Sunday, January 17, 2010
Concerns with Apple’s business model
When Apple debuted the iTunes Music Store in 2003, I enthusiastically signed up and downloaded music. I had a check card with a US billing address that I made gleeful use of. I loved the store. And yet, something didn’t feel right. It took me a while to articulate what.
I was no longer in the US at that time and my checking account was rapidly depleting. Apple wouldn’t accept an international card. Their licensing terms with the music labels only allowed selling music within the US, they said. Fair enough, but something still nagged.
Apple made (and still does make) excellent computers and iPods, but selling music was a different game. It was no longer a one-time transaction for the hardware, but a regular, sustained interaction for your content fix. And US only. iTunes updates now came thick and fast, but my new Indian billing address was no longer welcome. I could only sit by and watch what I could have had access to. Meanwhile, the rest of the iLife suite and Mac OS X felt ignored while all attention went to iTunes.
I knew what was bothering me then. Apple was seeking a tighter and more direct, long-term relationship with their customers, but in the process ignoring anyone in a market where it was too much effort to set up a relationship. This wasn’t how it was with a Mac. Apple’s computers were severely marked-up in India at the time, but you could get one abroad or pay extra and get it locally. Beyond the barrier of price, you would get the exact same Mac experience as anyone else anywhere in the world. All the software there was for the Mac was available to you too.
This would have been a trivial ’plaint about music licensing, but 2007 rolled around and with it the iPhone, sold locked with a carrier contract, US only. Apple once again not just selling a fantastic device, but making the business deals that ensured a great user experience. Where they had no deals, you got no device.
As of Jan 2010, you still can’t buy music from the iTunes Store or buy an iPhone 3G S in India. Apple can’t work out suitable deals, so you as a customer are irrelevant to them. Meanwhile, you can still buy a Mac at a price that is now nearly the same as in the US, and all the apps you want for it are still available. It seems like Apple will have you as a customer only if (a) they can guarantee the quality of the all-round experience, or (b) are willing to abdicate that responsibility. There’s no middle ground.
And this is the crux of it. As Indians, we’re used to technology that isn’t quite right for us, whether it’s the address book that insists you split your initials into “first name, last name”, the app that wants dates in MM/DD/YYYY format despite your locale settings asking for DD/MM/YYYY, or in general software that is overpriced in US dollars, compelling everyone to use a pirated copy. It isn’t for us, but we use it anyway and step around the quirks. We’re cool with that. Now here’s an entity that essentially says, “this is very cool, but it’s not for you and we don’t know when it will be, so you’re not getting any of it.” That’s plain arrogance.
Apple has spectacularly bungled the iTunes Store and iPhone’s presence in India. Everyone agrees that they are due to launch a tablet later this month that will be more of the same, with the device’s experience tightly bound to content distribution. I bet they will bungle this too in India.
If there’s a weak spot in Apple’s business model for a competitor to take a stab at, this is it. But Nokia, that elephant in the room, has lost its mojo. If only Google regarded Android as anything more than an engineering wet dream…
Thejesh GN — Jan 17, 2010 3:40:46 PM — # ↩
Share the same sentiments. I have promised myself not to buy any apple product. But then I am disappointed by Google as well(No Nexus for Indians). Hope they will start soon.
Kiran Jonnalagadda — Jan 17, 2010 4:13:33 PM — # ↩
Google’s idiocy goes beyond the lack of shipping to India (you can re-route via a shipping forwarder like Borderlinx.com). Google won’t even let you buy paid apps from India. This makes no sense whatsoever. There’s someone willing to sell me an app and me willing to pay for it, but Google’s in between saying this won’t be allowed.
This is why alternate app markets like SlideMe.org and AndAppStore.com exist (something not even possible on the iPhone).
Lincoln — Jan 17, 2010 7:43:20 PM — # ↩
I agree that they are lossing on mass markets. But am not sure if Apple is looking at the volume game. They seem to be following a strategy of create good quality product, market is right (with a feel of niche - check the apple physical store in NY city) and create the cult phenomenon. The products you have mentioned (iTunes and iPhone) are always going to have a localised flavour. What is working as culture in US may not work in India and vice-a-versa. How many Indians buy legal music (as % of consumers). It is also evident in the Ring Back Tone (RBT/Caller Tune/Hello Tune) product working in India. It generates more money for music label than the sell of music in physical format bcos piracy is not possible in that product. On the margins front, I don’t believe Apple as a company has what it takes to work in low-margin industry. They want to play it premium. Look at the margins on iPhone. Apple is launching at the locations where people are ready to pay premium and have the right currency to do that. Apple can definitely increase volume by reducing costs but is that the only way to make more money.
