Idiocy in the tech press is particularly acute recently as writers pounce on the news that Samsung now has triple Apple’s share of the smartphone market in China.
Let’s break this down. In one corner, we have Samsung, which has been manufacturing and distributing phones for decades. It has relationships with all the mobile operators in China.
In the other corner we have Apple, who has been breaking into this market for just over two years. In a notoriously tough carrier ecosystem, Apple originally partnered with China Unicom, and more recently with the smaller operator China Telecom. But not with the nation’s biggest operator, China Mobile. Despite this handicap, and thanks to demand for the iPhone, they have one third the market share of entrenched Samsung. Demand is so high, in fact, that 15 million people on China Mobile are using jailbroken iPhones at slow 2G Internet speeds just to have one despite the lack of official support. And Apple had to stop selling the iPhone in its retail stores because demand for them caused “crowd disturbances”.
Yes, definitely Apple that should be worried.
Sarcasm aside, the mistake being made here is one of predicting the future of smartphone market share in China based on a tactical supply side advantage, rather than on the demand side fundamentals. Of course Samsung is in a better position with respect to the carriers. And of course this is something that Apple should address as a high priority. And they are. In 2006, Apple had relationships with zero carriers and Samsung had relationships with all of them. But Samsung has been losing their distribution lead ever since the iPhone launched and Apple started collecting mobile operators.
Not China Mobile though. Maybe integrating support for China Mobile’s unique brand of 3G didn’t fit into Apple’s schedule, or maybe they just haven’t agreed on terms. Based on the couple of times that I was in meetings with China Mobile executives, I wouldn’t be surprised if it’s the latter. They own the mobile market in China. Whatever the details, Apple has made some tough trade off decisions and decided not to support China Mobile’s network. For now.
And while the supply side factor of distribution reach is important, it is not nearly as fundamental as the demand side factor of people wanting your product.
At this point some people will say that Mac was always nicer than Windows and that didn’t seem to help Apple much in the PC market. But Windows was dominant because of the demand side economy of scale (or network effect) associated with the app platform.
Others will say that since Samsung is Android based, it will create a Windows-like, app platform network effect, but they are confusing OS footprint with app platform footprint.
If the logic isn’t convincing, maybe a case study will be. Consider Japan. iPhone launched there in July 2008 on the number 3 mobile operator, Softbank. By September that year it appeared to be hitting a bump in the road. Sales were slowing and according to Yukari Iwatani Kane of the WSJ this was because of the high price point and a lack of features that the mobile-sophisticated Japanese market expected.
Last week we learned that Apple became mobile phone market share leader in Japan. Not share of smartphones, but share of all phones. This despite the fact that NTT DoCoMo, Japan’s largest mobile operator by far, still doesn’t carry the iPhone.
Samsung is definitely winning some battles in China, but unless it produces a product that can cause a riot, it will lose the war.