-a-mole.

As RSA executive chairman Art Coviello said a few months ago: “It’s not about perfect security; its all about ratcheting down risk as much as you can.”

And it’s not just huge government contractors, agencies and suppliers at risk. “No industry is immune,”  cautioned Geer, who is also an advisor to In-Q-Tel, the investment arm of the CIA and other security agencies, and to Verdasys, a security vendor. Almost anyone can see why hackers target gigantic players like Boeing that spend billions on designs which could be used to build similar products at much lower cost. But don’t forget that any grocery store chain that uses credit cards is also a target for someone, Geer said.

Feature photo courtesy of  Flickr user Dysanovic

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Ericsson is a keen HetNet proponent and the Swedish networking giant has just launched a commercial trial of what it calls the City Site “integrated solution” in Nanning, the capital of China’s Guangxi region, alongside China Mobile. The four-meter-high (13-foot) package includes a standard Ericsson base station in this case, along with an integrated multidirectional antenna.

The “Omni Antenna” in question is rather short-range (up to a couple of hundred meters) and relatively close to the ground, which fits in nicely with what Ericsson is trying to achieve here: network densification, a central tenet of HetNet architecture.

HetNets will need to involve not only a variety of cell sizes and types – from macro-cells to pico-cells to Wi-Fi offload points — but also cells at different levels and layers, in order to solve the challenges presented by specific locations. Tall buildings are a challenge when you’re trying to serve thousands of people on street-level, and this kind of thing may be part of the solution.

But densification isn’t the only thing that’s going on here. Ericsson’s City Site design also allows add-on modules for video ad screens, clocks, touchscreen real-time information displays and so on. The company told me this could “provide high performance broadband coverage together with fulfilling a city’s needs for de-clutter, aesthetics and add-on applications like information or advertising.”

This is a good indicator of how we can expect to see our ever-increasing mobile broadband requirements change the cityscapes around us. I’m not sure it really amounts to de-cluttering, though — ads aside, there’s something to be said for discreetly sticking cells on lampposts and other existing street furniture.

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This was bound to happen eventually: Apple is facing stiffer competition than it ever has in smartphones, especially overseas with lower-priced devices that run Android. The competition is getting better at the high end as well, and is also releasing new smartphones seemingly every few months. And at the same time, Apple’s been selling the iPhone in more established markets for almost six years.

This doesn’t mean the iPhone is doomed or dead. We’ve just entered a new era of the iPhone — one where the company relies more than ever on older, cheaper devices to continue to expand the ranks of iPhone customers. On Tuesday, CEO Tim Cook gave the example of how this is working in the Greater China region, where the nearly three-year-old iPhone 4 is popular:

China has an unusually large number of potential first-time smartphone buyers and that’s not lost on us. We’ve seen a significant interest in iPhone 4 there and have recently made it even more affordable to make it even more attractive to those first-time buyers. We’re hopeful that helps iPhone sales in the future.

And, he added later, that’s not limited to China: “We’re continuing to do that in other markets. We believe the [iPhone 4] for the price point we’re offering is an incredible value for people that allows people to get into the ecosystem with a really, really phenomenal product.”

Cook didn’t reveal exactly how many iPhone 4 devices Apple sold in the China region (or anywhere for that matter), but recent data from Consumer Intelligence Research Partners shows that preference for cheaper iPhones is a broad theme among recent purchasers in the U.S. too. According to its survey data, the iPhone 4 and iPhone 4S accounted for 47 percent of all the iPhones sold between January and March. The latest model iPhone 5, while still the top seller, represented the lowest ratio of late-model iPhone to older model iPhones Apple has seen. By comparison, the iPhone 4S was still accounting for 73 percent of iPhone sales two quarters after its debut.

If interest in the brand-new iPhone is declining that quickly, barely two quarters into its life, then Apple has two choices if it wants to keep the iPhone growing. It can roll out new devices more often or try to drive volumes with cheaper models.

Since Apple is a bit of a perfectionist when it comes to details and doesn’t seem the type to pump out products that could lead to brand dilution, the most practical move seems to be the one Cook is pursuing now: relying on the status and cachet attached to the iPhone name and offer older model devices to people who can for the first time afford an Apple product.

