A Deeper Dive on Android and iPhone in China

I’ve received a number of questions from readers about why I don’t talk as much about the US market for smartphones. It’s primarily because the US doesn’t offer any new interesting questions or problems. It’s about a 50/50 split between Android and iOS and Apple controls over 60% (and growing) of the premium smartphone space. iOS is on track to gain share into Android’s each quarter of 2014 and it will likely be more of the same in the US in 2015. However, other markets like India and China pose much more interesting questions and problems to be solved. I’ll do a few deep dives on the US market with some of our updated data sets, but what we find will likely not contain major surprises. Now, onto the iPhone and China.

First, Android Context

A fascinating data point came from Baidu yesterday. Baidu, the largest browser in use with an over 80% share in China, reported to Tech In Asia that they count 386 million active, individual Android customers. This is Android AOSP, not Google-approved Android, and a few things are unclear about the numbers. First, it is uncertain if these are smartphone-only owners. The report simply states active Android devices. Given China runs both AOSP on smartphones and tablets sold there, either device connecting to the Internet and accessing Baidu’s search engine would be counted. Through my supply chain checks, I learned that, on average, about 20m low cost Android tablets are sold in China each year. As I have discussed before, most of those are used simply as portable media players and large percentages likely do not connect to the internet. Which means, while some of the 386m active Android devices are tablets, the majority are smartphones. ((Even if the report said they were all smartphones, I would still believe a small percentage were tablets since my research there found that even 7-inch tablets in China use smartphone components; therefore they show up in analytics as smartphones.))

Baidu similarly reported last year a total of 270m active Android users. So there is impressive growth for AOSP. For some time now, I have been building a model of AOSP’s growth in China and was pleased to see Baidu’s data for Q3 2014 matched very closely to my own model.

Screen Shot 2014-12-15 at 9.10.56 PM

You’ll note growth is slowing, as is the China smartphone market in general. There is certainly more growth to be had as more of rural China gets online, but these will mostly be with very low cost smartphones. Where things start to get interesting is when we look at the nearly 400m Android AOSP customers in light of the total smartphone user base. A number of Chinese research firms like iResearch China and analytics engines like Baidu/Umeng came out and said over 550m smartphones were in use in China by the end of June of 2014. My model would estimate that number to be around 575m as of today. Now we turn to the iPhone.

All local app analytics sources I have access to in China, and major network statistics I see, show Android and iOS as the two dominant smartphone platforms. So, if ~386m of them are on Android, then the iPhone fills most of the gap between 386m and ~575m. Based on my model, I had estimated iPhones were likely in the 130-150m range and I have believed for some time there were more iPhones in use in China than the US. It seems Baidu’s data is confirming much of what I thought my model was suggesting was true.

However, the bulk of that iPhone active installed base is on much later generation hardware sold through the grey market. This chart is the most updated data — now containing a a month and a half of iPhone 6/6 Plus availability. Keep in mind iPhone 6s starting showing up in September in this data because of grey market imports.

Screen Shot 2014-12-15 at 9.29.24 PM

As Apple offers more models for sale in China, we are seeing the continued rise of primary market sales of iPhones. There remains a large installed base of later generation phones but, as you can see, it is actually more of a mix than domination by a few models. This data comes from Baidu’s app distribution network so it does not cover the entire market but it does cover over 100m devices. I can’t imagine the picture is much different on other app distribution platforms.

What I’m left thinking about is what will happen with the large percentage of current iPhone owners who are using later generation iPhones they bought from the secondary market for prices around $300-$400. It is hard to believe every one of those owners can afford a $700 phone but will they stay in the Apple camp and get another later generation phone like the 5s? Or will they stay in their price range and go with Xiaomi? These will be interesting questions for most of 2015. However, once the current iPhone 6/6 Plus gets discounted in China when the iPhone 7 comes out, I think Apple’s offering in China will be very competitive.