Kiran Jonnalagadda — Jan 18, 2010 9:44:02 AM — # ↩
Lincoln, India is a premium market too – just look at the number of luxury cars imported here. Apple (and Google) could simply get out of the way of folks trying to use their product here, without the local flavour, and all would be fine. Their error is in attempting to define India as a market that needs special attention, cutting it off from other markets, and then failing to give it the due attention.
Divya — Jan 17, 2010 8:03:40 PM — # ↩
It’s a simple thing that the companies you’ve mentioned are all based in the US - their first priority is their home market. What we should do is develop our own applications to fulfil our needs - that’s what happens in the other countries, right? After all, Google is not the leader in China, Facebook is second place in Russia, and so on. Why should we look to the west for solutions?!!
Btw, about Nokia having lost its mojo, I think the N900 might yet surprise you.
Kiran Jonnalagadda — Jan 18, 2010 9:50:44 AM — # ↩
Divya, culture may not be global, but technology is not. No one has the means to build a fantastic high-tech solution for a single market. Not even the “west”. Companies in the US have the lucky advantage of having a large and relatively homogeneous home market, which helps them deploy local first, fine-tune and take to the world. Even Europe does not have that advantage, which is why there are so few examples of European technology innovation.
India is decades away from being large enough to support serious innovation. Take any of the so called innovative Indian technology companies: their bosses will inevitably be US-returned. They learnt how to handle a market outside India, and they’re still keeping an eye on it.
This isn’t a lament on India. It’s simply the nature of globalisation.
Rohit Mishra — Jan 17, 2010 9:20:58 PM — # ↩
I don’t think Apple is giving the due importance to Indian market. There insistence on having a uniform pricing model for content will never allow them to become a volume player in our markets. They single-handedly started the market for touchscreens and have let others like Samsung and Nokia reap the benefits. Apple sold IPhone 3G in India at unsubsidized rates then what is the great logic behind not launching 3GS here. Business is about maximizing profits and market-share. Apple is just letting others have the pie that it made and thats not smart.
Clair — Jan 17, 2010 9:24:20 PM — # ↩
Not just in India, Jace. Even in the Philippines, there are quite a number of issues with both Apple and Google (Android). Sure, there are ways to get the devices locally but in terms of getting some content – there are still issues. Which is a big turn-off for me.
Debarshi Ray — Jan 18, 2010 7:33:40 AM — # ↩
Are you sure about the “Apple makes excellent computers” part?
My Macbook, bought in mid 2007, does not boot from USB devices, and the whole idea of selling hardware region encoded DVD drives in India is a enough to start a public uprising (debarshiray.multiply.com/journal/item/181/MacBook_DVDs_etc.).
Kiran Jonnalagadda — Jan 18, 2010 9:54:59 AM — # ↩
Debarshi, the 2006 (and perhaps 2007) Macs are shoddily designed, perhaps because of the stress of switching to Intel processors in one shot, without leaving anyone stranded. The last generation of G4 laptops and the new unibody machines are all much better.
As for region-encoded DVD drives, that’s the outcome of selling the same model worldwide. Apple keeps a relatively small number of SKUs compared to other laptop makers.
Kartik Mistry — Jan 18, 2010 6:58:32 PM — # ↩
I recently got iPod Touch. Strange thing was that my favorite application, last.fm doesn’t let me download with my iTunes account - because I was from India. Bit hack of address change to some US address worked! ;)
Good thing is that Price of all Apple product across country is same. I love this stuff..
Ashish Chatterjee — Feb 24, 2010 8:33:41 PM — # ↩
sounds/smells like a business opportunity, no?
Ramesh Koneru — Dec 15, 2010 11:34:56 AM — # ↩
Nice article kiran. These kind of situations force us to look for alternatives. And here’s a cheaper and better solution:
Hope you find it useful. Cheers
andrew — Dec 31, 2010 3:09:10 AM — # ↩
as an american it’s interesting to read about how apple is received internationally. i think you’re points about the iphone are well taken but as far as itunes goes, the real issue is securing the rights for international distribution from the record labels. there are a lot of parties involved and often with competing agendas so i’m not sure it’s totally fair to blame it all on apple.