110 page report about Apple's current situation in the China market. Wild speculation across the Chinese internet that Apple and WeChat are now in some form of conflict, we delve deep into the Chinese public opinion on this topic.

1. APPLE IN CHINA REPORT
MATTHEW BRENNAN & SAMIN SHA
CHINACHANNEL.CO

2. MATTHEW BRENNAN
SPEAKER, AUTHOR, HOST, CO-FOUNDER OF CHINA CHANNEL
MATTHEW IS A WELL-KNOWN SPEAKER AND WRITER ON THE TOPICS OF WECHAT AND THE CHINA DIGITAL
ECOSYSTEM. REGULARLY QUOTED IN INTERNATIONAL MEDIA (THE ECONOMIST, BLOOMBERG, FORBES, THE
FINANCIAL TIMES, BBC, TECHINASIA), HIS COMPANY ORGANIZES CHINA’S LARGEST WECHAT MARKETING
CONFERENCE SERIES FOR INTERNATIONAL COMPANIES. MATTHEW’S COMPANY CHINA CHANNEL IS A CHINA
FOCUSED TECH CONSULTANCY AND RESEARCH FIRM. HE HOLDS 13+ YEARS ON THE GROUND
ENTREPRENEURIAL EXPERIENCE IN MAINLAND CHINA. CO-HOST OF THE CHINA TECH TALK PODCAST
PRODUCED TOGETHER WITH TECHNODE, CHINA'S LARGEST ENGLISH LANGUAGE TECH MEDIA. HIS BOOK
‘BUILDING YOUR BUSINESS THROUGH WECHAT’ IS DUE FOR RELEASE LATER THIS YEAR.
EMAIL: MATTBRENNAN@CHINACHANNEL.CO
LINKEDIN: HTTPS://CN.LINKEDIN.COM/IN/MATTHEW-BRENNAN
PARTS OF THIS REPORT WERE FIRST DELIVERED AT THE
DHL APAC REGIONAL CONFERENCE SHANGHAI IN MAY 2017

3. CHINACHANNEL.CO
“WE CONTINUE TO BE VERY
ENTHUSIASTIC ABOUT OUR
OPPORTUNITY IN CHINA.”
TIM COOK
MAY 2017

4. CHINACHANNEL.CO
WE FEEL RATHER LESS ENTHUSIASTIC…
WE DIDN’T FIND MUCH TO BE ENTHUSIASTIC ABOUT…

5. CHINACHANNEL.CO
OUR 3 CORE ARGUMENTS
BACKED BY THE BEST PUBLICLY AVAILABLE
STATISTICS AND DATA WE COULD FIND.
1. APPLE’S SERVICES ECOSYSTEM IN CHINA IS VERY WEAK
AND IN MANY KEY AREAS NON EXISTENT.
2. THE PERCEPTION OF APPLE’S BRAND AMONGST CHINESE
CONSUMERS HAS CHANGED FOR THE WORSE.
3. CHINESE SMARTPHONE BRANDS ARE RAPIDLY GAINING IN
STRENGTH, SOHISTICATION AND LOCAL MARKET SHARE.

6. CHINACHANNEL.CO
PART 1
APPLE’S CHINA
SERVICES ECOSYSTEM

7. CHINACHANNEL.CO
“THE FUTURE OF THIS
COMPANY IS GOING TO BE IN
SERVICES.”
TIM COOK

8. CHINACHANNEL.CO
18.5
21.2
25.5
10.2%
14.6%
19.7%
2014 2015 2016
SERVICES REVENUE IN BILLION USD GROWTH
DATA: APPLE INC.
SERVICES IS APPLE’S ONLY SECTOR WITH CONSISTENT & STEADY
GROWTH. SERVICES PLAY A KEY ROLE IN LOCKING IN USERS

9. CHINACHANNEL.CO
TO MANY AMERICAN IPHONE USERS IT
WOULD BE UNTHINKABLE TO CHANGE
THEIR IPHONE TO AN ANDROID DEVICE.
THEY ARE LOCKED IN TO APPLE SERVICES.

10. CHINACHANNEL.CO
TO MOST CHINESE IPHONE USERS
THE IPHONE IS JUST A LUXURY PHONE.
THEY HAVE NO SIGNIFICANT INVESTMENT
IN APPLE’S SERVICES ECOSYSTEM

11. APPLE’S CHINA SERVICE ECOSYSTEM HAS BEEN
SYSTEMATICALLY STRIPPED AWAY BY LOCAL COMPETITORS
CHINACHANNEL.CO

12. IBOOKS / ITUNES
CHINACHANNEL.CO

13. CHINACHANNEL.CO
FROM APRIL 2016 IBOOKS AND ITUNES STORE HAVE BEEN BLOCKED IN CHINA.
CHINESE AUTHORITIES ORDERED THEM TO BE TAKEN OFFLINE.