Lastly, it is worth pointing out the China smartphone market is unlike anything out there at the moment. Much of it has to do with WeChat. WeChat is undeniably functioning as an alternate or “para” operating system that runs on iOS and Android. As I look at what lock-in Android AOSP, or Xiaomi’s Android skin, or Apple’s ecosystem has, I observe the true lock-in in China is WeChat. Apple has the benefit of playing as a luxury brand; status is a huge part of their lock-in in China. But as this financial analyst correctly points out, we are hoping to see Apple continue to create more services/cloud lock-in rather than just status. Services like UnionPay integration will help with this but Apple’s services stickiness in China is a story to watch.

With Chinese consumers’ loyalty to WeChat, it means Android vendors could come and go. Xiaomi is doing a decent job building some loyalty and all on-the-ground research I get from China indicates a growing pride of Chinese consumers for local Chinese tech brands. This will continue to pose challenges to Samsung. We are watching a number of Chinese brands closely, but Vivo (charted below) is one to keep an eye on as they are positioning a number of their products to the high end.

There are many story lines to watch and analyze throughout 2015 with regard to China and I’ll keep updating my narratives on all of them.

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My Phablet Skepticism Thesis

I have been publicly doubting the existence of the 5.5 inch iPhone for some time. I promised many on Twitter I would share my overall thesis on the category so here it is.

Starting from the data points, we know several things. In the USA, phablet sales are quite small. Our estimates have the active installed base of all Galaxy Notes in the US at under 10m units. Phablets, or smartphones with screen sizes above 5.3″, have tended to not sell well at any price point in the US market. However, the US market is not the only one that matters.

Phablets are successful in some parts of Europe but much more so in Asia, so we will focus there. You could argue Apple needs to make a 5.5″ phone primarily to serve the Asian market and you may be right. But let’s focus on the data at hand.

Here is a chart Guardian journalist Charles Arthur made of active screen size of Android device according to Google’s data.


As you can see, the vast majority of Android devices in use are not phablets. Now, it is entirely possible Google is not tracking or including China’s AOSP Android ecosystem in this chart. If they did, it could certainly bump the active use of phablets a bit higher but it would not be by much.

Another data point is IDC’s own projection of the phablet market which is, somewhat conveniently for my thesis, hot off the presses. This statement can be found in their latest press release.

The other widely discussed trend has been the shift towards large screen smartphones. IDC expects “phablets” (smartphones with 5.5″—7″ screens) to grow from 14.0% of the market in 2014 to 32.2% of the market in 2018. With the expected entry of Apple into this market segment, and the pent-up demand for a larger screen iPhone, Apple has the ability to drive replacement cycles in mature markets despite the slower growth seen in recent quarters.

IDC is stating 14% of smartphone shipments this year will be phablets, growing to 32% in 2018. In raw numbers, based on consensus of smartphone forecasts, that equates to approximately 165m phablets in 2014 and approximately 576m in 2018. In neither case are those small volumes. However, of the vast majority of phablets being sold in Asia, more than 80% cost less than $350. An interesting question is, where do premium phablets, like the Galaxy Note series, sell in volume in high prices points? The answer is South Korea. Good estimates of the Galaxy Note installed base in total is around 60 million. Nearly half of those can be found in South Korea. ((This estimate comes from network data I have on the region as well as some publicly stated numbers of Notes by Samsung. Notes appear to have the greatest concentration in South Korea. However, since Samsung uses shipment numbers not sell through numbers, it is entirely possible millions of Notes are sitting in a warehouse somewhere collecting dust. Perhaps if this is true it helps my thesis even more.))

What we know today is:

  1. Phablets are not the majority of form factor sales.
  2. The price points they do move at in volume are not price points Apple seemingly would want to play at with an iPhone.
  3. Where phablets do sell at high price points, and where Apple would seemingly play, are in Samsung and LG’s home country of South Korea. A market Apple has very little share in today.

When I share my skepticism, it is due to the nature of what we see regarding phablets today. However, there are always other ways to look at this data.

Firstly, perhaps the large screen phones have not sold well in the US because Apple does not offer one? Possibly yes. However, if I had to place a bet on which of the two larger screen models Apple offered would do better in the US, I would bet the 4.7″ would be the better seller.