This is not unlike the company’s iPod strategy: the original iPod in 2001 cost $399, and over the years the company expanded the lineup with more models and storage size choices and brought down the price all the way to the current $49 impulse-buy level price of the iPod nano. It famously provided a much-needed halo-effect for Apple, where first-time customers bought into the iTunes ecosystem, and then the Mac, and in later years the iPhone and possibly iPad. Apple wants the same thing from brand-new customers who pick up an iPhone 4 for free on contract or at a very low price: that those new buyers sign up for iTunes, download some apps, music and TV shows, and store their documents in iCloud — as Cook puts it in the quote above, “get into the ecosystem.”

The iPod eventually gave way to the iPhone as the growth driver for Apple. So with the iPhone maturing, the billion-dollar question is what comes next for Apple after the iPhone? That’s what’s not clear yet. Cook telegraphed new products coming “this fall” and “throughout 2014″ but of course didn’t explain whether those were mobile computing products or TVs or whatever.

In the meantime, while it may not be a completely parallel replacement for the iPhone, the iPad is just three years old and still growing; not to mention the iPad mini which is also just two quarters old. At this point, the countdown is on for when it replaces the iPhone as Apple’s most important product.

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The Wall Street Journal reported Wednesday that an ongoing investigation is underway, which has caught up with Apple and other other small companies for providing ways to access pornographic content. According to the report:

A government regulator named Apple Inc.’s app store as a source of “obscene pornographic” content late last month and ordered it to remove the content, submit a report about the violation, and take measures to prevent future violations.

Apple did not immediately respond to a request for comment on the matter.

The accusation is somewhat ironic considering Apple’s attitude toward porn. Steve Jobs is well-known for his stated belief that Apple has “moral responsibility to keep porn off the iPhone” and other devices with access to the App Store. It’s true that Apple has a difficult time being super consistent about policing its enormous App Store for that kind of content, but it certainly tries.

While it’s the Chinese government that’s undertaking a campaign against “obscene” content, the WSJ notes that the Chinese press — which is basically an extension of the government — is taking a more subdued tone with the case so far. That lies in contrast with China Central TV and several newspapers’ attempts to steamroll Apple over iPhone warranty and customer service issues last month.

It’s hard to tell where this is headed. If Apple moves to improve the filters on App Store content in China, will the government be satisfied? Or will it require another dutiful apology from the CEO?

As many will note, these pair of incidents seems awfully similar to the road China went down with Google. The same accusation of helping to distribute pornographic content was made against the company in 2009, and it was ordered to remove certain search results. Following hacking attacks from within China and continual disagreement with the government, Google just took its search business out of China and over to Hong Kong.

It’s hard to see Apple taking its business out of China; the country is massively important to Apple’s future. But Apple isn’t used to being pushed around by governments, so the big question will be how far Apple is willing to go to comply with China’s rules in order to do business there.

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Xiaomi is selling high-end smartphones in China and is doing that in a way that essentially takes Apple’s own playbook and adapts it for a more price-conscious buyer. The company sold 7.2 million smartphones in China last year and plans to sell double that this year.

Taking cues from Apple

Its recipe for success will sound familiar: it designs all the major apps on the phone as well as the hardware, uses all the latest chipsets (from Nvidia) and memory tech (from Samsung) and Foxconn does all the assembly. It also relies on longer update cycles: about a year passes before new hardware is released — there are no rapid-fire updates every few months. And when it lets buyers know the new phone is ready for sale on its website, customers swarm. When its latest device, the Mi 2 went on sale last year, 200,000 handsets sold out in two minutes, according to Xiaomi Co-founder and President Bin Lin.

A huge obvious difference between what Xiaomi is trying to do with its Mi phones and what Apple is doing with the iPhone: Xiaomi is building this all on Android. It’s saving costs on a marketing budget (it has none, just advertises on Sina Weibo) but it saves itself a lot of money on production by getting the base OS for free. And it can then offer the phones for cheaper as well: Mi phones cost about the equivalent of $260. And, Lin noted, he’s competing with smartphones, including Apple’s, that “sell for twice that” in China.

