Blog Post

Is Piracy Apple’s Biggest Problem With The iPhone In China?

A couple of stories have come out recently discussing Apple’s (NSDQ: AAPL) chance of success in China, concluding that the biggest problem is the large extent of piracy in China and its quasi-support by the government. MacNewsWorld writes that Apple chases pirates just as seriously as — for example — Microsoft (NSDQ: MSFT), but is a lot quieter about it. I’m not going to talk about the Mac business, only the iPhone because that’s our focus. It’s suggested that one iPhone clone, the Meizu M8, has been around for more than a year but the company seems to be struggling to release it… “I wouldn’t be surprised if there isn’t something going on behind the scenes with Apple,” according to writer Mike Elgan. Possibly, but this shows Apple to have more leverage than a lot of other big companies.

Considering there’s an estimated 1 million unlocked iPhones in China I don’t think Apple would have trouble selling a significant amount if it launched there, even if 3 times as many clones were sold it would still be a nice boost to sales. The bigger issue had been that China Mobile was resistant to Apple’s preferred business model, which involves it paying Apple a large share of the revenue of iPhone users. And they weren’t resistant like a crowd walking the other way, in that they can be negotiated with, but resistant like a brick wall — and we all know how effective talking to a brick wall is. Apple can’t even threaten them with losing customers if it goes to another operator because the other one — China Unicom — uses CDMA. Apple has apparently relented on the revenue-sharing requirement, and now there’s some practical hurdles to overcome in the launch of the iPhone in China — to the extent that a launch date hasn’t yet been given.

Elgan also has a piece in Internet News in which he argues that Apple has a problem with its niche as selling mass-market luxury brands. “Cheap, high-volume mass-produced electronics do well in China, and low-volume luxury brands do well in Beijing and Shanghai. But Apple products fall into a third category: high-volume luxury.”