Apple Goes Local In China

The scale of China’s consumer base is simply daunting, but can Apple take advantage?

Most developers in mainland China actually concentrate on international markets like Japan, SE Asia as well as Western regions since they find it much easier to monetize their games here. Many of the top mobile games in Japan for example are developed by Chinese companies. So we decided to ask Chinese game publishers what they thought of this news. Most welcomed it and said they were considering diverting more resources into the Chinese market than they had previously allocated. Haining Wang, CEO of Happy Elements, a leading Chinese game developer, had this to say:

“This news is a catalyst to push us to consider the Chinese market as soon as possible. So, it probably will speed up our process to launch mobile games in China. About whether we would focus more on China, we would need to monitor market performance to make the decision.”

As it stands today, China’s share of iOS world free downloads currently far outweighs that of world revenues, but this gap should shrink significantly in the near term. Here’s why:

  • Expansion of Payment Options
    Although Apple’s move does not include web-based payment solutions such as AliPay (similar to PayPal), using local bank cards will decrease transaction cost for many users. According to Haining, this move will convert a lot of users who currently only download free apps into paid users.
  • Targeting Hackers
    Empowering Chinese customers to use local banks is also expected to combat their need for finding alternatives, which often results in hacking. A recent story about Apple’s business in China was the use of “Black Cards”, or hacked iTunes account cards that consumers buy from unlicensed third parties. Unfortunately, despite the use of local currency, “The high rate of black cards in China might last for a long time if Apple or Taobao don’t take any action against it,” says Haining. Taobao has taken steps to block keywords from its search and take down illicit items, but in a country where most software can be gotten at a significant discount, or even free, it is unrealistic to think that issues like this will disappear. Over the coming months we’ll monitor how Apple deals with hackers in China.
  • Plastic’s Proliferation in the World’s Largest Consumer Market
    Another major factor in Apple’s potential is China’s ever-expanding credit card market, which Mastercard has predicted will become the largest in the world by 2020. As credit cards are more seamlessly incorporated into consumers’ lives, especially if Apple’s next phone is NFC capable, their revenues in China should keep surging upward.
  • Strong Performance of Hardware ProductsA few months ago, Penn Olson included this infographic, made by Motley Fool, in a report about China’s taste for Apple.

iPhone and iPad adoption in China has been remarkably strong. According to a report on China Mobile by Bloomberg, Apple is so popular that even customers who don’t have 3G are buying iPhones and downloading apps.

Wait and Watch, and Count
Given Chinese consumers’ taste for Apple, the new ability to link iTunes to their credit card and a widened product price range, not to mention the upcoming local release of the iPhone 4S, look for China’s App Store to become a major contributor to the App Store’s bottom line. We’ll be tracking these stats here at App Annie and will report back on the development of China’s Apple Store.

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