14. CHINACHANNEL.CO
“THOSE 2 STORES* FOR THE
MONTHS THAT WE HAD
THEM OPERATIONAL, WHICH
WAS SEVERAL MONTHS,
THE REVENUE WAS LESS
THAN $1 MILLION.”
TIM COOK, JULY 2016
*CHINA IBOOKS & CHINA ITUNES

15. CHINACHANNEL.CO
DATA: SOOTOO RESEARCH INSTITUTE
*IBOOKS WAS FULLY OPERATED IN 15Q4 AND 16Q1
CHINA DIGITAL READING MARKET DURING THE
2 QUARTERS* WHILE IBOOKS WAS IN OPERATION
0%
5%
10%
15%
20%
25%
30%
35%
IREADER QQ TIANYI TADU MIGU DUOKAN AIYUEDU QIDIAN PANDA
2015 Q4 2016 Q1
IBOOKS WAS AVAILABLE IN CHINA
FOR APPROXIMATELY HALF A YEAR.
IT MADE VIRTUALLY NO IMPACT ON
THE CHINESE MARKET.

16. CHINACHANNEL.CO
DATA: IRESEARCH
* ITUNES MOVIE WAS SHUT DOWN IN LATE APR 2016
A SIMILAR STORY IN VIDEO.
APPLE MADE LITTLE IMPACT.
IQIYI
42.3%
TENCENT
VIDEO
19.33%
YOUKU
18.10%
OTHERS
20.25%
ONLINE VIDEO
MARKET SHARE
BY USAGE TIME,
APR 2016

17. ICLOUD
CHINACHANNEL.CO

18. CHINACHANNEL.CO
$18
$10
$3
$0.8FREE
FREE
ICLOUD USAGE IS LOW. PRICING IS OUT
OF LINE WITH LOCAL CHINESE COMPETITORS
ICLOUD
CHINA
PRICING
2T2T1T200G50G5G

19. APPLE MAPS
CHINACHANNEL.CO

20. MOBILE MAPS MARKET CHINA Q4 2016
CHINACHANNEL.CO
DATA:IIMEDIA
AUTONAVI
34.3%
BAIDU MAP
29.90%
TENCENT MAP
13.10%
OTHERS
15%
CHINESE PLAYERS
DOMINATE THE MARKET
WITH OFFERINGS TAILORED
TO LOCAL TASTES.
SOGOU
7.7%

21. APPLE PAY
CHINACHANNEL.CO

22. CHINACHANNEL.CO
“I WOULD RATE OUR FIRST-DAY
PERFORMANCE (IN CHINA) AS
1,000, IF THE FULL SCORE IS 100.”
JENNIFER BAILEY, VICE PRESIDENT OF APPLE
PAY, COMMENTING ON APPLE PAY DEBUT IN
CHINA
APPLE PAY LAUNCH FEB 2016

23. CHINACHANNEL.CO
PARTNERED WITH CHINA UNIONPAY, CHINA’S SOLE DEBIT CARD NETWORK WITH
OVER 6 BILLION CARDS AND ACCEPTED ACROSS ALL MAJOR STORES AND
MALLS IN CHINA.
BACKED BY 19 MAJOR CHINESE BANKS, INCLUDING THE BIG FOUR.
3 MILLION CONSUMERS LINKED THEIR BANK CARDS TO APPLE PAY IN THE
FIRST 2 DAYS, ACCORDING TO CHINA MERCHANTS BANK.
* CHINA BANK CARD INDUSTRY
DEVELOPMENT REPORT (2017)
APPLE HAD AMPLE REASONS
TO BE OPTIMISTIC
+

24. Data Source: 36Kr Q1 2017
0%
22%
67%
11%
PAYMENT
METHODS IN
CONVENIENCE
STORES: BEIJING
ZHONGGUANCUN
CASH
UNION PAY
CREDIT+DEBIT
CARDS
APPLE PAY
ALIPAY +
WECHAT
PAY QR
CODE
PAYMENTS
CHINACHANNEL.CO
A YEAR LATER…

25. DATA SOURCE: 36KR Q1 2017
67%
17%
16%
SOLID
UNDERSTANDING
ONLY CASHIER
UNDERSTANDS NO
COMPREHENSION
CONVENIENCE
STORE STAFF
UNDERSTANDING OF
APPLE PAY
CHINACHANNEL.CO

26. PRIMARY PAYMENT METHODS
FOR OFFLINE PURCHASES
CHINACHANNEL.CO
94.1%
38.6%
29.0%
13.0%
93.6%
41.3%
30.9%
11.4%
89.4%
49.5%
33.0%
9.6%
87.6%
51.3%
35.7%
9.8%
MOBILE PAYMENT APPS (E.G.
WECHAT PAY)
CASH DEBIT & CREDIT CARDS SMARTPHONE BUILT-IN
PAYMENT TOOL (E.G. APPLE
PAY)
DATA: TENCENT PENGUIN
INTELLIGENCE SURVEY PLATFORM
1ST TIER CITIES (BEIJING, SHANGHAI)
2ND TIER CITIES
3RD TIER CITIES
4TH TIER CITIES & BELOW
APPLE PAY CLEARLY
STRUGGLING

27. CHINACHANNEL.CO DATA: ANALYSYS
CHINESE MOBILE PAYMENT MARKET SHARE Q4 2016
ALIPAY
54.1%
TENPAY
37.02%
SMALL PLAYERS
7.85%
OTHERS
INCLUDING
APPLE PAY
1.03%

