What customers think: Apple sells 2 million iPhone 5s in China

Apple [AAPL] continues to suffer from unusually one-sided reporting as to its business affairs: headlines such as "Only two people wait for iPhone 5 launch at Beijing Apple Store," proliferate while the real news -- that the company sold two million iPhones on that product's first three days on sale seem masked by the spin.

[ABOVE: Here's why queues were small for iPhone 5 -- Apple and Chinese authorities didn't want to see riots from frustrated grey market traders.]

Analysts miss the point

"Customer response to iPhone 5 in China has been incredible. China is a very important market for us and customers there cannot wait to get their hands on Apple products," said CEO, Tim Cook.

Wall Street's response has been impressive: analysts at UBS and Cititgroup both moved to slash target prices on Apple stock in response. That's conceivably because they'd been hoping the device might be picked up by China Mobile.

China is the world's last superpower with a huge consumer market that's only now coming into its time. Apple's success there is widely known. There's already a huge grey market in iPhones in China and the country accounts for 15 percent of Apple's revenue.

This success seems widely reported as failure because of the lack of huge queues outside of Apple's retail stores on launch. That's a response to riots that took place when iPhone 4 launched in China in January. The company now offers an online lottery system for Chinese iPhone sales to mitigate grey market trading. A grey market trader in the US recently provoked such a public order problem she was arrested by local law enforcement.

Customers don't give two hoots about marketshare

All these statistics are impressive, but do customers really care about sales numbers or revenue? In these days of corporate tax evasion, most customers assume that unfettered greed is the corporate M.O. Profits aren't sexy: products are sexy.

Customers care about well-designed products which look nice, are easy to use, and don't require they go through hoops to make safe and secure.

Customers will compromise in exchange for a good deal: that's the secret of Samsung's UK success: here in the UK you can pretty much pick up a Galaxy for the price of a cup of tea, clearly reflecting that corporation's strategy to spend, spend, spend in order to "win" in some key markets.

This means smartphone market share figures are fundamentally flawed, as they don’t account for relative subsidy in different territories. There's no success in sales dominance if such sales actually cost more to make than they raise.

With this in mind, Apple's success in China this weekend suggests that in an equal playing field in which operator and device maker subsidy is regulated, when given the choice customers want an iPhone 5 more than they want any other device.

The network

Apple's biggest competitor recognizes this, which is why Chief Strategy Officer, Young Sohn uses Apple products in his home: "If you look at the strengths of Apple, in a way it's not the product per se, it's that customers like their ecosystem, such as iCloud," he told Technology Review.

"If you think about our experiences, it’s device-centric. It’s experienced by itself. It’s not experienced in a connected way. So we think we can provide a lot more things than what we are doing today with an open ecosystem with our partners," he said.

This suggests that Samsung's huge investments in terms of proliferating its devices across the smartphone sector isn't solely about building marketshare: it's about deploying the basics of a future connected platform.

This means that in 2013 you can expect to see Samsung attempt to improve the level of integration it offers between all its connected products.

Customers don't care about promises; they don't care about market share or revenue yields: they care about products. Samsung's future attempt to create a viable ecosystem can't come soon enough -- its existing customer base will be looking to their iPhone-using brethren and asking why they don't have a similar ecosystem around their products.

In China this weekend we see what happens when subsidy is controlled and customers vote with their wallets: Apple sold two million iPhones in three days. The iPhone 5 is a solid product customers want to own, that's the only market share figure that matters.

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