Apple Is Ceding The Ecosystem Battle To Google

Jan 28 2014, 12:00pm CST | by

We now know that Apple mispriced the iPhone 5c badly. Even though this was the first Christmas quarter ever when Apple had two new models ramping up, Apple missed the iPhone volume expectations by 6-7 M units. After earnings misses from Samsung, LG, Nokia, HTC and others, it is clear that the overall smartphone market is suffering from growth deceleration. But Apple is suffering from a very specific problem – it is maintaining such high price levels for its models that it is losing smartphone share heavily in the most important markets of the world.

Asia is in the process of pulling far ahead of other regions when it comes to app downloads and app revenue generation. According to App Annie, Japan became a bigger app market than USA last October. According to a new Distimo survey, Asia generated 41% of the world’s app revenue in December, with North America at 31%. And the revenue gap is expanding at an explosive rate – Asia is delivering 163% annualized app revenue growth, with North America lagging far behind at 46%.

And this is why Apple’s sudden sluggishness in Asia is so alarming. Apple did deliver 29% sales growth in Greater China and 11% in Japan – but its revenue declined at a truly scary, -9% pace in Asia Pacific. The cheap Android devices are triumphing in key growth markets like India, Malaysia, Indonesia and Philippines. Android is already the king in South Korea, of course. Apple’s -1% revenue decline in Americas signals deep trouble in Brazil.

Apple wants to keep focus on China, where it is delivering robust growth – but the long-term threat for the company is that Google may be able to leverage hot growth in Latin America, Africa, Middle East and Asia Pacific to undermine Apple’s once so absolute dominance of the global app revenue generation. Strength in China alone cannot keep Apple in control. Unless Apple finds a way to fight Google’s budget models in emerging markets, the app industry will start favoring Google Play, perhaps sooner than most people realize. Many developers are already starting to rethink the old “First iOS, then Google Play after 6-12 months” playbook. Apple’s tepid, 5%, revenue growth in Europe reflects the strong gains Android vendors are making particularly in Mediterranean markets like Spain, Italy and France.

Of course, many emerging markets are far behind USA and Europe in revenue per app user. But the consumption is growing at breakneck speed and Google also has substantial bases in affluent markets like Germany, South Korea and Japan. Apple’s average sales price (ASP) performance for iPhone was dazzling during the Christmas quarter. But that triumph was gained at the expense of unit volume growth, which fizzled to 7%. Clinging to the luxury niche is a dangerous game to play when the future of the hugely important app market is at stake.

Source: Forbes Apple


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