Apple is desperate to crack the Chinese market, and it is gaining some momentum: CEO Tim Cook said sales in Greater China saw triple-digit growth in the final quarter of 2012. But Xiaomi is tapping into a need for something that Apple so far cannot: much less expensive phones that still have a similar vertically integrated approach that tends to create the best kind of user experience.

The handset maker has also figured out how to work in a market that relies heavily on unsubsidized phones — Lin said about 70 percent of the Chinese market is unlocked phones not subsidized by carriers. In developed markets Apple can get away with charging $600 for an unlocked phone, but in developing markets, it’s easy to see how the iPhone’s higher price may be a status symbol for some, but for those that can’t afford it, pretty much out of reach.

Cracking the Latin America market

In Latin America, Apple also faces an uphill battle in countries like Movile’s home of Brazil. Android phones and iPhones are still about 20 percent of the market, Fabricio Bloiso Rocha, Movile’s CEO, said on Monday. The rest is made up of basic feature phones. The reason: all electronics, especially smartphones, are incredibly expensive in Brazil.

“Expensive in Brazil is not $200, it’s $2,000,” Rocha said. An iPhone is about 30 times more expensive in his country than in the U.S. because of “taxes, taxes and the mystery of the Brazilian economy,” he said. As a result, carriers like his focus right now on providing service for inexpensive prepaid phones (often just feature phones) with a la carte services sold bundled with data: things like mobile payments, video subscription services, food ordering services and more.

How does the iPhone fit into a picture like that? Big reform is coming to Brazilian taxes soon, Rocha says, so he believes there will be a place for smartphones to grow over the next 18 months in the country. But even then, he said, “I love the iOS experience. It’s the best UX, best product overall. But for Latin America, to invest there, you have to go Android because price is very important.”

Brazil is not directly representative of all of Latin America, but it’s the biggest and most populous country and represents a huge chunk of potential growth for the iPhone in the future. User trends in Brazil are the kind of thing Apple has to consider when broadening the iPhone and whether a lower-priced device makes sense to crack these markets sooner than later.

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Here are the basics of Facebook Home, which hopes to become the first stop on your mobile phone platform. Facebook Home works like this: as a layer built on top of the Android platform, Facebook essentially becomes your mobile device’s home screen providing notifications, status updates, and your feed (including large, in-your-face images) right up front. So what is it? an app? Is it an OS? We like to think it is first step to Facebook OS for the Mobile. [You can read all about it in Mark Zuckerberg’s own words.]

You can get Facebook Home baked right into the new HTC First which will be going for $99. Affordability and accessibility are two important factors for world domination, but the broader privacy implications for Facebook Home do give us cause for concern. Thank god there is no Home on iOS.

Apple’s China Syndrome: Apple loves China but China doesn’t feel that way, and its state-run media made it pretty obvious with its recent criticism of Apple. Of course, that meant CEO Tim Cook had to issue an apology to Chinese customers after being accused of “arrogance” and failing to provide the same quality of product and service befitted for other nations. Cook assured the country that Apple will work on “communication” surrounding these issues, which is said to be a good move forward for a country that could be its top purchaser in the coming years. We think Apple has to think different about China, because the dynamics of doing business are different in that country.

Video Killed the Radio Star? Not Really: Now we love our cord-cutting as much the next couch potato, but does the world need yet another video service that serves up the standard TV, movie, and music-consuming entertainment lineup? Well, apparently, Rdio thinks we do and announced Vdio. Yup, the company, after tussling with Spotify, is now going after Amazon Prime, Hulu Plus, and Apple’s iTunes.

There is one caveat: Vdio is limited (currently) to Rdio Unlimited subscribers in the U.S. and U.K., and offers shows and flicks from all the familiar places like ABC, NBC, CBS, Fox, and Comedy Central, among others. The good news is that more locations are expected soon. Rdio’s VP of Product Malthe Sigurdsson says a Rdio-meets-Netflix-like subscription service is still on the table, pay-per-view be dammed. Feeling like a movie night in but don’t know what to watch? No problem — Vdio lets you see what your friends are tuning in to, then allows you to rent or buy your selection on the spot. Just add popcorn.

