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Why Apple Fails in India (& Why it Matters)

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10:17   |   Jan 04, 2019

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Why Apple Fails in India (& Why it Matters)
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  • This video is sponsored by Brilliant.
  • The first 200 to use the link in the description get 20% off the annual premium subscription.
  • India is home to 1.3 billion people.
  • In just five years, it’ll pass China and become the most populous country on the planet.
  • And, it shows.
  • The streets are chaotic, markets, overcrowded, and its economy, bursting with potential.
  • While it’s still decades behind on basic infrastructure like schools and sanitation,
  • India’s GDP is among the fastest growing in the world.
  • Which, for companies, means 1.3 billion potential customers, Many of whom are using the internet
  • for the first time ever.
  • Where Amazon, Google, and Uber struggle to enter and compete with locals like Baidu and
  • Alibaba in China, they’ve largely succeeded in India.
  • With one big exception: Apple is almost nowhere to be found.
  • The iPhone is an unstoppable, money-making machine, more successful than Boeing’s 737,
  • Toyota’s Corolla, and the entire Star Wars franchise.
  • And yet, here, it only commands about 1% of the whole smartphone market.
  • Just in the last year, its government threatened to ban the iPhone over a disagreement about
  • privacy, Apple reportedly lost three key Indian executives, and it failed to get approval
  • for an official retail store.
  • It’s safe to say things aren’t going so well.
  • So, what makes India so different?
  • And what does it mean for the future of Apple?
  • This is the sales miracle known as the iPhone.
  • Apple went from selling 1 million in 2007, to 11 in 2008, All the way to a record-breaking
  • 231 million in 2015.
  • Turns out people like bigger phones.
  • The trend couldn’t be more clear.
  • But then, something changed.
  • In the last three years, sales have been… flat.
  • And, if we look at all smartphones, you can see Apple is no exception.
  • What was 40, or 50, or even 60 percent growth, has now become zero.
  • Now, if “flat” means consistently selling 200 million premium devices year after year,
  • well, that doesn’t sound so bad.
  • The iPhone isn’t declining, it’s just… not growing.
  • But Apple, of course, is a public company, and the stock market is based on the expectation
  • of growth.
  • It’s not enough to make an unbelievable amount of money.
  • It needs to make an unbelievable amount more than last year.
  • Which brings us, back to the basics:
  • There are three ways Apple can sell an iPhone.
  • Someone buying their first smartphone, Someone switching from a competitor, or someone upgrading
  • their current iPhone.
  • The first two have been incredibly fruitful, and are still responsible for millions of
  • sales.
  • But there are only so many humans on Earth, And, at least for now, Apple is not in the
  • business of making more.
  • Which brings us to the third category: the customers it already has.
  • For the average person, two-year upgrades are becoming three or four, or whenever this
  • phone dies upgrades.
  • Premium smartphone companies are in the business of making better, longer-lasting devices that
  • will entice more people to upgrade.
  • But that also makes them less eager to upgrade in the future.
  • It’s a tough game to play.
  • We’ve reached a point where most people are mostly happy with what they have.
  • In some ways, Apple is too successful for its own good.
  • Today, it may sell the same number of phones, but more profit is being made, thanks to the
  • higher prices of the X and XS.
  • Plus, existing users are valuable in more ways than one - we buy Apple music, iCloud
  • storage, Apple Watch, AirPods, and soon, Apple streaming video.
  • So, this graph, the company argues, can only say so much.
  • That’s why it no longer publishes the number of phones sold.
  • Sure, sales may be flat, but the average selling price is anything but.
  • The last two years have proven people are willing to pay eleven, twelve, fourteen hundred
  • dollars.
  • In other words, this strategy is working.
  • But it can’t go up forever.
  • Somewhere there’s a limit.
  • And that’s why emerging markets are, if not existential, at least very important for
  • the future of the company.
  • So, Apple, in need of customers, meet, India, in need of phones.
  • 63 thousand Indians are pulled out of extreme poverty every day.
  • And companies can hardly wait.
  • Now, in terms of raw GDP, India ranks an impressive sixth place, right behind the United Kingdom.
  • But, adjusted per capita, it’s only $1,939 to China’s $8,827.
  • Meanwhile, the cheaper iPhone XR starts at $749.
  • And that’s if you’re a lucky American.
  • In India, the price is 77 thousand Rupees, Or around eleven hundred dollars.
  • And again, that’s the cheaper model.
  • The XS, on the other hand, is upwards of $1,420.
  • Here, Apple’s strategy of raising prices is backfiring.
  • An estimated 75% of smartphones are sold for less than $250.
  • And 95%, less than 500.
  • For most people, the iPhone is simply too expensive.
  • Even the much older iPhone 6 and SE, are sold at relatively high prices.
  • For that kind of money, customers expect a brand new phone, not a 3 or 5 year old one.
  • Most Indians don’t even buy smart phones, but basic, feature phones like the JioPhone,
  • which is effectively free with a small, refundable deposit.
  • So, the iPhone is a tiny sliver of the premium market, which is only a small segment of smartphone
  • sales, which, account for less than half of all phone sales.
  • There’s just not that much pie left.
  • Now, Apple has never purely been driven by unit sales or market share.
  • For the most part, it’s just not interested in selling to all price points.
  • But this market share is barely even noticeable.
  • Unfortunately, price is only one part of the problem.
  • It also lacks brand recognition, Is affected by a weaker currency, plus tariffs, And even
  • for those that can afford it, the iPhone in India just isn’t as good a product…
  • It lacks Apple Pay, Apple Maps is, let’s say limited, and Siri still has trouble understanding
  • local accents.
  • Some of Apple’s most undervalued assets are its over 500 retail stores across 19 countries.
  • It builds giant glass cubes, renovates historic theaters, and practically defies the laws
  • of physics.
  • Not because it’s cool, well, not just because it’s cool, but because they make insane
  • amounts of money.
  • No other company makes more money per square foot of retail space.
  • And if you have any doubt about that, I dare you to walk through one without bumping into
  • anyone.
  • But, all this means nothing in India.
  • Here, phones are sold in small, local shops where brands have little to no control.
  • Not the best conditions for a company which regulates the height of its tables.
  • And, at least for now, it legally can’t open a store.
  • The Indian government requires that any foreign-owned company buy at least 30% of its materials
  • within the country before opening a retail store.
  • In response, Apple has started manufacturing the SE and 6S in India, which it may soon
  • do for newer phones as well.
  • In the meantime, Chinese brands like OnePlus, Oppo, and Vivo, carefully target the Indian
  • market by producing low-cost, locally-manufactured devices.
  • Ultimately, the reason Apple can’t compete is simple: it’s not willing to adapt.
  • The company has all the resources in the world, but unless it makes a significant change in
  • strategy, India will never be the next China.
  • The iPhone accounts for over 60% of Apple’s total revenue, to continue growth, it has
  • no choice but to do what Apple does best - destroy its own, thriving product with an entirely
  • new category.
  • Since reaching a one trillion dollar market cap, Apple stock has been unusually shaky.
  • Sometimes this is significant, sometimes it’s normal, market fluctuations.
  • And you can tell the difference by understanding ideas like statistical variance, which you
  • can learn with Brilliant.
  • You don’t wanna panic and sell here, which is why this knowledge pays off.
  • That’s the power of topics like math, logic, and machine learning combined with economics.
  • You can see a business from a whole new perspective.
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  • Thanks to Brilliant for sponsoring this video, and to you for listening.

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As Apple turns to rising prices to grow its revenue, emerging markets like India offer huge potential growth. But the iPhone is failing to capture it.

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