The real question to dig into around the necessity of an Apple 5.5″ iPhone is to address a market that may be choosing Android instead of the iPhone specifically due to that sized phone. Apple will address many people’s desire for a larger phone with the 4.7″ and, in many markets, particularly the US market, it will likely bring users back to the iPhone who may have left and bought a Samsung Galaxy S series because it had a larger screen. But ultimately, Apple already dominates the US market and has an extremely loyal customer base. I don’t believe the argument for a 5.5″ has anything to do with the US.

So — back to Asia. The affluent audience who purchases iPhones in that market due so because of the status that accompanies buying an iPhone. It is entirely possible there are more iPhones in active use in Asia than in the US thanks largely to the secondary market. A 4.7″ iPhone alone will be a huge hit in Asia and break sales records at whatever price. So why offer a 5.5″ also? Is there evidence that those in Asia who can afford a $650 iPhone (not the majority) are choosing to buy an Android phablet for $350 just because Apple doesn’t offer one in that screen size? I see no evidence of this and it is the primary source of my skepticism. The decision to release two new flagship models, at the same time, and possibly causing some difficulty deciding between the two by Apple’s core customers, has to be to appeal to new customers who don’t just want a bigger iPhone (the 4.7″ will do this already) but want one specifically at the increased size of 5.5.”

Bottom line, phablets move in volume at lower ASPs than iPhones in Asia. Those who can afford iPhones in Asia will buy whatever Apple makes due to status. I’m not convinced Apple is or would lose customers in Asia if they did not make a phablet. That being said, and looking at the data I have, there are always times to forget data and go with your gut. It will be exciting to see what Apple’s gut has told them to do.

The China Smartphone Report

This is a high level overview of the Chinese market and some of the interesting trends we see in the region with smartphones.

Chinese consumers remain a mobile first set of consumers and in many cases mobile only. For the vast majority of Chinese consumers their only access to computing is coming from their smartphone. It is the only way for them to connect with each other and the broader world. It is how they are communicating, playing, learning, and more. For these consumers the smartphone IS their computer and may be their only computer.

Chinese consumers are being shaped by mobility and the rest of the world should take notice of how the region develops as a mobile first continent. We expect many similarities over the coming years with younger demographics in many other regions as well.

Table of Contents:
– Mobile Domination
– Smartphone Pricing
– Retail Channel
– Apps and Media
– Highlight: Xiaomi
– Concluding Observations and Takeaways


Download the Report as a PDF. Right Click and save as to download or click to view in browser.

The iPhone’s GOLDEN Opportunity in China

This is a free preview of a Tech.pinions Insider post. Learn more about the Tech.pinions Insider analysis service here.

We are at the point in time with relation to Apple’s September 10th event that we have to start taking many rumors very seriously. In that light, we have heard whispers of a gold colored iPhone option. I have to admit when I first heard this rumor I discounted it immediately. I even stated on Twitter that I was extremely confident there would be no iPhone. Then our friend at iMore, Rene Ritchie, wrote this on the gold iPhone. I talked with Rene a bit about this on Twitter and was forced to reconsider my position. Then today M.G Seigler wrote this article on TechCrunch. After much thought we must seriously consider this rumor. And even if it doesn’t happen, which is possible, then this will at least have been an interesting discussion and scenario analysis.

Very early on in discussions I have on this subject I added this caveat to my opinion. Although, I personally don’t like the idea of a gold iPhone I can see it being big in certain markets and namely China. In M.G’s original column he did not mention the idea that a gold iPhone may be big in China. In fact, many have missed this point. After M.G tweeted his column, myself and apparently many mentioned to him on Twitter that it may be a good strategy for China. He then proceeded to update. But this point about a gold iPhone being potentially large in China is worth analyzing.

I tend to gather a lot of data on China and usually it is only technology focused. However for the past few month’s I have intentionally begun collecting data on China’s luxury goods market. I’ve done this specifically because although most technology products and brands are not considered ‘luxury brands or items’ in China, Apple’s happen to be. So any peripheral data related to China’s luxury goods market became interesting.