Read a good book lately?: We are not sure why everyone keeps asking that question when they can easily check out our profile on Goodreads. The bookworms love the site and helped it become a powerhouse within the industry. So much so, that Amazon purchased the social network last week. Well, looks like this is going to help Amazon sell a lot more books on Kindle and give people a chance to keep talking about them — all the time. This collaboration of sorts makes sense. But don’t worry about your digital book club being “Amazon-ed” — if past experience with Zappos and IMDB is telling, it won’t be messing with a good thing. Though, we wouldn’t count out an increase in Amazon-fueled recommendations and opportunities to buy from the large-scale online retailer.

Sir, can you please spare a Bitcoin: We’ve been hearing a lot about Bitcoin recently, but what is it? Bitcoin acts as a peer-to-peer cash system that isn’t run by any banks or governments. The value you earn is off the grid, stored in mobile devices or computers, for example, and can be exchanged for real goods and services. It’s Kind of like using Facebook credits to buy gifts, except there’s no purchasing Bitcoins — it’s digital money that’s earned by solving complex computational problems. By the way, there are a bunch of guys in Tokyo who are the real dons of bitcoin. Bitcoin’s value is rising as it becomes an increasingly popular way to make and exchange currency, even being valued higher than actual currency in some countries. Will Bitcoins become the new international, border-free way to make payments? Our own David Meyer gives us a nice breakdown and answers the tough questions.

In a Blink, WebKit is dead: Or at least that is the working theory following Google’s announcement that it would be kicking WebKit, the engine powering its Chrome browser, to the curb for a forked version called “Blink.” Blink will make Chrome faster, lighter, more stable, and easier to develop for, Google argued. Google cited the current slow pace of innovation as the catalyst that spurred its decision to introduce a new rendering engine to the web, but it doesn’t come without its downsides — mainly that developers will need to test in more rendering environments, but the future of WebKit itself could be in danger. Google was its biggest supporter, so now it’s up to the likes of Apple, Samsung and BlackBerry to pick up the slack. Rob Isaac didn’t pull any punches is his must read editorial.  This can’t be good for Apple, who will now have to come up with its own twist on things. Let’s stay tuned for the next chapter.

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Steve Jobs said sorry (sort of) when the iPhone 4 antenna backlash appeared ready to derail the launch with bad press. Tim Cook did the same when Apple Maps’ arrival was greeted last fall with mocking and scorn and threatened to overshadow the iPhone 5′s arrival. Other than that, Apple gets lambasted in the media in many countries for a variety of reasons and the company’s standard response is silence.

But in China? Rather than the local media and government coming around to the way Apple does business, it seems to be the other way around: Apple is learning its usual playbook for success doesn’t necessarily work there.

An iPhone launch in China.

After a two-week sustained campaign conducted by the country’s government-controlled media outlets against Apple’s repair and warranty service for iPhones that painted the company as “arrogant,” Apple took the very unusual step of having Cook apologize in an open letter to Chinese customers. He also offered a slight change in how the company handles warranties. The Chinese media stood down after Apple’s peace offering, and it does appear that for now, both sides got something good out of the deal.

Consider the way Apple dealt with a warranty snafu in Italy. In late 2011 the country’s consumer protection agency found Apple was violating a law requiring free two-year warranties for all products. Apple was offering one year (its standard policy) and selling AppleCare plans to customers if they wanted more protection. Even with plenty of media coverage, it took several rounds of fines and threats from the government to shut down Apple’s local businesses before Apple complied – over a year later.

To recap: In China, Apple wasn’t breaking any law, yet it issued a deferential apology. In Italy, it actually ran afoul of the law, a year later fixed its policy with no apology. But whether it’s dealing with security problems, iCloud outages, or potential antitrust matters, the latter situation is far more common for Apple than the former.

