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Apple Faces a Threat From an Unexpected Quarter

Apple faces a threat from an unexpected quarter: Chinese developers crafting Android apps, an analytics firm said today.

Chinese developers build nearly two-thirds of the mobile apps used by Chinese consumers — an even higher percentage than U.S. developers contribute to U.S. consumers' app usage patterns — illustrating not only the difficulty outsiders face in breaking into the massive market, but reinforcing one analyst's claim that Apple will face a crisis next year if it continues to shed smartphone share.

According to Flurry, a U.K.-based mobile analytics firm, U.S. developers are losing their grip on the mobile app ecosystem, and have accounted for just 36 percent of all smartphone and tablet apps published so far this year. That's down from 45 percent over the last two years.

The U.S.'s contribution to the overall app market – Android and iOS – looked better when Flurry weighted the data by time spent with apps: There, U.S. developers accounted for 70 percent. But that, too, was smaller than in years prior, when U.S. programmers held app usage shares of 75 percent and 76 percent in 2011 and 2012, respectively.

While Flurry's data was meant to push U.S. developers to think globally – something they've not done nearly as successfully as those in other countries – it also revealed an interesting trend in China.

China, said Simon Khalaf, president and CEO of Flurry, is not a big software exporter at the moment. But that will change.

"The software export market [for China] is nascent now, it doesn't look like a big software exporter yet," said Khalaf in an interview. "But Chinese developers are starting to see some adoption in Japan and Korea. That's their focus now: CJK [China, Japan and Korea]."

And Chinese apps, localized for export, will continue to grab global share by expanding into other neighboring markets, including Southeast Asia, India and Indonesia. "The sheer numbers in India … that's a lot of market [for Chinese apps]," said Khalaf.

The Chinese maneuver may seem inconsequential to Apple at first glance, but Khalaf begged to differ.

That's because Chinese consumers are more likely to be using an Android-based smartphone, one tied to the Android ecosystem, than they are to own an iPhone and rely on Apple's app market. In earlier studies by Flurry, the firm pegged the Android-iOS split in China at about 2 to 1, with Apple's installed base accounting for just 35 percent of the country's total. The remaining was all Android.

And Chinese developers, like all developers, follow the money. If Android dominates the installed base, Android is what developers will write for.

"When you look at the apps being submitted to Flurry, you do see an interesting shift happening, with Chinese developers releasing Android and iOS apps at the same time," said Khalaf. "But an 'Android-first' release could be the next shift down the road."

And that's where things start to get ugly for Apple. Or so Benedict Evans, an analyst with U.K.-based Enders Analysis, has argued.

In a report published in early August, Evans maintained that without a low-priced iPhone in its portfolio – and by low, he meant as low as $200 to $300 — Apple risked losing mind share among developers. In other words, Apple needs market share as much as profit margin for the iPhone to continue being a credible smartphone brand.

Like Khalaf, Evans saw the danger stemming from developers' decisions.

"Developers are starting to move from creating new products on the basis 'iPhone, then maybe Android' to 'iPhone and then Android' or even 'iPhone and Android at the same time,'" Evans said in his report. "We do not see Android becoming a first choice this year, but it is no longer optional for any publisher seeking real reach. If total Android engagement moves decisively above iOS, the fact that iOS will remain big will be beside the point — it will move from first to first-equal and then perhaps second place on the roadmap."

If that happens, Apple is in a world of hurt.

"This is a major strategic threat for Apple," Evans continued. "A key selling point for the iPhone is that the best apps are on iPhone and are on iPhone first."

Evans believed that Apple's critical advantage – the App Store – which has driven a "virtuous cycle" to boost iPhone sales and reap enormous profit for the company, could begin to crumble in 2014.

"If that does happen then the virtuous circle of 'best apps therefore best users therefore best apps' will start to unwind and the wide array of Android devices at every price point will erode the iPhone base," Evans wrote. "Part of the reason for spending $600 on an iPhone instead of $300 on an Android is the apps."

Evans point? Apple must jump into the shallow end of the smartphone price pool with a lower-cost iPhone. "The financial value of a cheaper iPhone cannot be considered in isolation," Evans contended. "A large part of its purpose is to defend sales of the high-end model."

China's example could be seen as the harbinger of the unwinding that Evans feared.

"Absolutely, China is a bellwether," said Khalaf. "While the iPhone's number of units in China are smaller, its engagement has been dramatically higher than on Android."

By "engagement," Khalaf meant a user's app acquisition and usage practices, including the number of apps he or she downloads, how much is spent on those apps and how much time is devoted to using those apps.

But in China, the engagement race is now neck-and-neck, with time spent on apps per consumer evenly balanced between Android and iOS.

Add to that the domestic lock that Chinese developers – with their Android apps – have on the local market, and the likelihood that the nation will become the player in the world's most populous countries, and Apple's ecosystem will be in a troubling spot.

How Apple reacts will be revealed in less than two weeks, when the company holds its iPhone unveiling event on Sept. 10. If it launches a low-priced model, one able to compete in China most of all, it will signal that it came to the same conclusion as Evans and realized it had to defend its ecosystem against an "Android-first" model there and elsewhere.

"It is the rest of the world that is the issue – most obviously China, which already has significantly more smartphone users than the U.S.," said Evans.

Some analysts, however, are convinced that Apple will not set its app ecosystem as its first priority, and will instead?price the iPhone 5C at between $400 to $450.

If they're right, 2014 may be a turning point for Apple. And not in a good way.

Source: http://www.cnmeonline.com/news/apple-faces-threat-from-china-bellwether-in-battle-against-android/
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Apple Faces Threat From China, Bellwether in Battle Against Android