One of the big takeaways from the recent Apple Inc. (NASDAQ:AAPL) earnings report was the confirmation that China is now the biggest market for the Apple iPhone.
That’s welcome news for AAPL investors, who have been pushing for the company to tap this massive, emerging customer base. However, there’s another aspect to this development that hasn’t had the same degree of scrutiny: Manufacturers tailor their products for their biggest market.
In other words, your next “Designed by Apple in California” iPhone may have “and Beijing” tacked on.
Different Markets, Different Tastes
It won’t come as any shock that China and the U.S are very different.
Differences from culture to communications infrastructure and income all come into play and could impact future Apple iPhone design.
Broadband Internet is far less common in China than in the U.S., while lower income means fewer PCs and tablets (80% of users rely on a mobile connection). Chinese consumers prefer phablets — smartphones that are big enough and powerful enough to serve as their sole computing device and they make full use of a phablet’s mobile capabilities. These phablets even replace a TV for many people.
Adweek says 71% of Chinese mobile users watch entire TV episodes on their mobile device (compared to 28% of Americans).
Eventually, income seems likely to come into play again, but this time in the form of pressure for a cheaper Apple iPhone — something the company has resisted in its home market.
According to 2013 World Bank figures, the U.S. per-capita GDP was $53,042 while China managed just $6,807.
AAPL has refused to release a cheap iPhone so far. The closest it came was the marginally less expensive iPhone 5c in 2013. However, with current iPhones starting at $649 Apple will eventually face a tough choice if it wants to continue growing that Chinese market lead beyond the initial wave of wealthy early adopters.
With so many variations between the two markets, a single Apple iPhone won’t make everyone happy — and now China represents the bigger payday for Apple.
Apple’s Courting of China Has Already Begun
Want an idea of how consumers in China might affect Apple iPhone design? Look at the iPhone 5s and iPhone 6 to see the effect in action.
I don’t think there was any focus group in California that said a gold-colored Apple iPhone 5s was something U.S. customers would eat up (turns out that consumers did, but that appeared to have caught AAPL off guard).
No, that gold iPhone option was added to appeal to the Asian and Chinese market.
The bigger iPhone 6 and super-sized iPhone 6 Plus? Certainly there was demand in the U.S for a larger phone. However, Chinese consumers wanted extra large. Apple went with both options in order to satisfy the two very different markets.
The iPhone sales numbers speak for themselves: While roughly three out of four U.S. customers have chosen to buy the smaller iPhone 6, in China sales of the iPhone 6 Plus — which is a more profitable device for AAPL by the way — are reportedly closing on 45% of the total.
Would Apple have released the iPhone 6 Plus had there not been the demand for the phablet-sized device in China? Maybe not.
Developing the Apple iPhone for Both Markets
While the iPhone 5s, iPhone 6 and iPhone 6 Plus illustrate how Apple is actively courting the China smartphone market, these phones also show the approach the company is taking to its two very different markets.
There had traditionally been just one iPhone released yearly in the past, but with the iPhone 5s and 5c, AAPL chose to go with two different models for the first time. That dual launch set the stage for the iPhone 6 and iPhone 6 Plus, two very different devices that led to record setting Apple iPhone sales in both the U.S. and China — despite very different consumer tastes in the two markets.
While there will always be some feature bleed (like the gold case option), expect to see the strategy of dual Apple iPhone releases continuing in the future. Doing so will let Apple continue its China conquest without risking alienating its home market. At the same time, having two Apple iPhones means choice for its customers everywhere, something that was missing for many years and a move that will only add more fuel to future iPhone sales –in all markets.
And who knows, thanks to China we may yet end up with that elusive, affordable Apple iPhone.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.