A new dynamic

The China affair started out in typical fashion for Apple. The company initially responded to the China Central Television report on its iPhone repair policy, saying, ”Apple makes outstanding products … and offers incredible user experience. Our team is always making an effort to exceed customers’ expectations.”

Most Western media reporters who cover Apple saw that and thought, “sounds about right:” like a lot of companies, Apple’s typical playbook in these situations involves bland statements that give away nothing. But when the People’s Daily paper couldn’t get an interview with an Apple executive, it proceeded to call Apple “arrogant” and sharpened its attacks.

There’s nothing new or surprising about Apple executives not giving interviews. Its preferred way of interacting with the press is through occasional large, orchestrated media events that are invite-only, carefully crafted statements or background briefings.

And the notion of Apple being called “arrogant” is also nothing new. What is new is the extremely deferent apology. “We express our sincere apologies for any concerns or misunderstandings this gives consumers,” Cook wrote. Compare that to Jobs’ response to so-called Antennagate: ”This has been blown so out of proportion that it’s incredible” and “when companies get big, people want to tear them down.”

Tim Cook in January. He has made annual visits to China since becoming CEO. Credit: China’s Ministry of Industry and Information Technology

But for foreign companies trying to gain a foothold in the Chinese market, the humble apology is actually something of a standard operating procedure for dealing with dissatisfied customers and a nagging Communist Party-controlled media, as Bloomberg noted. The growth potential of the Chinese market is impossible for companies to ignore; Cook believes it will become Apple’s largest market some day and on recent earnings calls has described it as “a very, very important country to us.”

And the Chinese media clearly also can’t be ignored or asked to wait until Apple is ready to make an announcement — particularly if the outlets are deeply connected to the government that can heavily influence Apple’s fortunes in the country. (China also does not have the kind of grassroots system of support from fan sites and blogs run by the Apple faithful the way it does in the U.S. and other countries.) The situation as it played out this week sets a pretty clear precedent that for Apple to succeed, it’s going to have to get used to this dynamic — and make adjustments.

A complicated relationship

Apple isn’t new to China. The two have plenty of history: it provides millions of jobs to Chinese workers through its partnership with Foxconn and other manufacturing companies. So the company is experienced in dealing with industries and government agencies that are not necessarily independent of the country’s ruling party.

Apple has learned to play the game when it comes to getting new iPhones approved by the nation’s communications authority, getting new carriers to support the iPhone, dealing with the intellectual property laws, getting stores opened, and more. And this is no easy thing to navigate; Apple rival Google has a particularly tortured relationship with China due to a history of censorship and hacking. Apple has also dealt with hacking attacks possibly emanating from the country.

But as Apple moves to make its No. 2 market its No. 1 market, and the populous country’s citizens into customers, the road there is paved with other forces — state-run media, a government potentially treating Apple as a proxy for its disagreements with the U.S. government – that will mean it’s not just business as usual for Apple.

Thumbnail courtesy of Flickr user LJR.MIKE via Compfight cc

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Reuters reports the reactions:

“The company’s apology letter has eased the situation, softening the tense relationship between Apple and the Chinese market … Its reaction is worth respect compared with other American companies,” wrote popular tabloid the Global Times, published by Communist Party mouthpiece the People’s Daily.

The Foreign Ministry praised Apple for “conscientiously” responding to consumers’ demands.

“We approve of what Apple said,” spokesman Hong Lei told a daily news briefing on Tuesday.

It’s quite a change in tune. Over the past two weeks, Apple has been the subject of an orchestrated campaign that included local celebrities bashing Apple’s return and repair policies on social media; a series of editorials calling the company arrogant; and a demand for new warranty policies, including upping the standard one-year warranty to two years for the iPad.

Apple’s decision to have Cook put his name on an apology for the inconsistent warranty and repair policies in the country isn’t unprecedented — he’s apologized for the Apple Maps fiasco, and Steve Jobs apologized for the iPhone 4 antenna — but it’s rare. The outcome was positive for Apple this time: the apology had the immediate effect of changing the increasingly bad PR the company was getting in China. But it will be interesting to see what kind of precedent this sets for how Apple gets along in its No. 2 market with the Chinese media, and more importantly, the Chinese government.

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