When Chinese celebrity Jimmy Lin posted pictures of himself playing with what he claimed to be one of the first iPhone 5 smartphones, Lin's 13.6 million Weibo users and China's legion of Apple fanatics took notice. The original post, now forwarded over 181,000 times, is evidence of how eager China's millions of smartphone users are about the long awaited new handset. At least, Apple hopes so.
But the fervor in China over the iPhone is also decidedly different than that over the iPhone 4 (and 4S). While many explain away Apple's plummeting China market share as patience over the iPhone 5 release, this writer—and one China market expert—suspect Apple is in for a hard landing in China. More importantly, some Chinese consumers appear to feel the same.
A week before Jimmy Lin's iPhone hit China's social media, another Chinese celebrity was photographed at Qinghai's Bird Island at a publicity event aimed at raising environmental awareness. One of the photos of Li Bingbing, one of China's biggest movie stars and Hollywood's latest China import in the upcoming Resident Evil: Retribution, showed her perched on a rock, the Samsung Galaxy's telltale wide screen in her hand.
It's not unexpected that Li Bingbing would have a Samsung. The actress was recently named a brand ambassador for China's Samsung Hope Relay, a pre-Olympics campaign wherein Samsung donated to national charities 6 yuan ($0.95) for each kilometer Chinese runners logged.*
On Sept 3, the same day Jimmy Lin was bragging about his (maybe real) iPhone 5, Li Bingbing posted to her Weibo accpount:
"#Samsunghoperelay #Success! Li Bingbing's LOVE dream team covered more than 15,000 km for the children of the Hope Project and raised 242,870 yuan. Everyone's tireless efforts brought about the a perfect result of more than 200,000 km, meaning 3 million [yuan] will be contributed…."
On the note, Li cc:ed "@三星手机官网" (Samsung Mobile). Not insignificantly, Li has nearly 17.6 million followers on Weibo.
Meanwhile, what much of the news on Jimmy Lin's iPhone 5 bragging failed to mention was that many of those responding to Lin's post mentioned the iPhone 5 in comparison to the Samsung (三星) Galaxy 3. Some posts even referred to the iPhone 5 reveal by mentioning it alongside Samsung's brand new Galaxy Note 2, billboards for which are currently plastered all over China. This very fact is a huge victory for Samung, which saw its share of China's market slide recently just two percentage points to 19 percent while Apple's was halved to 10.
It's not just celebrities either. The most definitive evidence that Apple is in trouble in China is that Samsung is how it, and Chinese consumers, are now defining the terms for success in the brand in China.
In June, hinting at the impending release of the iPhone 5, the Chairman of Apple manufacturer Hon Hai Precision Industry Co stated that it and Apple fully intended the new handset to "put Samsung's Galaxy III to shame." The telling fact is that the Hon Hai chairman identified a single competitor, and, what's more, he valued the iPhone 5 in comparison to another product instead of on the device's own virtues.
One of those virtues may already be in trouble before the iPhone 5 even hits China's stores. If leading rumors are true and the iPhone 5 increases its screen size from 3.5 to 4 inches, it will still be smaller than Samsung's--as well as smaller than products from LG, HTC and Huawei.
Why does this matter? Because in China, the mobile phone is now the computer.
The first eight months of 2012 saw a 10 percent rise over 2011 in the number of Chinese users surfing the web via a mobile phone. And, recently, for the first time, the preferred method of China's 540 million Internet users for accessing online content is the mobile phone. More and more of that content is games and video, ideal content for a large screen.
A recent report released by Kantar Worldpanel analyzing Android's Europe dominance noted that "Phones with bigger screens are becoming noticeably more popular – 29% of the Android devices sold in the past 12 weeks have a screen size of over 4.5 inches."
Given Internet usage methods, it is not a stretch to imagine that same market realities coming to pass in China, where Apple, even the iPhone 5, would be punished for a comparatively small screen. Indeed, user 德德地-DDE, replying to Jimmy Lin's "iPhone 5" post, noted, "The so called iPhone 5 screen is so small…" (所谓架iPhone 5 就系屏幕大小小).
Granted, not everyone felt this way. Another user, 郭嘉星 replied, "Lots of people say iPhone 4's screen is just right. Four inches would be too big" (很多人都说iphone4的屏幕大小刚刚好。4寸的就太大了).
Leo Wang, a business analyst specializing in Apple at China Market Research Group, told us that while Apple benefits from good status, "a very well developed OS and appstore," China's consumers "have not necessarily realized the difference the screen can play." Wang adds, "However, an increasing proportion of consumers who use Samsung products, specifically large-screen phones such as the Galaxy S2, are unwilling to consider Apple products as they have become used to the comfort of a larger screen."