The luxury goods market has seen some ups and downs in China last year and this year due to issues in China’s economy. ((China’s luxury market grew just 7 percent in 2012, compared to 30 percent in 2011.)) Yet all the research I have gathered suggests that China luxury goods market has not necessarily been slowing but it has been shifting. Consumers in China are maturing and gaining more affluence at a rapid rate and markets are maturing in near real time. From data I have read from many management consulting firms and marketing firms from the region recommend a change in tactics to capture this shift in China’s consumer market for luxury goods. One report specifically contained this point that I found interesting:

consumers are putting a lot more emphasis on quality & function, not just the label, with brands focusing increasingly on memorable customer service and exclusive products.

Another key point that stood out in a similar report on luxury goods in the region specified this about Chinese consumers:

“brands will have to bring luxury back to basics, which means providing a unique experience, backed up by high-end quality and service,”

All things that Apple does well.

Why gold? Of course every region values gold, but some certainly more than other. Gold sales have historically done very well in China and even in high parts of this year the sales of gold jewelry have jumped anywhere from 17%-35% year-over-year in certain regions. Gold in china symbolizes wealth and also happiness. One can also argue that gold is similar to yellow and thus could also symbolize the Earth element which is the storage money element (wealth) in Four Pillars of Destiny. However, that may be reading too much into the symbolism.

Now, another bit of interesting data is that it is clear that luxury brands in China are targeting millennials. Estimates are that the luxury goods sector in China is poised to grow 40% over the next 10 years, driven largely by China’s millennial generation. It is estimated that China has about 270 million people aged 18 to 30, according to the National Bureau of Statistics. Of those 270 million millennials 92% own smartphones.

When we take a step back and look at a global picture, we can see a stronger case for a gold iPhone. It could get even more interesting if this product was exclusive to China, but that is pure speculation as is most of this discussion at this point. This could get even more interesting if a gold iPhone is unique to China AND only available on China Mobile, who is yet to carry the iPhone and has over 700 million wireless customers.

Apple is and has always positioned itself as a lifestyle brand and many would even argue a lifestyle brand. I pointed out with the release of the iPhone 5 that this was the first time I thought a smartphone was as elegantly designed as a luxury watch. If this design trend continues, Apple may easily be able to position the iPhone in China as a luxury item even more than it is today.

Some other key stats relevant to China:

– Chinese represent 25% of the global luxury market. However, only 13% is consumed in Greater China (China, Hong Kong, Macao and Taiwan). The remaining 12% is purchased in Europe (representing at least half of average tourist spending), North America and the Middle East. The main driver of nondomestic consumption remains the price difference: Import tax and luxury tax inflate Chinese prices by about 30%.

Android, China, and the Wild Wild West

Last week, I talked about the importance for us industry observers, analysts, media, etc., to have a more informed discussion when it comes to Android. I think it is important when we analyze, from an industry and market viewpoint, that we do so with a holistic viewpoint.

My key point in last weeks column was to address the issue of Android platform forking. Android in its purist definition only refers to the AOSP or Android open source platform. Something anyone on the planet can take for their own and fork it, thus differentiating their Android platform and in many cases using the core Android source and making their own platform. Therefore, as it currently stands we have Google with a platform based on Android, we have Amazon with a platform based on Android and we have Barnes and Noble with a platform based on Android. Each of these platforms is their own unique ecosystem.

I make this point because when we say Android has X% market share we are talking about the total including all the forks. This is a key point, because when many make the claim that Android is winning the market share game, they often make the mistake of assuming that Android equals Google, therefore assuming that Google’s version of Android has the total Android market share. This is of course false, as Google’s version of Android, the one that benefits Google in a monetary or data gathering way (a.k.a a business model), has only a fraction of the overall Android market share numbers being referred to. Exactly how much we are not sure because even Google refers to Android falsely making it sound like the total installed base of Android devices on the market have some business benefit to Google and of course that is not true. My gut tells me that if Google did release the numbers of the global install base of Android devices tied to their services, thus qualifying as a Google Android device, the picture would not be as rosy as many make it out to be. No where is that more the case than in China.

The Wild Wild West

As I have been studying the Chinese Android market, the only way I can describe it is the wild wild West. Android is fragmented, un-unified, inconsistent, and otherwise fundamentally fractured in as many ways a platform can possibly be. In fact it is hard to even call Android a platform in China, and there is certainly no Android ecosystem there. There are dozens of app stores, tightly controlled ISP and heavily differentiated experiences and services bundled on the vast majority of Android devices, half a dozen different payment mechanisms, and a general lack of standardization.