28. IMESSAGE
CHINACHANNEL.CO

29. CHINACHANNEL.CO
1. NON CROSS PLATFORM: CHINA MARKET DOMINATED BY
ANDROID DEVICES
2. EASY TO BE SPAMMED: BLACK MARKET IN SELLING
PHONE NUMBERS A SERIOUS ISSUE IN CHINA
3. USER HABITS: LOT OF USERS CONFUSE IMESSAGE WITH
SMS
OH, AND 1 MORE THING…
REASONS WHY IMESSAGE IS HARDLY USED IN CHINA

31. TIME SPENT ON MOBILE IN CHINA
DATA SOURCE: QUESTMOBILE, TRUSTDATA
AND HILLHOUSE ESTIMATES
45%
35%
10%
EVERYTHING
ELSE
10%
TENCENT OTHER
CHINACHANNEL.CO
WECHAT IS
ESTIMATED TO
ACCOUNT FOR
OVER 1/3 OF ALL
TIME ON MOBILE!

32. 50%
OF USERS SPEND
90 MINUTES
PER DAY IN WECHAT
SOURCE: WECHAT TEAM

33. TIME SPENT IN WECHAT 2015 VS. 2016
DATA: QUEST MOBILE (DEC 2016)CHINACHANNEL.CO
6.5%
13.9%
22.4%
20.9%
14.4%
16.3%
3.4%
7.5%
14.2%
21.0%
18.1%
33.9%
< 10 MIN 10~30 MIN 30 MIN~1 HOUR 1-2 HOURS 2-4 HOURS 4 HOURS+
2015
2016
4HRS+ MORE
THAN DOUBLED

34. APPLE MUSIC
CHINACHANNEL.CO

35. CHINACHANNEL.CO
“(APPLE MUSIC) LATE TO THE
(CHINA) MARKET WITH AN
INFERIOR PRODUCT THAT IS
OVERPRICED”
ROBERT LYONS, VISITING LECTURER AT
NORTHEASTERN UNIVERSITY IN BOSTON,
APR 2017

36. TOP MUSIC APPS IN CHINA, MAR 2017
MILLIONS OF MONTHLY ACTIVE USERS
CHINACHANNEL.CO
DATA: QUESTMOBILE
* MONTHLY ACTIVE USERS
228.95
211.43
107.72
62.79
14.4 14.34 11.15 7.29
APPLE MUSIC DOESN’T
MAKE THE LIST
TOP 3 ALL OWNED
BY TENCENT

37. APP STORE
CHINACHANNEL.CO

38. THE APP STORE IS APPLE’S
ONLY BRIGHT SPOT IN SERVICES
CHINESE APPLE USERS HAVE
NO CHOICE BUT TO USE IT
REVENUE FROM CHINA’S
APP STORE IS INCREASING FAST
CHINACHANNEL.CO DATA: APPLE

39. GLOBAL APP STORE REVENUE
YEAR OVER YEAR GROWTH
CHINACHANNEL.CO DATA: APPLE
29%
24% 25%
27%
35%
37%
43% 43%
40%
2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1
“APP STORE MOMENTUM IS
TERRIFIC, WITH REVENUE
GROWING 40% YEAR OVER YEAR TO
AN ALL-TIME QUARTERLY RECORD.”
TIM COOK, MAY 2017

40. CHINACHANNEL.CO
“STRONG PURCHASING POWER AND CULTURAL
FACTORS WILL HELP CHINA ACCOUNT FOR A
STAGGERING 41% OF MOBILE APP STORE
CONSUMER SPEND (BOTH IOS AND ANDROID)
BY 2021.”
APP ANNIE, MARKET FORCAST, 2016-2021

41. CHINACHANNEL.CO
DATA: APPLE & APP ANNIE
*2021 ESTIMATES ACROSS ALL MOBILE APP STORES
ALL DATA IS CALENDAR YEAR.
0%
20%
40%
60%
80%
100%
2014 2015 2016 2021E*
ALL OTHER
REGIONS
CHINA
APP STORE REVENUE DERIVED FROM CHINA (%)

42. GAMES ACCOUNT FOR THE MAJORITY OF
IOS REVENUE ESPECIALLY IN CHINA
CHINACHANNEL.CO DATA: APP ANNIE
75%
95%
0%
25%
50%
75%
100%
WORLDWIDE CHINA
NON-GAMES
GAMES

43. CHINACHANNEL.CO
DATA: GPC, CNG AND IDC
TENCENT FINANCIAL REPORT
51%
41% 47%
49%
59% 53%
2014 2015 2016
TENCENT ALL OTHER GAMING COMPANIES
ALMOST HALF OF
CHINESE MOBILE
GAME REVENUE
COMES FROM
TENCENT.
CHINESE MOBILE GAME REVENUE

44. CHINACHANNEL.CO
“WE HAD EXTREMELY
STRONG SERVICES GROWTH
DURING THE QUARTER
(2017 Q1) IN CHINA.”
TIM COOK, MAY 2017

45. CHINACHANNEL.CO
TENCENT’S MOBILE GAME
REVENUE GROWTH
1.19 1.39 1.43
1.55
1.8786%
114%
87%
51%
57%
16 Q1 16 Q2 16 Q3 16 Q4 17 Q1
MOBILE GAME REVENUE (IN BILLION USD) YOY GROWTH
HONOR OF KINGS
40 MILLION DAU*
HONOR OF KINGS
50 MILLION DAU*THE FIRST COMPLETE
QUARTER OF ‘HONOR OF
KINGS’ IN OPERATION
DATA: TENCENT
* DAU: DAILY ACTIVE USERS

