Right before Chinese New Year, Bloomberg’s Ed Lococo interviewed me for this story, asking me how much I thought iPhone sales would be affected by the company’s decision to sell the newest version of its handset via online channels only. The quote in the story is a good one, but there is more to what I told Ed.
First, I do not expect Apple unit sales to suffer severely from this shift in distribution. When the Chinese people want a product that is difficult to get, they tend to find ways to get it, as evinced by the huge gray market in iPhones that existed long before they were introduced in China. The Chinese consumers who can afford these devices are net-savvy, and the online store will not present a major obstacle, and they should continue to be available through China Unicom’s retail outlets.
I also expect Apple will see a jump in iPhone sales through Apple’s channels in Hong Kong and other major Chinese New Year travel destinations for outbound PRC tourists. However, I noted:
A large portion of Chinese New Year sales are about having the gifts in hand right now, so I expect that Motorola, HTC, and Samsung, all of whom offer Android devices competitive with the iPhone, will benefit among buyers who are ambivalent about the brand of their device or who were on the fence about Android.
Ed also asked me whether I thought Apple would use this as a justification to expand its distribution in China, adding carriers or retail outlets. I imagine Apple will continue to expand its stores, albeit slowly, but I also think they walk a fine line between stoking demand and burning its mojo.
Apple owes much of its profitability in China to the perception that its devices are highly desirable yet difficult to obtain. The company is likely loath to tamper with that aura by significantly broadening its distribution, and that doesn’t even address the engineering challenges of creating an iPhone that will work on China Mobile’s TD-SCDMA network. Apple’s problem is that once two or more carriers offer the device and the phone seems to become ubiquitous, the mystique falls away and Chinese consumers will look elsewhere for their desirable device.
Make no mistake: most of Apple’s recent converts in China are much less emotionally vested in the Apple ecosystem than their counterparts in Japan or the United States. Apple is making a valiant effort to change that, but it needs more time, perhaps years, to develop in China the devoted following it enjoys elsewhere. Until then, it needs to remain in the business of making pretty, hard-to-get devices for prosperous people.