The top app stores come from the likes of Tencent, 360, 91, UCWeb (which is a browser) app store and a number of other tier two heavily localized app stores. If I was an Android developer focused on China, I would have my work cut out for me making sure I was present in all the various app stores, or try to go direct to consumers (as many are trying to do), or working as close as possible with the ISP and carriers themselves. This model is somewhat feasible by the larger developers but very difficult for the upstarts and other smaller developers.

What is also very interesting about the Chinese market for Android devices is that the vast majority of the 38 million Android devices sold in China last quarter were extremely low-cost entry level devices. Now, in most cases, this is exactly the kind of scenario that Google would hope for. Google’s mobile business model depends on install base and the best way to do that is to have a plethora of cheap devices so hundreds of millions of people can jump on your platform and you can make some mobile search and ad revenue. The only problem is Google is not benefitting from Android’s success in China in even the slightest way.

The challenges of Google with China are well documented. Over the past few years Google has continually been closing offices in China and largely abandoning the region. Android has not helped relations or Google’s strategy–or lack of strategy–in that region and it doesn’t appear that it will anytime soon. The vast majority of Android devices sold in China have been stripped of all services tied to Google in any way. Here are some key points.

– Local browsers dominate the web browsing landscape
Google search engine market share is less than 5%
– 90% of new Android devices sold in China do not have the Google Play store on them.
– Many developers are choosing local in app advertising solutions over Google’s

China, and in particular the low-end Android segment, is one of the fastest growing segments in mobile. Every day China is accounting for more and more of the Android activations. Android in China has simply become such a customized and regionalized OS that I’d argue the point that Android in China should be considered its own fork. And due to the extremely fragmented and lack of standards around app distribution, I’m not that confident that Android has a sustainable position in the region outside that the devices are cheap. The vast majority of low-end Android consumers in that region are not investing into any specific ecosystem other than the likes of someone like Baidu, for example, which offers their services on a range of platforms, Apple’s included.

Other than Android devices being extremely low-cost, I’m not convinced, based on the data I have on the region, that Chinese consumers are loyal to the regional Android fork. A point, that offers more hope for standardized and unified platforms from competitors like Apple and Microsoft or even some platform not yet released.

The bottom line is, for now, Android is alive and well in China. It represents one of the fastest and the largest growth sectors for not just Android but the mobile market at large growing at about 300% year-over-year. Android is being taken by the natives and customized / implemented to benefit themselves and their heavily regional services. The vast majority of these devices have little to no benefit to Google. Android is doing well in China, Google is not. Something I find fascinating.

I paint this broad picture of Android in China for the hopes that we can have a more informed discussion when we discuss Android. Too many people associate Android’s holistic global success with Google and that is a disingenuous analysis. I’d love to be able to break out the individual Android fork market share, including the regional forks like China, India, and now Africa, but when the handset OEMs–and Google–are not sharing specifics. A situation I find entirely suspect. Although, the more I learn the truths about Android holistically across the forks and the regions, I am getting a sense of why the details are not being shared with us.

Toward a More Informed Discussion on Android

There are a lot of things that bother me about the discussion among the pundits related to Android. John Kirk has done a great job looking at the business issues around Android from a business perspective so I am not going to rehash those points. You can read them all eloquently stated by John in his series which you can find here. Rather, I would like a take a deeper look at the platform truths related to Android.

Who Cares About Market Share?

The first thing I want to talk about briefly is the pundits and the media’s obsession with market share. There was a time when market share mattered and it was during the maturity cycle of the PC industry. The reason we cared about market share, and in this case Microsoft’s, was because the market was maturing and thus needed a standard to center around, build hardware around, build software and accessories around, etc., in order to mature it. Now that the market is mature, market share is less important than people think to the overall industry. Primarily because there will no longer be on single OS dominating the landscape but rather there will be many which together equal the whole pie. Many ecosystems and platforms can and will continue to co-exist. How many? As many as developers will support and write software for.

As long as developers can make a healthy living supporting a specific platform, no matter how large—or small—its market share, that platform will exist.