46. CHINACHANNEL.CO
Q1 2017 WAS DRIVEN HEAVILY BY THE SMASH HIT TITLE
“HONOR OF KINGS” WITH 50+ MILLION DAILY ACTIVE USERS

47. CONCLUSION:
APPLE’S CHINA SERVICES ECOSYSTEM IS VERY WEAK WHEN COMPARED WITH
OTHER MAJOR MARKETS. THEY HAVE CONSISTENTLY FAILED TO LOCALIZE THEIR
OFFERINGS TO LOCAL TASTES.
2 SERVICES (ITUNES, IBOOKS) HAVE BEEN OUTRIGHT BLOCKED, MOSTLY LIKELY
DUE TO INABILITY OR UNWILLINGNESS TO MEET LOCAL GOVERNMENT
REQUIREMENTS. THE DATA SHOWS THAT NEITHER OF THESE SERVICES HAD ANY
SIGNIFICANT IMPACT ON THE LOCAL MARKET DURING THEIR TIMES OF
OPERATION.
THE SINGLE BRIGHT SPOT SEEMS TO BE IN APP PURCHASE REVENUE FROM APPS
DOWNLOADED THROUGH THE APP STORE.
IT’S CLEAR THAT A SIGNIFICANT PROPORTION OF APPLE’S STRONG CHINA
SERVICE GROWTH IN 2017 IS BEING DRIVEN BY TENCENT’S MOBILE GAMES SUCH
AS THE SMASH HIT TITLE ‘HONOR OF KINGS’.
CHINACHANNEL.CO

48. CHINACHANNEL.CO
PART 2
CHINESE PUBLIC OPINION

49. CHINACHANNEL.CO
KNOCK OUT APPLE!
ARTICLE FROM TECH INDUSTRY INFLUENCER KESO

50. CHINACHANNEL.CO
“ANDROID DEVICES KEEP GETTING
BETTER AND BETTER, BUT I FEEL
APPLE LITERALLY MAKES NO
PROGRESS. SOONER OR LATER I
BELIEVE ANDROID WILL EXCEED IOS”
CHINESE NETIZENS’ COMMENTS

51. A TRICKY RELATIONSHIP

52. 2 MILESTONE EVENTS HAD HUGE IMPACT
IN SHIFTING PUBLIC OPINION
WECHAT LAUNCHED MINI PROGRAMS
WECHAT FORCED TO SHUT DOWN
A REWARD FEATURE FOR IOS USERS

53. CHINACHANNEL.CO
IN JAN 2017 WECHAT LAUNCHED ‘MINI PROGRAMS’
A FORM OF LIGHT APPS RUNNING WITHIN WECHAT
WECHAT TEAM ANNOUNCED THE
IDEA A YEAR PREVIOUS UNDER
THE NAME ‘APP ACCOUNTS’.

54. “APPLE DIDN’T ALLOW US TO CALL THEM APP
ACCOUNTS. PERHAPS IT’S A GOOD THING.”
PONY MA, FOUNDER & CEO OF TENCENT
MINI PROGRAMS ARE COMMONLY PERCEIVED
AS A LONG TERM THREAT TO APP STORE

55. CHINACHANNEL.CO
THE LAUNCH DATE OF MINI PROGRAMS
WAS DELIBERATLY TIMED…
ALLEN ZHANG, THE FATHER OF
WECHAT, POSTED ON WECHAT
RIGHT BEFORE THE LAUNCH OF
MINI PROGRAMS, AS A RESPECT
TO STEVE JOBS AND THE 10TH
ANNIVERSARY OF IPHONE.

56. CREDIT: JASON NG, YOUKENENG ACADEMY
SHARE WITH
DEVELOPERS
APP STORE
SWIFT
DESIGN GUIDELINES
APPROVAL CRITERION
OPERATION GUIDELINES
REVENUE
SPLIT
SAME
ENTRANCE
PROPRIETARY
LANGUAGE
SAME
CRITERION
APPLE APP DEVELOPER ECOSYSTEM

57. CREDIT: JASON NG, YOUKENENG ACADEMY
LATER SHARE WITH
DEVELOPERS
WECHAT
WELANG
WXML + WXSS
DESIGN GUIDELINES
APPROVAL CRITERION
OPERATION GUIDELINES
REVENUE
SPLIT
SAME
ENTRANCE
PROPRIETARY
LANGUAGE
SAME
CRITERION
WECHAT MINI PROGRAM DEVELOPER ECOSYSTEM

58. CHINACHANNEL.CO
USERS CAN TIP CONTENT
CREATORS VIA WECHAT
WALLET WITH NO CHARGE
FROM WECHAT
WECHAT SHUT DOWN ITS REWARD
FEATURE TO IOS USERS IN APR 2017
REWARD AMOUNTS
USUALLY LESS THAN $1

59. CHINACHANNEL.CO
APPLE DISALLOWED WECHAT TO CONTINUE USING THE FEATURE
THROUGH WECHAT PAY, INSISTING THE REWARD SHOULD GO
THROUGH IN-APP PURCHASE (IAP) WHICH MEANS APPLE WOULD
RECEIVE 30% OF ALL REWARDS.
MASSIVE DISCUSSION FOLLOWED ON CHINESE MEDIA.

