Why Apple Must Reconsider Emerging Market Strategy
Apple's iTunes App Store model doesn't work well in some parts of the world. Users need more flexible payment models for mobile content.
More than 900,000 apps are available for download in the Apple App Store today, and within that app ecosystem entertainment has long dominated. Candy Crush Saga, Plants vs. Zombies, Angry Birds, Words with Friends -- such apps have had us all glued to our phones. But when it comes to apps and mobile content, a one-size-fits-all model isn't going to cut it in emerging markets.
As has been widely reported, explosive growth has put emerging markets in the mobile spotlight. According to a recent report published by Gartner, despite the rapid increase in global smartphone ownership, the demand for premium devices is declining. Instead, users in emerging markets are opting for mid-tier devices priced at $200 or less. Device manufacturers such as Nokia and Samsung are making significant inroads in these regions, launching attractive affordable entry- to mid-level devices to appeal to the next billion consumers.
If Apple wants gain share in these emerging markets and sustain its growth trajectory, it needs to reevaluate its current strategy. Holding onto its premium brand status has so far served the company well in the West, but now all eyes are on emerging markets, where smartphone use is set to explode. The question is: Can Apple replicate its success in these new markets using its current strategy?
While many had hoped the iPhone 5C would be Apple's shot at making its products more accessible to the masses, so far the company has been reluctant to mark down the device's hefty price tag. Failing to adapt its pricing strategy could cost Apple in markets such as India, where Apple stands to lose the most ground. According to Ovum, the number of mobile connections in India is expected to increase by more than 236 million by 2017, with smartphone penetration set to rise from 14% to 66% during the same period. However, with an average annual income of approximately $1,200, users in India are likely to opt for brands that have made cost and accessibility a primary consideration.
Apple faces an uphill battle in trying to adapt its app model. The Apple App store currently works on a Trojan horse system, where content is locked within expensive devices and relies on consumer debit and credit card details to process transactions. Lack of access to banking facilities in these regions means content in the App Store is beyond the reach of a large population of consumers.
To combat this problem, we've seen an increase in partnerships between app developers and mobile operators because operators can provide the most appealing billing solution: paying for mobile content via their contract or pay-as-you-go plan. If Apple wants to make its mark in the developing world, it should work closely with mobile network operators, which can unlock mobile content by allowing users to pay for data and apps via their pre- or post-paid mobile contracts.
After Apple's recent strong earnings report, it will be interesting to see the company's next move -- especially as iPhone 5C sales will likely play a bigger role in the next quarter. Will Apple leverage its partnerships as mobile operators become key players in connecting handset manufacturers, content producers, and app developers in emerging markets? That remains to be seen.
Marco is founder and CEO of Upstream, where he sets the company's strategic direction and spearheads expansion. He has also been chairman of the board since 2002. A mentor for Endeavor and Openfund, Marco also serves as VP of the board of HAMAC and as an angel investor and board advisor in Workable HR.
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