From what I can gather there are two groups to whom any bit of market share discussion is relevant to, developers and those who wish the demise of competing platforms. It is unwise and uninformed to be in the latter.

What Do We Mean When We Say Android?

This is the core of the issue that I think gets overlooked. Android is in no way shape or form the same as OS X, Windows, iOS, Windows Phone, or RIM’s Blackberry OS. When we speak of those operating systems we are speaking of a unified platform controlled by one company whose platform share represents the total addressable market, via single SDK, for developers. Should a developer want to develop for any of those platforms, all they need do is get the SDK for that single platform. Android, however, is an entirely different beast.

Because Android is open source, all the term Android refers to is the AOSP, or Android Open Source Project. Anyone can take this core code and create their own custom operating system using Android as the core. Google created and manages the AOSP but also has their own version of Android. Amazon does this and has their own version of Android. Barnes and Noble does this and has their own version of Android. I would not be shocked if new entrants as well take the Android platform and make it their own for their own needs as well. Android is not actually a platform, it is an enabling technology that allows companies to create platforms. A commenter gave the smart analogy a few weeks ago that Android is more like a BIOS.

All of this is fine and good and to be honest I am glad Android exists for the reasons that great companies can take it and build exciting hardware. Whether or not this is why Google released Android into the world is an entirely different discussion. What’s more to the point is that when we talk or read about Android market share, we need to understand that number only applies to Android as it relates to an underlying open source framework.

The reality is Android’s market share is broken up into the many different versions that exist, all with separate developer SDKs. So If I was to actually break the market into the computing platforms which exist for developers the list would look like this:

Proprietary Platforms
– OS X
– iOS
– Windows
– Windows Phone
– Blackberry OS

AOSP Platforms
– Amazon Kindle Fire platform
– Barnes and Noble Nook HD platform
– Google Android Platform
– Other

All of those platforms I just mentioned (including other which I will address in a moment) have their own app stores and/or their own developer SDKs.

So what is other? Other represents the incredibly complex and nuanced regions like China, India, and other emerging markets. These regions have a rapidly increasing number of Android devices in them, yet they have no unified app stores and no benefit to any of the players mentioned above with AOSP versions of Android, including Google.

Now when it comes to smartphones, for now it’s Google’s version of Android vs. other, since neither Amazon or Barnes and Noble make a phone—yet. So to dive deeper into a recent market share estimation that Android has 75% of the smartphone market, means we need to understand what percent of that is Google Android vs. other. Which would be a whole lot easier if Google would tell us, which they won’t.

The fascinating part of this is related to China. Consider this a first in a two part series, where in the next one, which will come next week, I will take a deeper dive to the complex environment that is the China market for smartphones and specifically what is happening with Android in China. China is the wild wild West at the moment and a fascinating market to study. Until then, however, I leave you with a few articles.

The first is by Ben Evans and his recent Forbes column entitled:
Android, China and Addressable Markets

The second is an article in TechAsia entitled:
Chinese apps are bypassing Google’s Play Store, giving Android apps straight to Users

I highly recommend those articles as a primer for what I will dive into next week.

An Interesting Take on Android in China

Android logoAndroid is doing very well in China. But in something of an exclamation point on John Kirk’s musings on Android’s contribution to Google’s bottom line, Android in China may not be doing at all well for Google.

That’s the conclusion of a post at Telecomasia.net by Ovum analyst Siv Putcha (tip of the hat to Steve Crowley). Putcha argues that because the Chinese government blocks access to many Android services:

Chinese device vendors are using Android for their own purposes, and are increasingly at odds with Google’s preferred vision of Android’s developmental direction. As a result, Android is fragmenting beyond Google’s control, and Google’s Android strategy is rapidly coming undone in China with no immediate prospects for correction.

It’s not clear whether these millions of not-quite-Android phones being sold in China ever get registered with Google or count in Google’s activation total. But it seems certain that they are contributing little or nothing to the strategy of giving the software away and hoping to monetize services.

Why China is Apple’s Land of Golden Opportunity

Last fall, when I was in Beijing, I noticed that Apple’s iPhones seemed to be just about everywhere I turned. I was on the campus of one of the major universities and an abundance of students there had an iPhone. While Apple’s iPad was still relatively new to the Chinese market, I saw a lot of these also floating around the campus and in the hands of quite a few students.