60. CHINACHANNEL.CO
“FOLLOWERS WANT TO TIP
THEIR FAVORED AUTHORS,
NOT APPLE. BUT APPLE
INSISTS TO IMPOSE 30% CUT
VIA IAP* ANYWAY.
THIS IS ROBBERY”
KESO, CHINESE TECH INDUSTRY
INFLUENCER APR 2017
* IAP: IN APP PURCHASE

61. CHINACHANNEL.CO
AN EASY AND OBVIOUS WORK-AROUND
AFTER WECHAT’S ANNOUNCEMENT TO DISABLE THE REWARD FEATURE FOR
IOS USERS, CONTENT CREATORS SIMPLY SWITCHED TO USING QR CODES TO
GET AROUND PAYING THE 30% TO APPLE.

62. CHINACHANNEL.CO
CHINESE CONTENT CREATOR’S
INCOME STRUCTURE 2016
ADS
E-COMMERCE
TIPPING
REWARDS
3.80%
OTHER
DATA: IIMEDIA
TIPPING REWARD
MONEY IS SMALL
CHANGE FOR
CHINESE CONTENT
CREATORS.

63. CHINACHANNEL.CO
APPLE ESSENTIALLY SHOT THEMSELVES IN THE FOOT
1. IT MADE THEM LOOK GREEDY.
2. THEY PISSED OFF THOUSANDS OF INFLUENTIAL
CONTENT CREATORS ACROSS CHINA.
3. THE CONTENT CREATORS EASILY FOUND A WAY TO
AVOID USING IAP.

64. CHINACHANNEL.CO
RECENTLY, APPLE HAS
STARTED SENDING OUT
WARNING EMAILS TO MANY
CHINESE DEVELOPERS.
THIS SPARKED WIDE
SPECULATION THAT WECHAT
MIGHT BE DELISTED FROM
APP STORE.
THE QUESTION IS:
DID WECHAT TEAM ALSO
RECEIVE THIS WARNING
EMAIL?
THE SITUATION GETS WORSE

65. CHINACHANNEL.CO
DO YOU WISH WECHAT WOULD DEVELOP
THEIR OWN OPERATING SYSTEM?
20K+ RESPONDENTS
SOURCE: KENENGBA OFFICIAL ACCOUNT
ONLINE SURVEY APRIL 2017
YES
52%
NO
24%
DON’T
CARE
23%

66. CHINACHANNEL.CO
SOURCE: WECHAT INDEX
MENTIONS OF THE PHRASE “WECHAT DELISTED FROM IOS”
HAVE SPIKED RECENTLY ON WECHAT
MAY
26TH

67. CHINACHANNEL.CO
“THERE’S NO WAY THAT APPLE
COULD TAKE ON WECHAT IN CHINA,
DELISTING WECHAT FROM THE APP
STORE IS EQUAL TO APPLE
KICKING THEMSELVES OUT OF
CHINA. USERS WILL SWITCH TO
ANDROID IN THE BLINK OF AN EYE.”
CHINESE NETIZENS’ COMMENTS

68. CHINACHANNEL.CO
55%
18%
26%
SOURCE: APP PROGRAM ACCOUNT INDEX
CHINESE IPHONE USERS: WHAT WOULD YOU DO IF
WECHAT WAS DELISTED FROM THE APP STORE?
I'D USE ANOTHER
MESSENGER APP
I'D IMMEDIATELY CHANGE
TO ANDROID
I'D FIND A WAY TO
JAILBREAK MY IPHONE
ONLINE SURVEY
4,000+ RESPONDENTS

69. CHINACHANNEL.CO
90%
10%
SOURCE: APP PROGRAM ACCOUNT INDEX
CHINESE ANDROID USERS: IF WECHAT WAS
DELISTED FROM THE IPHONE APP STORE…
I'D STILL BE INTERESTED IN
POTENTIALLY PURCHASING AN
IPHONE
THEN I’D BE EVEN LESS LIKELY
TO SWITCH TO IPHONE
ONLINE SURVEY
4,000+ RESPONDENTS

70. CHINACHANNEL.CO
IF YOU HAD TO CHOOSE BETWEEN WECHAT
AND APPLE, WHICH ONE WOULD GO WITH?
500 RESPONDENTS
WECHAT
88%
APPLE
4%
NEITHER
6%
SOURCE: AIZAIGUANGJIE OFFICIAL
ACCOUNT ONLINE SURVEY

