iPhone's global success is more marketing myth than reality

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American business history almost certainly will recall Apple as one of the most successful marketers ever. With iPhone, the company has performed a remarkable magic trick: Making the late-starting mobile seem ready to take over the world. But the hard reality of facts -- not the torrent of glowing emotions coming from American and European financial analysts, journalists or Mac loyalists -- show something else. Apple's smartphone is by no means the roaring success everyone here claims it to be.

Let me preface by reminding that I'm on record as calling Microsoft's mobile strategy a train wreck and asserting that the cell phone is poised to replace the PC. I've also called Apple's mobile platform -- iPhone, iPod touch and App Store -- as leading contender to become the next-generation computing platform.

But hard mobile phone data and analysis raises doubts about whether Apple has got a sure winner. After being an early App Store cheerleader, I'm increasingly of the opinion that Apple's mobile platform may not reach escape velocity after all. Emerging markets and Apple's flawed strategy in India and Russia top my reasons for questioning how high the platform will ascend before falling back to earth. Other factors, such as device pricing and emerging market trends around mobile money, also work against Apple's present iPhone strategy.

Some iPhone fans might ask: Surely Apple's global reach -- more than 70 countries -- is enough to bring the iPhone/App Store platform everywhere? But there's more to selling handsets than having presence. I contacted IDC Worldwide Mobile Phone Tracker senior research analyst Ryan Reith about Apple's global reach. He explained:

The 70+ countries is something that looks good on paper, but in terms of volume it doesn't address the regional dynamics. One of the reasons why Nokia and Samsung are so good in developing markets is because they have mastered the art of effective manufacturing and distribution. They can make devices/services that suit the market. Apple is clearly not that type of company, nor do I think they are going in that direction. Having handsets readily available in 70+ countries is good for brand awareness, but it won't necessarily drive market share.

Another BRIC in the Wall

What is iPhone's real marketshare? In the United States, during second quarter 2009, Apple ranked No. 6 in handset unit marketshare, behind Nokia in one of its three weakest markets, according to IDC. Apple's share: 5.9 percent. By comparison, leaders Samsung and LG had 24.8 percent and 22.1 percent unit share, respectively.

But Apple's global showing is more revealing, and the numbers fall far behind US hype about iPhone and App Store. For example, combined, four emerging markets known as BRIC -- Brazil, Russia, India and China -- account for more than 40 percent of world population. There, iPhone's largest unit marketshare in any one country was 1 percent -- in Russia during second quarter, according to IDC (That's actually good enough for rank of No. 7). Marketshare is too small to even register in the other three countries. That's three goose eggs for iPhone. By comparison, Nokia unit marketshare ranged from 38 percent to 56.1 percent in these same four countries during second quarter.

China isn't so surprising a non-showing considering that only in August did Apple cut a distribution deal with second largest wireless carrier China Unicom. But that doesn't explain iPhone's tiny share in Brazil, India and Russia. The reasons are actually many, and on closer analysis they don't bode well for iPhone gaining significant unit marketshare any time soon -- perhaps not unless Apple just gives away handsets (Please jump to next subhead for further analysis).

During this month's new iPod launch event, Apple CEO Steve Jobs said the company had sold 30 million iPhones -- a number that is sure to increase when third calendar quarter shipments are officially announced in a few weeks. Thirty million is a remarkable number in just two years, but from another perspective it's paltry. In just the second quarter, Nokia sold three-and-a-half times more handsets as Apple did in more than two years, according to Gartner and IDC.

I've read the comments and commentary; iPhone defenders try to dispute numbers like these by insisting on only counting smartphones. They claim the comparisons are unfair, because iPhone is in a different category. OK, let's do that. Globally, during second quarter, Nokia sold more than three times as many smartphones as Apple, according to Gartner. Nokia's smartphone market share was 45 percent, while Apple's was only 13.3 percent.

There is another measure of success. Defenders of iPhone are all hung up on the applications, as is Apple, which uses App Store like a marketing club. This week, Apple announced that there have been 2 billion downloads from the App Store, which now has more than 85,000 applications. The number is humongous and quite simply unbelievable. Apple has shipped about 50 million App Store capable devices (including iPod touch). Assuming they're all in use, that works out to 40 applications per device.

A World Apart

There are still more ways to put into broader context iPhone's 30 million units. Global annual handset sales exceed 1 billion units a year, according to combined analyst reports. In about the time Apple shipped 30 million iPhones, all manufacturers shipped about 2 billion handsets.

Combined analyst estimates put the number of cell phones currently in use at about 4 billion units, with as many as three quarters in emerging markets. Exactly how does 30 million in use (presumably) compare to 4 billion? Apple's reach is small, but Americans would never know that from all the noise here about iPhone (Jump to the next subhead for scorching indictment of the American media).

Apple's challenge then is to gain more share, more rapidly. "Apple has had great success in North America, but quite a bit of struggle remains in other regions, especially developing markets," Reith said.

The reasons for iPhone's rest-of-the-world struggles are many and too many for this already overlong post. I picked two, the latter being big enough for a series of blog posts.

Carriers operate differently in many emerging markets than here. For starters, there are many state-sponsored carriers. More significantly, in some markets there are many smaller carriers -- and these are not the ones distributing iPhone. It's not uncommon in markets like India for phone users to switch carriers by swapping SIM cards. Small carrier competition creates more consumer choice, but not for iPhone.

