What is Apple’s Strategy for Emerging Markets?


Apple continues to lose its share in the smartphone market to Android. In some markets like Brazil, India and Malaysia, Windows Phone has also managed to beat them. With new smartphones during 2014 mainly sold in emerging markets, this trend will most likely continue. Should Apple even care about the emerging markets and if yes, is it possible to grab back its market share without compromising on building great products?

The common misunderstanding is that users in emerging markets don’t have money to buy high-end smartphones or generate revenue for developers through apps: two segments which Apple has been dominating. While the first remains true (iPhones are twice as expensive as Android and Windows Phones), Apple’s position as the developers’ primary platform will soon start to crumble.

Looking at the ten countries with most new smartphone owners in 2014, only 12% of users are located in developed markets (US, Japan & Germany) where iPhones have seen the biggest success. But the remaining 564 million smartphone owners are located in emerging markets and nearly everyone will choose an Android or Windows Phone due to the pricing.

What does it mean from a developer’s perspective? If every new iPhone owner in the US, Japan or Germany spends 7x more on apps than Android users in emerging markets, developer income will be equal. Yet we know that the spending gap isn’t 7-fold: Android users spend only half asmuch (interestingly enough, Windows Phone revenue per download is almost equal to iPhone). Even if Apple per-user revenue is higher, Android will soon become the #1 platform of revenue to developers due to its sheer volume. Apple might feel content in focusing on high-income economies but developers will follow the money.

Apple has already signaled that it is interested in going after users willing to spend less on smartphones by testing the waters with a cheaper iPhone 5C. However, even if this strategy had succeeded (which Apple has said hasn’t happened they face another issue in emerging markets. While App Store provides the biggest amount of purchasable content for end-users - apps, books, movies, music - most users do not have access to it. The reason is that most people in emerging markets can’t pay in App Store: 69% of Brazilians, 71% of Chinese, and 98% of Indians do not have a credit card.

One direction Apple could take to overcome the challenge of credit cards would be to look into alternative payment methods such as PagSeguro in Brazil and AliPay in China to enable payments. But this would start effecting one of Apple’s biggest strengths - a seamless user experience - in a negative manner so they are unlikely to take this approach.

Meanwhile, Google and Microsoft have been heavily investing in carrier billing as the secondary payment method for their app stores for a good reason - it’s the only billing method which provides guaranteed access to payments for anyone with a mobile device. Unlike the regional payment methods mentioned above, every mobile operator globally can provide a similar payment experience to users.

Carrier billing could also help Apple in China where their market share is at its lowest during the past 2 years - Chinese mobile operators have a much stronger grasp on the app ecosystem in China and giving them a portion of revenue from the App Store would motivate them to promote Apple’s devices more than Android. There have recently also been news of an  Apple-Alipay partnership.

Whether Apple chooses to go after users in emerging markets or not, developers should take note of the fact that in a couple of years most app downloads will be by people who have no means to pay for content.