iPhanatics China: iPhones and Apple Stores on the Mainland

Part 2 of our interview with iPhonAsia.com’s Dan Butterfield.

We continue with Part 2 of our extensive interview with iPhonAsia.com‘s editor Dan Butterfield in talking about the iPhone and Apple in the Mainland China market. Part 1 is here.

According to a recent post on iPhonAsia.com, Wifi is going to be allowed on the iPhone in China. If this is true, what in your opinion is the real reason why it wasn’t allowed the first time?

There were several reasons why WiFi on mobile calling devices (phones) was initially banned in China, and it’s also fairly clear why a compromise has now been reached (WAPI/WiFi), although it’s still not definitive that Apple will go along with the compromise (but I’m betting they will) …

Carriers have been petrified over the proliferation of voice-over-Internet protocol (VoIP) applications now finding their way on to smartphones. WiFi + VoIP could eventually allow consumers to make their phone calls away from the carriers’ cellular networks. As VoIP calling grows, so too does carriers’ greatest fear … becoming “dumb pipes” – just antiquated cellular transmission networks (“pipes”) that consumers no longer use (“dumb”).

Another reason for the WiFi ban was China’s support for their competing standard – Wireless LAN authentication and privacy infrastructure (WAPI). Naturally China would prefer that consumers utilize the “indigenously innovated” (China built) WAPI versus WiFi (802.11).

Why did China authorize the WAPI/WiFi stack? Prior to April of 2009, only WAPI was allowed on mobile phones. Yet there are not nearly as many WAPI hotspots in China as there are WiFi hotspots (in theory WiFi is just for computer usage). Moreover, there were very few mobile phones being manufactured in China with WAPI capability. This led to a serious problem for Chinese authorities. Consumers were voting with their pocketbooks and buying up millions of grey-market smartphones (including iPhones) with WiFi.

Naturally these phones were accessing the tens of thousands of WiFi hotspots across China. Very cool for consumers, particularly since there are virtually no unlimited data plans in China and consumers, who’ve used up their monthly data-surfing allocation, would often switch away from the carriers’ networks in favor of WiFi. So, unless China institutes a massive crackdown on the illicit sales of grey-market handsets (not likely to happen), the proliferation of WiFi-enabled smartphones would continue and “WAPI only” phone sales would suffer. The only way to stem the tide of illicit sales of “WiFi only” handsets was to come up with a King Solomon’s compromise … allow both WAPI and WiFi to be stacked together on smartphones. This solves multiple problems … it allows China to obtain their WAPI royalties and gives consumers what they want, official WiFi-enabled smartphones that can connect to ubiquitous WiFi hotspots or WAPI as coverage expands.

Do you know what the most popular apps are in China?

The most popular apps in China (free and paid and top grossing) can be viewed on Apple’s China App Store. There is also a separate App Store for Hong Kong. The top apps can be found by launching iTunes and clicking over to the App Store.

The number one paid app in China is the Plants vs. Zombies game. The number one free app in China is China Vehicle Violation Record Lookup. The top-grossing (made the most $ for the developer) app in China is Autonavi (GPS Navigation).

There are also several non-official app stores in China that offer apps for those who’ve jail-broken their iPhones. NetDragon’s Panda Space is popular and provides many free and paid apps. Naturally, there are risks associated with loading non-authorized apps (possibly voiding your warranty and potentially “bricking” your iPhone if jail-breaking is required to load the rogue apps) and I do not recommend that users go “off the reservation” in search of non-vetted apps.

Have you been in contact with any Chinese developers?

Yes, many are regular iPhonAsia readers and I have corresponded with app developers throughout Asia. I had the pleasure of meeting face-to-face with a number of very talented iPhone developers during my last trip to China.
Bo Wang, of iBokan is currently running an iPhone developers training program in Beijing. I attended one of his classroom sessions while in Beijing. There are also many thousands of expat Chinese developers in the greater San Francisco Bay Area. Many attend regular iPhone/iPad meetups in the Silicon Valley to exchange ideas and collaborate on projects.
I am also a member of the Silicon Valley China Wireless Technology Association and have met many executives and developers from China who find their why to the Santa Clara Valley.

Shifting over to Google for a minute, is the Android OS a threat to the iPhone in China – or is there a bigger issue at hand?

Android is worthy competition to the iPhone/iPad SDK, and clearly many who develop for iPhone also code for Android. The biggest problem for Android developers is “fragmentation.”

Android’s price-point (free) and openness has lead many carriers and handset manufacturers to “do their own thing” with the Android code. This means that one size (build) does not fit all. A developer may need to recode an Android app multiple times to ensure that it functions on different handset skews (e.g. different versions of handsets customized for different carriers). Developers often grow frustrated with having to build so many versions of the same Android app.

Apple’s recent litigation against HTC may eventually lead to new problems for Android. While Apple’s patent suit did not name Google, many of the named infringements clearly targeted Android. This legal action will take a many months, if not years to resolve, but it’s something to watch with interest.