Earlier this year, Anshul Gupta, Gartner's principal analyst for mobile devices, discussed some of Apple's emerging market missteps: "In India, iPhone was launched at $650, and it was locked to operator for life. At first, price was high and secondly phone was locked in a market where consumers are not used to such condition, and" where people "change operator[s] frequently."

But iPhone is different. "You cannot [swap] SIM cards," he emphasized, "because it is locked onto [the] operator you bought the device from. An iPhone bought from Airtel will not work on Vodafone and visa versa. Phone is not subsidized as well in India."

The perspective is about the same there in India as viewed from afar by the Gartner analyst. "Apple bungled up big time with the iPhone in India," said Rohit Mishra, a student studying mobile technologies at VIT University in Vellore, Tamil Nadu, India. "It still has a solid brand and created the touchscreen crave that has resulted in the success of Nokia [XpressMusic] 5800 and Samsung Star." Nokia is India's market leader, with 56.1 percent unit marketshare in second quarter, according to IDC. Samsung was No. 2 and Apple No. 22.

Rohit continued: "By pricing iPhone at Rs 31,000 ($600 approximately), Apple turned away a huge bunch of people who were waiting for the iPhone. There is another issue here -- we don't have 3G here. It's been launched by the state carrier in select cities, but that doesn't count for much now."

Most of the world doesn't yet share the American obsession with smartphones. In many emerging markets, mobile telephony needs are more basic: connectivity and commerce. Governments and industry struggle to just get citizens connected with any mobile phone. Something as sophisticated as iPhone isn't a consideration.

According to data presented during the GSMA Mobile Money Conference, held in Barcelona, Spain, from June 22-29, 2009, mobile phone access is as little as 2 percent in rural areas of Afghanistan, in a country where 75 percent of the population is illiterate. Increasing mobile penetration is a primary goal there and among other emerging market countries. The benefits can be substantial. According to GSMA: "A 10 percent increase in mobile phone penetration can boost GDP growth by 0.6 percent."

Beyond connectivity, in many of these same countries, governments and industry are looking at ways to enable commerce. Mobile money is a primary goal. While the concept has several forms, basically, mobile money allows residents to pay for goods using their cell phones and to receive money, too. Where banks can't reach, mobile phones can. Rather than store bills and coins under the mattress (if there is one), people carry digital currency attached to their mobile accounts.

In October 2008, Visa launched a mobile payment network in India. A similar network launched in Malaysia in April 2009, in cooperation with Maybank, Maxis and Nokia. Three days ago, in Awareness Times, Aruna Turay wrote about a new mobile money system opening in Sierra Leone.

The point: The majority of the world's cell phone markets have needs that the iPhone isn't ready to meet -- even with App Store as a huge asset. By the way, even Nokia is moving into the mobile money business, announcing its own network in August. One line from the press release makes the point: "4 billion mobile phones but only 1.6 billion bank accounts."

Before writing this analysis, I took the position that mobile payments would overshadow applications. Apple has the one, but not the other. Reith disagreed. "My opinion is that mobile payments will coexist on current OS/platforms, and will play a role alongside of applications," he said. "I don't think one will overshadow the other."

He added: "Mobile payments will interact with a lot of apps that are made for emerging markets." That's good news for Apple and its powerful App Store. By number of devices, Apple is puny. By number of mobile applications, Apple is a world-class leader. Additionally, App Store offers a limited mobile payments system -- limited meaning its dedicated to application purchases. An Apple bank, so to the speak, could actually increase the iPhone/App Store platform's appeal in emerging markets.

Misguided Reporting

I'm not trying to demean or even diminish Apple's success with iPhone or App Store but to create perspective too often lacking in US reporting. Many of my journalist peers are themselves obsessed about iPhone and App Store. The number of blogs in any given week just dedicated to new App Store applications is evidence enough. There is informational obsession with the device that defies reality.

IDC's Ryan Reith agrees. "The view about American journalist obsession with the iPhone couldn't be more true," he said.

It's that misguided obsession as expressed in two separate blog entries posted yesterday that prompted my writing about iPhone. At the Apple 2.0 blog, reporter Philip Elmer-DeWitt asserts that "iPhone's share of the smartphone market hits a record 40 percent." Really? In what alternate universe? He writes:

Apple now has a substantial -- if not the largest -- share of the smartphone market in every region of the world except Asia and Africa, according to a report issued Wednesday by AdMob. Overall, the iPhone's worldwide share grew to 40 percent from 33 perent over the last six months. In North America, its share of the smartphone market is 52 percent, as measured by hits on AdMob's ads.

This data -- based on advertising measurements -- doesn't even remotely jive with Gartner or IDC smartphone unit shipments, nor even Apple's figures. According to Gartner, Nokia has 45 percent smartphone marketshare in the United States. But the data makes sense perhaps looking at AdMob's share on different handsets. This kind of persistent reporting makes iPhone appear larger than what it really is. It's wonderful for Apple's Stock price.

Now for the other blog: I disagree with Silicon Alley Insider writer Dan Frommer's assertion that "Microsoft must make more spps for the iPhone." That's a simply crazy idea from yet another member of the iPhone-obsessed American Press. If you're living in one of two glass houses -- geekdom or the United States -- this kind of thinking makes sense (Sadly, many technology bloggers or journalists live in both).

Microsoft's mobile strategy may be total disaster, but Apple's platform is no sure thing. Frommer makes a short-sighted recommendation. That's OK, he gets plenty of other stuff right.

As for me, I expect many iPhone and Mac fanboys to call me out-and-out wrong. Feel free, that's what comments are for. I look forward to the engaging debate.

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