71. CONCLUSION:
APPLE HAS BLUNDERED RECENTLY AND DAMAGED THEIR IMAGE IN CHINA.
THE MOVE TO BLOCK REWARD FEATURES REVEALED THEM TO BE OUT OF
TOUCH WITH THE LOCAL MARKET. APPLE’S OFFICIAL RESPONSES TO
CRITICISM WERE POOR.
CHINESE USERS ARE FAR MORE LOYAL TO LOCAL PRODUCTS SUCH AS
WECHAT THAN APPLE. WECHAT IS CONTINUING TO EXPAND BEYOND
MESSAGING INTO DIRECTIONS THAT IN THE LONG TERM MAY POTENTIALLY
PLACE IT INTO COMPETITION WITH THE APP STORE.
CHINACHANNEL.CO

72. CHINACHANNEL.CO
PART 3
LOCAL CHINESE SMARTPHONE BRANDS
INCREASING IN STRENGTH, SOHISTICATION AND LOCAL MARKET SHARE

73. U.S. SMARTPHONE MARKET
SHARE TOP FIVE IN 2017 Q1
CHINACHANNEL.CO
DATA: COMSCORE MOBILENS
44.5%
28.3%
9.8%
4.2%
2.2%
APPLE SAMSUNG LG MOTOROLA HTC
IN U.S. APPLE IS GAINING
MARKET SHARE OVER
ANDROID

74. CHINA SMARTPHONE MARKET
SHARE TOP FIVE IN 2017 Q1
CHINACHANNEL.CO
DATA: IDC QUARTERLY
MOBILE PHONE TRACKER
20%
18.2%
14.1%
9.2% 9%
HUAWEI OPPO VIVO APPLE XIOAMI
IN CHINA THE 1ST QUARTER
OF 2017 PRODUCED THE
LOWEST IOS SHARE SINCE
2014.

75. CHINACHANNEL.CO DATA: KANTAR WORLDPANEL
IPHONE SALES MARKET SHARE
IN CHINA IS SHRINKING FAST
-10%
0%
10%
20%
30%
Q2 2016 Q3 2016 Q4 2016 Q1 2017
PREVIOUS YEAR CURRENT YEAR
-2.2%
-4.8%
-8.0%
-8.7%

76. CHINACHANNEL.CO
“(CHINESE CUSTOMERS) TIRE
OF LAST YEAR’S, OR EVEN LAST
MONTH’S, MODEL. ONE OF
APPLE’S PROBLEMS IN CHINA IS
ITS PRODUCT REFRESHES… OR
LACK THEREOF.”
BRYAN MA, TECHNOLOGY INDUSTRY
ANALYST AT IDC, AUG 2016

77. CHINACHANNEL.CO
CHINA IS JAMMED FULL OF LOCAL COMPETITORS

78. 10.80% 11%
7.30%
8.80%
13.60% 9.60%
9.20%
0%
5%
10%
15%
20%
25%
2011 2012 2013 2014 2015 2016 Q1 17
CHINACHANNEL.CO
TOP 5 SMARTPHONE VENDORS’
MARKET SHARE IN CHINA: 2011-2016
DATA: IDC QUARTERLY MOBILE PHONE TRACKER
2012 APPLE LED
THE PACK

79. 10.60%
8.40%
9.30% 9.70%
14.60%
16.40%
20.00%
0%
5%
10%
15%
20%
25%
2011 2012 2013 2014 2015 2016 Q1 17
CHINACHANNEL.CO
TOP 5 SMARTPHONE VENDORS’
MARKET SHARE IN CHINA: 2011-2016
DATA: IDC QUARTERLY MOBILE PHONE TRACKER
2017 Q1 LOCAL BRANDS
ARE RACING AHEAD

80. CHINACHANNEL.CO
XIAOMI’S RAPID RISE AND FALL STUNS MANY
0.40%
3%
5.30%
12.40%
15.10%
8.90%
2011 2012 2013 2014 2015 2016
XIAOMI TOPPED THE MARKET
FROM NOWHERE AFTER ONLY
2 YEARS OPERATION THE
XIAOMI MIRACLE BLOOMED.
2016 SAW A SUDDEN DROP
FROM THE TOP SPOT. THE
XIAOMI MIRACLE STALLS IN
JUST 2 YEARS.
LAUNCHING THEIR 1ST
MODEL IN OCT 2011,
XIAOMI WAS NOT A
MAINSTREAM VENDOR
BACK IN 2012-2013.
DATA: IDC QUARTERLY
MOBILE PHONE TRACKER

81. 86
89
70
92
79
85
89
74
86
78
83
87
57
89
74
US UK CHINA GERMANY JAPAN
Q4 2015 Q2 2016 Q4 2016
IPHONE RETENTION RATES (%)
CHINACHANNEL.CO
DATA: UBS EVIDENCE LAB
RETENTION RATE = BRAND’S USERS UPGRADING THEIR
PHONES WITHOUT CHANGING TO ANOTHER BRAND / TOTAL
NUMBER OF BRAND’S USERS UPGRADING PHONES
CHINA RATES MUCH
LOWER THAN ALL
OTHER REGIONS

82. 67
33
19
30
19
30 32
16
10 10
50
36
29 29 28
23 22
17
14 14
0
10
20
30
40
50
60
70
80 2016
2015
SMARTPHONE BRAND LOYALTY CHINA MARKET
BRAND RETENTION RATE (%)
CHINACHANNEL.CO DATA: TOUTIAO
BIG DROP IN APPLE
LOYALTY LAST YEAR
SIGNIFICANT GAINS
FOR 2 LOCAL BRANDS
RETENTION RATE = BRAND’S USERS UPGRADING THEIR
PHONES WITHOUT CHANGING TO ANOTHER BRAND / TOTAL
NUMBER OF BRAND’S USERS UPGRADING PHONES