This week I headed back to China via Hong Kong and got to see the new Apple store that was opened just a week ago. It is 15,000 square feet, two stories and laid out pretty much like any of the other big Apple store in big markets today. In this case, it is right in the heart of Hong Kong’s Central district and connected to the International Finance Centre Mall. If you come over on the Star Ferry from the Kowloon side, it deposits you on the Hong Kong side just about at the foot of Apple’s new store. To say that this store is centrally located would be an understatement.

I am told it is just the first of at least two big Apple stores to be in Hong Kong. The second one will be in Causeway Bay and will open later next year. A week earlier, Apple opened their largest store in Shanghai which can handle 40,000 a day and along with another one in Shanghai near the telecom tower and the ones in Beijing. It is pretty clear that Apple sees China as a very large market opportunity for them.

Apple is taking advantage of the new emerging middle class in China, which over here is known as the consumer class. This is made up mostly of young people who work in factories or are two income families who have moved to these bustling cities and they like to flaunt their new-found wealth. For them brand is key as they are very status conscience. In China, any Apple product fits into that definition of status perhaps even more so than in America. I am told that if you have an iPhone or iPad, you are looked up to and envied.

I spoke with a professor in HK and he told me that nearly every young girl he knows has an iPhone. They make about $300 USD a month but they still have an iPhone. What’s more is that the iPhone in China is not cheap. They start at around $750. To them however them it is a status symbol. For those of us who travel to Asia a lot, especially Japan, we already know how status crazy some Asian youth can be. For example, when Michael Jordan goes to Japan, he is always mobbed and people want his shoes and anything with his brand on it.

But these Asian kids are not only status conscience. They are also gadget freaks who love their tech toys. So they gobble up iPhones, iPads and iPods in very large numbers. There are rumors that Apple will soon be on other carriers in China and that could triple their reach in China over the next two years.

Now, if you don’t believe that Apple has gotten to high value status, think about this. When I was on the Kowloon side of Hong Kong, I found a shop that had paper iPads and paper iPhones for the dead to give during funerals or days honoring ancestors. At first I thought these were just paper displays until the guy in the shop slapped my hand and told me they were sacred.

I also spoke with telecom execs who were at the same meeting I was at and they pointed out that we who follow Apple in the US are too myopic. We see them as just being a US and European focused company instead of what they really are, a world-wide technology force. They pointed out that Apple has their phones with 145 WW carriers today and are adding about 5 carriers a month around the world. And like in China, the iPhone is a hot product and in great demand with those who are starting to move into the middle class of their local economic bracket. To them the iPhone is not only a status symbol but the crème of the crop in smart phones.

Before I left the new Apple store in Hong Kong, I asked a group of young people who were in the store looking at Apple products if they were interested in Apple’s upcoming iPhone 5 announcement. I got a resounding yes and in fact, many of them will be glued to blogging sites covering the iPhone launch even though it will take place in Hong Kong at 1:00 AM.

Of course, there is a lot of competition in smart phones and tablets in Asia, but Apple’s products appear to be the one that this new consumer class really wants to own. While Apple has only 5 stores in China, I am certain that there will be more given the huge appetite for Apple products in this country.

So, if you look at Apple and think that their growth and future is limited, just consider the fact that they are just starting to tap into the China market. Not to mention the fact that these newly minted middle class consumers are becoming a major part of the new Chinese economy.

It seems to me that Apple has perhaps more opportunity to grow this market than any of us can imagine.

China’s Real Role in Tech 

I have had the privilege of traveling to about 55 countries as part of my job over the last 30 years. And while I really enjoy Italy, France, Hong Kong, and Singapore, the one country that fascinates me the most is China. I first went to China in the early 1990’s, just when they were starting to establish their special trade zones. At that time the government was still leery of outsiders and we could not travel anywhere without a personal guide of some sort. 

