Hi it's Shelly. Apple's betting on a slew of new digital services
announced this week to help make up for slowing sales of its pricey iPhones. The idea is that if users spend more on video streaming, gaming, news, and payments, it won't matter if they aren't replacing their devices as often.
The strategy shift might sound good in Cupertino, Calif. but it's going to be much harder to implement globally, particularly in China where it faces dominant homegrown competition, censorship controls, and government regulation.
Why does China matter? It's the world’s largest smartphone market and together with Hong Kong and Macau generates about a fifth of Apple's annual revenue, or about $52 billion. As we saw last quarter, when sales tank in China, the whole company suffers.
Apple's early edge in the world's No. 2 economy was the perception of iPhones as a status symbol. Now that local rivals such as Huawei are making comparable models at lower prices, shoppers are switching brands and leaving Apple behind.
With no clear timetable for when its
news subscription service,
credit card or
video streamingwill make it to China, the U.S. company will be even further behind in a vibrant and competitive marketplace where hometown heroes Alibaba and Tencent dominate.
Take payments. Apple got into the business in 2014 with Apple Pay but has barely made a dent in China. Together, Alipay and WeChat Pay command 93 percent of the market, leaving little room for anyone else, according to research firm Analysys International.
Ditto for news, where Tencent has locked horns with Bytedance’s Toutiao, the country’s largest news aggregation service. More than 700 million people have downloaded Toutiao, or Today’s Headlines. Most of Wechat’s billion users probably get some of their news from Tencent services. Not to mention how circumspect authorities will be of an American-run news service, even if it’s just aggregating other people’s articles.
The same trope holds true for video-streaming and gaming, perhaps two of the most competitive and highly-regulated internet sectors in China. It’s hard to see Apple beat out Tencent, Alibaba and Bytedance here—or fend off the Chinese censorship controls that have kept other Western internet players like Twitter, Netflix and Google virtually out of the country.
While Apple's pivot to services might help the company make up for flagging sales in the U.S., it's just going to make Apple even less relevant in the all-important China market.
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