But Apple's potential problems extend well beyond getting the iPhone 5's screen size right, well into the geographic core of China.
What's more, China Internet Network Information Center (CINIC) recently noted that more than half of all Internet usage growth in China came from outside first tier cities. Rural consumers, and what is known as China's second and third "tier" cities — as opposed to first tiers like Beijing and Shanghai — are expected to drive much of China's spending growth between now and 2020.
This tier growth reality presents a problem for Apple at the most fundamental level: supply. Wang says, "Apple Stores perform very well but they have not expanded nearly fast enough to meet the level of demand in the market." While it has many partners, Apple has just five official (trustworthy) stores in the entire nation, a fundamental reason behind China's iPhone smuggling problem. Wang feels the market could sustain up to 100 Apple stores. "Part of Apple’s recent drop in market share is due to consumers waiting to buy the iPhone 5 when it comes out, but there are still going to be problems is if Apple does not have strong enough retail footprint."
Another problem facing Apple is, as China's users increasingly value web performance, Apple has failed to deliver stunning results. In May, Thunderbird School of Global Management assistant professor Nathan Washburn, writing in the Harvard Business Review, summed up the problems facing Apple given the influence of China's avid social web population: "Chinese users are cobbling together an iPhone experience from a variety of sources, and the overall experience is not very good." That is to say, Apple is a Ferrari forced to drive on China's dirt roads.
Wang says that Apple "partnered with the wrong carrier when they teamed up with China Unicom." China Mobile has 700 million users and, Wang notes, "spends much more on data than any other mobile carrier." Rumors have circled that Apple may team with China Mobile for the iPhone 5, but the damage might already be done.
One advantage Apple has over other brands in the US is its massive app store. But, as Wang says, things are different in China, where Apple, online Android, offers few free apps. Wang explains, "Most Chinese consumers are not used to paying for apps and feel Android phones have a better selection of free apps."
Apple has never captured the markets low price point consumers. So it's no surprise that it might not care that new Chinese brands like Xiaomi are offering a lot of Internet access bang for the buck (yuan) for a fourth or even fifth the cost of an iPhone. What Apple should worry about is that Samsung offers lower end phones as well, making it a smooth upgrade to the brand's higher end, Apple-competition models. The larger picture of this sandwich for Apple, Wang says, is that Apple is "losing market share in China on the low end to Xiaomi, which is creating cheap, 'good enough' smartphones, as well as Samsung on the high end."
Apple has never been unassailable in China, but its dominance as an accepted fact has, of late, deteriorated severely.
While Apple's trademark fight with Samsung in the US and South Korea has not yet touched China, nonetheless many Chinese social media users have debated the merits of the case, with many defending Samsung and others outright mocking Apple's aggressiveness and criticizing its actions as anticompetitive.
Apple has taken a licking in China's official press as of late as well. For example, on the same day, the Shanghai Daily ran two Apple stories. One was titled "Apple buying back iPhone 4 S in US but not in China." The other, far less subtle headline: "Apple repair policies 'unfair' to consumers." This kind of negative PR is not all damaging, but it certainly doesn;t help Apple to have Chinese consumers questioning, however subconsciously, the brand's repair policies, whcih have always been one of Apple's top selling points.
This author has argued that Apple is as much a Chinese company now as an American one, "designed by" and "made in" factors spilling over national boundaries as market importance tips in China's favor, even as Apple's Americana is as important a brand characteristic as ever. The bottom line, Apple will rise or fall on the strength of its China success. And while it is clear that there is still a lot of love for Apple in China, the vibe is that the honeymoon is over and Apple is finally going to have to start working on its China relationship.
Samsung, meanwhile, has its own "China relationship" to worry about: the Korean electronics giant is under fire to improve conditions for its factory workers there, following a scathing report by New York-based China Labor Watch.
* While Samsung's Hope Relay was just a blip on the radar of an extremely busy Chinese media scene, it is noteworthy that Apple's brand is never tied to any do-gooder activities in China. This lack of visible charity is not a make or break point for any brand in China, but it may demonstrate a lackadaisical, complacent attitude on Apple's part toward its heretofore Q-rating dominance in the mind of China's consumers. Wang confirms this, telling Brandchannel, "My feeling is that Apple is definitely not being as aggressive as Samsung. This is probably due in part to Apple's general marketing strategy for the iPhone line. Traditionally, advertisements have been few and far between, and have relied on the public's opinion and press reviews of its products. However, this strategy, although effective, is currently proving to Samsung's advantage."