Despite the issues with Android, Google’s offering has two important advantages – a very deep pocket ($Google) and a compelling price (“free”) albeit with ports open to Google’s advertising business.

An interesting sidebar issue has been Google’s “status” in China. Google has been re-evaluating its role in China in the wake of the recent well-publicized cyber-attacks and Google’s not so veiled accusations of China’s involvement in the hacking G-Mail accounts. For those interested, I’ve written several posts on the Google in China story:

• Google’s China gambit less about censorship and more about defense of IP
• Google’s China gambit – Defiance of compliance may prove costly

A long story short… in the wake of the cyber-hacking scandal, Google may be abandoning the “search” business in China, but Android will survive. Neither Google nor Apple are going to back away from mobile anytime soon. I expect both companies to compete and cooperate on future mobile initiatives.

Are there authorized retailers in China that mirror the Apple Store already like we have in Hong Kong? Or is this going to revolutionize computer retail in China?

There are many phony “Authorised” (British spelling is often used in the signage) Apple Retailers in the People’s Republic of China. The majority of these Apple “wannabes” are in fact not authorized by Apple. There are just a handful of authorized Apple resellers in China and the only Apple-owned store is at Sanlitun Village in Beijing, managed by John Ford.

Sidebar: iPhones can be purchased through several China Unicom Wo Stores and affiliated retailers, including select BestBuy and Carrefour stores, and the Apple Store at Sanlitun. Back in November 2009, China Mobile took steps to cutoff planned iPhone distribution through various retailers. Read China Mobile playing hardball with potential iPhone distributors.

Hong Kong has several authorized Apple retailers. I was very impressed with the Fortress Stores when I last visited Hong Kong. Sir Li Ka Shing has done a fine job in representing the Apple brand. In every Fortress Store I entered, the staff was knowledgeable and courteous.

That said, there are very few … check that … there are no retail stores that deliver an experience like the Apple Store. When it comes to the secrets of Apple’s success, product comes first, but near the top of Apple’s success ingredients is the Apple retail experience. Nothing is left to chance. When you walk in the door, product is neatly laid out for a “hands on” shopper experience. You will also find plenty of staff to answer questions and attend to shoppers’ needs. The Apple Store is not simply about retailing, it’s also about:

• Education: Matching product to consumer need. Enrolling in the right Apple course/workshop.
• Entertainment: Kids station/game kiosk
• Training: Group workshops or one-on-one product training (how to get the most out of you new Apple purchase). I picked up some great iWeb tips at a recent workshop. Apple Retail also has special youth programs and Apple Camp workshops for kids.
• Technical Support: Apple Genius Bar – the best and brightest are there to help.
• Shopping: Not to miss the obvious – great place to buy your Apple products. Apple also offers personal shopping appointments.

And finally, lets talk about Apple’s aggressive expansion into the China market. Is this a good thing or is it going to viewed as the continuation of the Americanization of China (a la Starbucks in the Forbidden City)

Apple recently announced that they would be opening 25 Apple Stores in China. I was at the Apple Shareholders Meeting (Feb 25) when this news broke and I had a chance to thank Ron Johnson (Apple SVP Retail) for leading this initiative.

The cities and actual store locations have not yet been revealed by Apple (other than Shanghai); however, It’s a safe bet that Apple is looking at locations in: Beijing (in addition to Sanlitun), Shanghai, Chongqing, Guangzhou, Shenzhen, Xi’an, Chengdu, Tianjin and Hong Kong.

I expect that several of the new stores in China will be large “flagships.” Note: Apple does not like the term “flagship” as it suggests there are differing levels of Apple Stores and mega square-footage does not necessarily mean one store is any better than another. So “flagship” is a not liked. On Feb 23, 2010, Apple COO Tim Cook revealed that;

“There will be another store in China in Shanghai in the summer that is mind-blowing.”

I’m sorry, but when I hear “mind-blowing,” I think “flagship”

There has also been some buzz about a large (“mind-blowing”) Apple Store coming to Hong Kong. According to the ifoApple Store blog, the new store in Hong Kong will feature a;

“40-foot tall, circular entrance, possibly made of glass and surrounded by a narrow moat of water. Once inside, visitors will descend into an underground store, much like the existing Fifth Avenue (NYC) store. Construction on the store could begin soon, and a grand opening could be held in 2010.”

Apple has been very pragmatic about expenditures on store sites, opening less than 25 stores globally last year. The pace will pick up this year (24 in China alone) as, thanks to the recession, raging deals on prime locations have become available.

Apple’s retail initiatives have paid off handsomely. Apple’s Stores are commonly packed and generate the highest return per-square foot compared to any major retailer on the planet, Tiffany’s jewelers included. (Read more on Apple’s store opening plans here)

Thanks Dan for your time and your insightful look into the China iPhone market. We’ll follow up with you in 6 months and see what has happened and how the 4th generation iPhone, Apple Stores, the iPad and the takeup of other Apple products on the Mainland.