Apple Goes to ChinaApple Goes to China

My title is a reference to the phrase "Nixon goes to China," recalling former President Richard Nixon's 1972 meeting with former Chairman Mao Zedong. In the early '90s movie "Star Trek VI: The Undiscovered Country," Spock recast the phrase as the Vulcan proverb "only Nixon could go to China." And now Apple wants to go to China, too.

Apple's interest in China isn't surprising, given the country's position as the single largest mobile phone market in the world. But what is surprising is what Apple found when it got there.

One of the greatest delights I have had in following the mobile market for the past 20 years or so is the continuous revelation that the "mobile market" is not one market at all. Rather, it is a whole myriad of markets shaped by economics, the services made available by countless creative entrepreneurs, and the personal preferences found in so many different cultures.

China is probably the most unique case of a mobile market that has developed under its own rules, and those rules are now throwing sand into the gears of Apple's well-oiled marketing machine. In China, we're seeing the unfolding of a new market model, one in which services, rather than hardware, drive consumer choices.

The Great Wall of WeChat
Apple has been encountering all manner of difficulties with its dealings in China. Despite its firm stand on protecting user privacy in the U.S. and other countries, the company recently removed several VPN applications from its App store, apparently at the behest of China's powerful censorship authorities. VPNs are popular in China as they allow users to access the "real" Internet as opposed to the highly censored Chinese version while avoiding detection by the authorities.

An even bigger headache for Apple, however, is WeChat, the major social networking app in China. It's quite possible you haven't heard of WeChat, despite a current base reported to be 889 million active users, as roughly 90% of those are in China. By comparison, Facebook has a reported 1.3 billion daily active users worldwide. However, WeChat has evolved into much more than just a social networking site, so much so that we should probably define a new category to encompass it.

Apple's greatest strength, and a major contributor to the phenomenal loyalty customers have to the iPhone, comes from its ecosystem. The more Apple products you buy, the stronger the bond becomes. One of the critical elements in that ecosystem is Messages, Apple's texting app. Messages allows you to send either Apple Messages or SMS messages (to non-iOS users) in the same app. By linking all of your devices to the same iCloud account, you can have those texts appear on your iPhone, iPad, and your Mac desktop and laptop, and you can respond from any of your devices (your iPhone has to be in close proximity to the Mac or iPad to send or receive SMS messages).

One of the most important enterprise announcements Apple made in June at its Worldwide Developer's Conference was Business Chat, which offers a new range of capabilities contact centers could use to engage with customers through Messages. In my recent No Jitter blog post describing Business Chat, I also make reference to the fact that Apple may be trying to take a page out of WeChat's playbook.

WeChat is challenging Apple's hegemony and the mobile industry as a whole with a powerful and multifaceted offering that cuts across several formerly separate product categories -- and happens to be available on Android as well as iOS devices. As reported, Apple's China revenue fell 14% in the first quarter, marking a fifth-consecutive regional quarterly sales decline; China was the only region where Apple's sales fell last quarter.

WeChat has essentially built a cloud ecosystem that rivals Apple's and that has effectively worked its way into every aspect of daily life in China. According to data from QuestMobile, WeChat accounts for roughly 35% of mobile users' monthly time online. We really don't have anything in the U.S. market with equivalent scope and reach, so we have to compare WeChat to multiple U.S. offerings.

Continue to next page for more on Apple in a WeChat world

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WeChat for Everything
To start, WeChat offers texting as well as free video calls and instant group chats with the capability of sharing large multimedia files. A GPS function allows you to track where your friends are or to send them your location. WeChat also supports online shopping and mobile payments at physical stores and for utility bills and parking tickets -- and even allows users to split a dinner tab, book and pay for taxis, food deliveries, and theater tickets. Heck, you can even schedule a doctor's appointment within the WeChat ecosystem.

In addition, an Enterprise WeChat service offers the usual chat features, and lets employees track annual leave days and expenses, request time off, and even clock in and out of work. Enterprise WeChat also features a business-oriented collaboration service similar to Slack. Where Apple, and to a lesser degree, Samsung, have built customer loyalty around the device, WeChat has been able to build loyalty around the variety of services it delivers. Also, a lot of these services lean on QR codes, a technology that has fallen to the rear in the U.S. market in favor of alternatives like near-field communications (NFC). NFC is more convenient, but it's not universally available, where QR codes are accessible from any smartphone with a camera. Business people even use WeChat QR codes to exchange business cards.

Resurrecting a plan that we had discussed in the U.S. market some years back, WeChat has recently introduced what it calls "mini programs." Mini programs are apps that run in the cloud rather than on a device after download.

In the early days of the app market, we used to talk about the two approaches to delivering apps: device-specific apps versus browser-based apps. For reasons of performance and the ability to leverage various device capabilities, device-specific apps came to dominate in the U.S. and most other countries. WeChat is selling the cloud-based alternative, but by using WeChat rather than the browser.

Chinese buyers also tend to favor domestic brands. Apple has now fallen to fourth place in the Chinese market behind Oppo and Vivo, from BBK Electronics Corp., and devices from Chinese electronics giant Huawei Technologies, according to JL Warren Capital. Apple's share of the Chinese market now sits below 10%, down from a peak of 13% in 2015. Weakening Apple's grip is the loyalty buyers have with WeChat rather than with Apple.

Global View
None of this bodes well for Apple in a cost-sensitive market, particularly as that rumor has it that the next-generation iPhone, due out later this year (hopefully), may fetch prices up to $1,400!

Drawing conclusions about mobile adoption from one country to the next is difficult given economic and cultural nuances. WeChat is unique in the way it has evolved from a simple texting platform to a multifunction mobile service complex that has ingrained itself in almost every aspect of Chinese live, business or personal.

It's a fairly sure bet that Silicon Valley elites have studied WeChat's success, but no one has come up with anything as pervasive and far-reaching as the app. Of course, the U.S and Chinese markets are very different, and a U.S. version of WeChat might not catch on. However, the WeChat developers most definitely had a clear understanding of the needs of the Chinese market and came up with a homerun mobile service for the most populous nation on earth -- not a bad strategy.

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