Apple faces threat from China, bellwether in battle against Android

Without a really cheap iPhone, Apple's app ecosystem is at risk, says analyst

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"This is a major strategic threat for Apple," Evans continued. "A key selling point for the iPhone is that the best apps are on iPhone and are on iPhone first."

Evans believed that Apple's critical advantage -- the App Store -- which has driven a "virtuous cycle" to boost iPhone sales and reap enormous profit for the company, could begin to crumble in 2014.

"If that does happen then the virtuous circle of 'best apps therefore best users therefore best apps' will start to unwind and the wide array of Android devices at every price point will erode the iPhone base," Evans wrote. "Part of the reason for spending $600 on an iPhone instead of $300 on an Android is the apps."

Evans point? Apple must jump into the shallow end of the smartphone price pool with a lower-cost iPhone. "The financial value of a cheaper iPhone cannot be considered in isolation," Evans contended. "A large part of its purpose is to defend sales of the high-end model."

China's example could be seen as the harbinger of the unwinding that Evans feared.

"Absolutely, China is a bellwether," said Khalaf. "While the iPhone's number of units in China are smaller, its engagement has been dramatically higher than on Android."

By "engagement," Khalaf meant a user's app acquisition and usage practices, including the number of apps he or she downloads, how much is spent on those apps and how much time is devoted to using those apps.

But in China, the engagement race is now neck-and-neck, with time spent on apps per consumer evenly balanced between Android and iOS.

Add to that the domestic lock that Chinese developers -- with their Android apps -- have on the local market, and the likelihood that the nation will become the player in the world's most populous countries, and Apple's ecosystem will be in a troubling spot.

How Apple reacts will be revealed in less than two weeks, when the company holds its iPhone unveiling event on Sept. 10. If it launches a low-priced model, one able to compete in China most of all, it will signal that it came to the same conclusion as Evans and realized it had to defend its ecosystem against an "Android-first" model there and elsewhere.

"It is the rest of the world that is the issue -- most obviously China, which already has significantly more smartphone users than the U.S.," said Evans.

Some analysts, however, are convinced that Apple will not set its app ecosystem as its first priority, and will instead price the iPhone 5C at between $400 to $450.

If they're right, 2014 may be a turning point for Apple. And not in a good way.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2013 IDG Communications, Inc.

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