83. HUAWEI IS THE NUMBER 1 BRAND
CHINESE IPHONE USERS DEFECT TO
CHINACHANNEL.CO
DATA: TENCENT PENGUIN INTELLIGENCE
SURVEY PUBLISHED JUN 2016
14.2%
14.4%
15.1%
17.7%
25%
5
4
3
2
1 HUAWEI
SAMSUNG
XIAOMI
OPPO
VIVO

84. LOCAL PLAYERS HAVE BIG AMBITION

85. CHINACHANNEL.CO
“WE HOPE THAT IN 3 YEARS
(2019) OUR MARKET SHARE
CAN BE TOP 2 AND IN 5 YEARS
(2021) OUR MARKET SHARE
CAN BE TOP 1.”
RICHARD YU, HEAD OF HUAWEI CONSUMER
DIVISION, FEB 2016.

86. MANY HUAWEI PHONES ARE NOT CHEAP!
CHINACHANNEL.CO
HUAWEI MATE 9 PORSCHE DESIGN
TYPICAL CHINA RETAIL PRICE
$1,300 USD (8,999 RMB)
EXCHANGE RATE:
1 CHINESE YUAN = 0.15 DOLLARS

87. CHINACHANNEL.CO
“PEOPLE LOVE OUR HIGH END
SMARTPHONES, AND WE
CAN’T WAIT TO TAKE ON
DIRECT COMPETITION WITH
APPLE (GLOBALLY)”
RICHARD YU, HEAD OF HUAWEI
CONSUMER DIVISION, NOV 2016

88. TOP 3 SMARTPHONE VENDORS
GLOBAL MARKET SHARE 2012-2016
CHINACHANNEL.CO
21.2%
14.6%
9.5%
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015 2016
DATA: IDC QUARTERLY
MOBILE PHONE TRACKER
HUAWEI
APPLE
SAMSUNG

89. LOCAL PLAYERS HAVE BIG AMBITION

90. CHINACHANNEL.CO
“OPPO IS LARGELY UNKNOWN IN THE
WESTERN WORLD, BUT ITS BRAND IS
WILDLY POPULAR IN CHINA AND
GROWING RAPIDLY ACROSS INDIA.”
NEIL MAWSTON, EXECUTIVE DIRECTOR AT
STRATEGY ANALYTICS

91. OPPO’S FLAGSHIP MODEL
CHINACHANNEL.CO
OPPO RS9
TYPICAL CHINA RETAIL PRICE
$405 USD (2,799 RMB)
NEVER HEARD OF IT?
CHECK OUT THE NEXT SLIDE…
EXCHANGE RATE:
1 CHINESE YUAN = 0.15 DOLLARS

92. BEST SELLING PHONE MODELS WORLDWIDE
Q1 2017
CHINACHANNEL.CO
DATA: STRATEGY ANALYTICS
21.5
17.4
8.9
6.1 5.0
6.1%
4.9%
2.5%
1.7%
1.4%
IPHONE 7 IPHONE 7 PLUS OPPO R9S SAMSUNG GALAXY
J3
SAMSUNG GALAXY
J5
UNITS SOLD (MILLIONS)
ABSOLUTE MARKET SHARE (%)
OPPO R9S IS THE NO. 3 BEST
SELLING SMARTPHONE
MODEL GLOBALLY!

93. WHY ARE OPPO PHONES SO POPULAR?
THE SECRET SAUSE
CHINACHANNEL.CO

94. CHINACHANNEL.CO
MARKETING SLOGAN
“5 MINUTES CHARGING FOR A
2 HOURS PHONE CALL”
REACHING CONSUMERS’ PAIN POINTS
IN AN EASY TO UNDERSTAND AND
REMEMBER WAY.
A PHONE WITH NO POWER IS A
CHINESE CONSUMER’S WORST
NIGHTMARE.
INTENSE TV AND METRO
ADVERTISING CAMPAIGN.

95. CHINACHANNEL.CO
IMAGE CREDIT: JIGUO.COM
R9
OPPO MARKETING: THE BEST CAMERA FOR SELFIES. TARGETING YOUNG FEMALES
OPPO R9NORMAL PHONE

96. OPPO’S COMMISSION SYSTEM INCENTIVIZES BOTH DISTRIBUTORS AND SALES STAFF
TO STAY HIGHLY MOTIVATED, ENHANCING THE IN-STORE EXPERIENCE.
CHINACHANNEL.CO

97. CHINACHANNEL.CO
OPPO SPENT A FORTUNE TO UPHOLD ITS BRAND. SIGNING UP A-LIST STARS AND
SPONSORING POPULAR TV SHOWS, OPPO IS PERCEIVED AS A PREMIUM BRAND,
ESPECIALLY IN CHINA’S DEVELOPING AREAS.

