Marketing, Strategy, Technology

Apple iPhone and its India Strategy

iphone-3gsAs we all know iPhone is one of the most sought after possession in the recent times. The phone which combines iPod with a mobile phone and wireless connection which enables us to connect to the web has captured the imagination of the people all around the one and lots of them are dying to lay their hands on it.

iPhone 3G was released on August 22, 2008 in India, thus allowing the Indians to lay their hands on iPhones legally. Indians who till then had mostly heard about the iPhones and a few had got it from US through some relatives could now “legally” own it. But as history tells us it was a flop in India. Now that Apple is preparing to release its next version of iPhone, iPhone 3G, we can try and see what went wrong with Apple’s strategy last time.

1. Pricing: Most people do tell that the high pricing of the iPhones were a deterrent to the people who wanted to buy it. The reason was that the people knew that iPhones were being sold at $199 in US which is equivalent to around Rs 10000/-. So they had expected that it will be around the same level in India too. But what they hadn’t factored in and what apple has till now failed to educate is that it is a highly subsidized rates being provided by the carrier and you need to get into a 2 year contract for that with the carrier.
The carrier, AT&T in this case, had used the opportunity to lock in thousands of users. Take for example the recently announced one of its best ever spring quarter results in which they added 1.2 million cell phone users and activated 2.4 million iPhones in the quarter. And most of them came in the last two weeks of the quarter when the new iPhone 3GS was released. Also many don’t know that you are forced to take up data plan with the carrier leading to its increased revenue. This is one of the main reasons that AT&T subsidizes iPhones in US.
But in India, though the people were bound by the contract to the carriers, they did not subsidize the phones, leading to the higher price. Though many blame apple for the high price, I think it should be the carriers in India who should be blamed for it.

2. Carriers: And now coming to the carriers, why were Airtel and Vodafone so uninterested in subsidizing the phone and in providing unlimited data access which Apple wanted.
For that let us see how AT&T benefits from being the carrier which enables it to give the subsidy. AT&T is a leader in the wireless provider market in US and it has exclusive distribution rights for iPhones in US. It provides GSM services whereas its closest competitors Verizon and Sprint are both CDMA shops. With the exclusive agreement with AT&T, Apple is barred from developing CDMA version of the iPhones for next 5 years. Thus, making this a much sought after item, if AT&T subsidizes the price, it can attract more users from its competitors and lock them in.
Whereas in India, Apple is going in with both Airtel and Vodafone as carriers. And they are the leading competitors in the wireless provider market, at least as of last year. And by simple logic as the prices were pretty much similar with both of them, they knew that attracting users from the other is very hard by giving subsidy as the other would also follow the suit. That way there was no guarantee of them increasing their market shares due to iPhones. Hence, the lackluster attitude of both the companies towards iPhone. It is also rumored that Apple is not happy with both of them as they did not aggressively market iPhones, but were interested in marketing blackberries and their own phones. The reason for this too would be the same.
Regarding unlimited data access, the reason for Airtel and Vodafone to not provide unlimited data access might be the very low ARPU. Since the ARPU in India is very low most of the companies make their revenues in the data access which they provide and Airtel and Vodafone would be very much disinclined towards reducing their profits by providing their main revenue earning service for unlimited use.

Although these are the main reasons, there are many other reasons for the failure too, like the non availability of 3G which was the selling point of the phones in US. But I don’t feel that that would be an important reason, because not many Indian users would be buying it for the 3G factor, but most of them would be buying it as a novelty factor.

So what should Apple do to improve its performance in India?

1. Try and educate masses about the price they see in US and that in India. Although unlocked iPhones in US and other places sell at almost the same or higher prices than in India, not many know it. All they see is the price on the apple store which lists the price at $99 for 8GB 3G phone and $199 and $299 for the 16GB and 32 GB 3GS ones respectively. What they don’t see is that an unlocked iPhone 3GS 16 GB costs $600+ and 32 GB $700+.

2. Stick to one carrier so that it has some incentive to provide subsidized rates in India. But again the problem here is up to what level the contract can be enforced by the carriers in India. Especially in a country where there is jugaad in every work, the users can easily get the phone unlocked and use it after buying it cheap. Can something be done to make sure that breaking the contract has the same penalty as in US? This is something for the carriers to think and make their contracts stricter.

3. Instead of selling iPhones at unsubsidized price and being locked to the carrier for a year, it would be better if they could sell the iPhones in apple stores. The people who were not buying it because of the contract (now I know this would be a very miniscule amount) would then consider buying it. At least I have seen many people buying iPhones from Hong Kong where the prices are almost similar (many be a couple of thousands less), just because you are getting an unlocked iPhone legally and for a lesser amount than in India.

4. Now that the iPhone 3GS is being introduced, instead of phasing out the older 3G version in India as it is being rumored now, provide it at a lower price, which could be affordable for the upper middle section of the society. This would allow more number of people to have the feel of an iPhone and as I have seen many of them would be hooked for a long time. And don’t give me the reason that Apple wants it to be a niche phone. When they can allow it to be sold at a subsidy (with many plans you get an iPhone without any payment and you pay the amount in installments over the period of contract) in US and can have 2.4 million people buy it in 10 days, does it really want to play to niche game in my view.

(This post was written by Arun K S. We thank him for his insights, and look forward to his further posts. For more on Arun, check his previous post here)

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