Fast forward 20 years and the China I visited in 1990 is not the same place it is today. China has emerged as an industrial powerhouse and a major manufacturer of all types of goods, especially electronics and computers. I became aware of China’s real interest in computer manufacturing during a dinner I had in Taipei with ACER founder, Stan Shih in 1991. At the time, it was illegal for any Taiwanese company to do business with mainland China. But Mr Shih told me that he was working through private channels and was planning to put one of his computer manufacturing facilities in China shortly.

Indeed, within a few years, China had opened its doors to various partners throughout the world and started down a path to become one of the major manufacturers of personal computers and tech related products. 
But China has gone down another path that has enhanced its role in the world of technology. They have made hardware, semiconductor and software engineering a keystone of their educational system and in fact, they produce the most doctorates in these fields then any other country in the world. And all of their engineers and most of their college educated youth take English as a second major, thus making it possible for them to communicate well within the international business community.

Software Expertise
Last fall I want to China to speak to a couple of thousand software developers who had gathered to learn more about developing specifically for smart phones. They came from all over China and represented top students from the universities as well as individual developers who were specifically interested in developing for the Android platform. Although the iPhone is a hot item in China and there are a lot of people developing for the iPhone, most of the major Chinese handset makers are backing Android (a completely customized version) and this will clearly be the OS of choice for smart phones in this country.

To put this into perspective, China will sell about 500 million cell phones in 2011 and at least half of them will be smart phones, with Android phones taking the lion’s share of this market. I spoke to a professor at one of the universities after my speech and he told me that two years ago he had about 30 students signed up for his smart phone developer class. This year he had over 3000 sign up for it.

What is perhaps most striking about modern day China is that a middle class is developing and even in the outer provinces, people have cell phones and TV’s. And the traffic jams in Beijing are amazing. One of my hosts told me that there are at least 100 million cars in and around Beijing now, which unfortunately makes it the most polluted place I have been to in years, next to Mexico City.

Thirst For Education
But the thing that both impresses me and concerns me the most about China is the incredible drive and interest in education that makes these students tick. After years of incredible oppression, the ability to learn more freely and to think for themselves is surely a welcome change from the past. Their emphasis on math and sciences at all levels of education puts them so ahead of the US that it is frightening. I don’t want to get on a high horse here but to not emphasize math and science in the US educational system will only put the US at a disadvantage for future competition, especially in the world of technology.

While China clearly has made major strides in education and commerce and has become a powerhouse in manufacturing, banking and world trade, I was reminded that it still is a society that has a lot of controls over its information and people. During my visit I could not get access to Facebook or Twitter at all. It was blocked, at least through the server of my Hilton Hotel Internet connection. And various types of searches through Google were also blocked, although on this trip I had less trouble using Google then in the past.

And it is still clear that China favors home grown properties over outside sites like Google, Yahoo, etc. Baidu is their top search engine and China created apps drive most of the smart phone market. But what a lot of people don’t know is that a great deal of the apps created for the rest of the world is actually coded in China. I deal with many US based software firms who use Chinese software shops to help create, fine tune and support their overall software development projects. China’s influence on hardware and software is much more far reaching then people understand.

But it is the drive of the young people I met on this last trip that really struck a chord with me. I spoke to dozens of kids who just want to be normal, hard working folks who can contribute to the world of technology development. Some were true entrepreneurs and dreamed of having their own companies and in some way making it big. They know of the many tech millionaires and billionaires that have risen within the Chinese tech community and some aspire to that type of fortune.

But for most, they just want to have a better life for themselves and their families. They want a simple apartment and the big prize for them is to own their very own car. To them that is the symbol of success. More importantly, they are serious students of technology. The kids I met are not techies in the sense that they just love technology. Instead they represent millions of engineering students who want to invent new technology products, not just play with them.

Although I still have great faith in Silicon Valley and its role in the world of technology development and the other key tech centers around the US dedicated to technological inventions, China’s emphasis on math and science and its focus on technology innovation cannot be ignored. This is the real role they are playing in advancing the world of technology. In financial circles, we clearly know that China is a country to be reckoned with, especially since they hold most of our debt. But its rise as a tech powerhouse and one that has millions of engineers dedicated to finding new tech solutions and products means that its competitive position in tech will only rise. It should be admired and feared at the same time. The US really is in danger of losing its edge in tech if it does not reverse its course and make math and science more important to our educational system.