98. CHINACHANNEL.CO
OPPO HAS 200,000+ DISTRIBUTION STORES IN CHINA
OFFLINE STORES CONTRIBUTE 90%+ SALES

99. CHINACHANNEL.CO
APPLE OPERATES 40 CHINA APPLE STORES

100. CHINACHANNEL.CO
“I HONESTLY DON’T THINK APPLE
UNDERSTANDS THE LOCAL
CULTURE ENOUGH TO ACHIEVE
LOCAL PENETRATION (IN CHINA)”
KITTY FOK, MANAGING DIRECTOR OF THE
CHINA GROUP AT IDC, APR 2017

101. CHINACHANNEL.CO
BEIJING SHENZHEN
SHANGHAI SUZHOU
VERY RECENTLY APPLE HAS REALIZED THE IMPORTANCE
OF LOCALIZATION AND SET UP 4 CHINESE R&D CENTERS IN 2017
IMAGE CREDIT: PIXABAY.COM

102. CHINACHANNEL.CO
“WE ARE LOOKING FORWARD
TO WORKING WITH MORE
LOCAL PARTNERS AND
ACADEMIC INSTITUTIONS
THROUGH THE EXPANSION OF
R&D CENTERS IN CHINA.”
DAN RICCIO, SENIOR VP OF HARDWARE
ENGINEERING AT APPLE, MAR 2017.

103. THIS YEAR’S WWDC SAW APPLE INTRODUCE
SOME CHINA LOCALIZATION FEATURES
CHINACHANNEL.CO

104. CHINACHANNEL.CO
APPENDIX
APPLE OFFICIAL DATA FOR CHINA

105. APPLE REVENUE GROWTH BY REGION
Q1 2017
CHINACHANNEL.CO
20%
11% 10%
5%
-14%
REST OF ASIA
PACIFIC
AMERICAS EUROPE JAPAN GREATER CHINA
DATA: APPLE INC.

106. 28%
1%
70%
71%
112%
99%
14%
-26%
-33%
-30%
-12%
-14%
CHINACHANNEL.CO
20152014 2016 2017
DATA: APPLE INC. YEAR ON YEAR REVENUE GROWTH
APPLE GLOBAL GROWTH BY REGION
CHINA
ALL OTHER REGIONS
5 CONSECUTIVE
QUARTERLY REVENUE
DECREASES YEAR ON YEAR

107. DATA: APPLE INC.
APPLE REVENUE BY REGION
Q2 2017
CHINACHANNEL.CO
40%
24%
20%
9%
7%
GREATER
CHINA
AMERICAS
EUROPE
JAPAN
REST OF ASIA PACIFIC

108. CONCLUSION:
APPLE IS UNQUESTIONABLY DOING VERY WELL GLOBALLY BUT CHINA POSES A TOTALLY
DIFFERENT ENVIRONMENT. CHINESE SEE THE IPHONE AS A LUXURY PHONE RATHER THAN
AN ECOSYSTEM, WHICH MAKES IT MUCH HARDER TO LOCK THEM IN. THIS IS REFLECTED IN
POOR CHINA IPHONE RETENTION RATES.
APPLE’S SERVICES ECOSYSTEM IS WEAK WITH REVENUE GROWTH MOSTLY BEING DRIVEN BY
A 30% CUT FROM IN APP MOBILE GAME PURCHASES THAT ARE DEVELOPED BY LOCAL
PLAYERS SUCH AS TENCENT.
THE PERCEPTION OF APPLE’S BRAND IS SHIFTING, THEY ARE INCREASINGLY BEING
PERCEIVED AS ANTI-INNOVATORS: A COMPANY ABUSING THEIR PRIVILEGED POSITION OF
POWER TO BULLY OTHERS.
LOCAL SMART PHONE BRANDS ARE CLOSING THE GAP THROUGH BETTER AND BETTER
HARDWARE TOGETHER WITH EXCEPTIONALLY STRONG MARKETING AND SALES.
WE CAN STILL FORESEE A SALES SURGE ON THE RELEASE OF THIS YEAR’S HOTLY
ANTICIPATED NEW ANNIVERSARY IPHONE. HOWEVER, IF THIS HARDWARE CENTRIC
BUSINESS PATTERN DOESN’T CHANGE, CONTINUED TURBULENCE IN CHINA FOR APPLE IS A
CERTAINTY. MUCH DEEPER LOCALIZATION OF FEATURES IS A MUST FOR APPLE TO COMPETE.
CHINACHANNEL.CO

109. SAMIN SHA
SENIOR ANALYST AT CHINA CHANNEL
SAMIN PREVIOUSLY HELD POSITIONS AT HUAWEI
INTERNATIONAL MARKETING AND LATER AT ADWO, ONE OF
CHINA’S LARGEST CHINESE MOBILE AD PLATFORMS. WITH
10+ YEARS OF CHINA INTERNET INDUSTRY EXPERIENCE
SAMIN HEADS UP RESEARCH AT CHINA CHANNEL.
EMAIL: SAMINSHA@CHINACHANNEL.CO
LINKEDIN: WWW.LINKEDIN.COM/IN/SAMIN-SHA-599653118/
THIS REPORT WAS PREPARED BY CHINA CHANNEL

110. APPLE IN CHINA REPORT
MATTHEW BRENNAN & SAMIN SHA
CHINACHANNEL.CO