In the most recent Stratechery podcast Episode 158 – A Significant Shift, Ben Thompson made a good yet subtle point about Apple’s recent revenue warning followed by its biggest stock-price drop. To paraphrase – because of Apple’s shallow software moat in China, it’s particularly vulnerable in China when there’s an economic recession.
To break the analysis down in my own words –
1) WeChat (and similar services in China) and Android undermine iPhone’s software experience.
- WeChat provides much better experience than iMessages because its holistic integration of rich services and so on. Unlike the iMessage’s popularity in the US, it is just lukewarm in China.
- Android’s open source strategy allows the local manufactures like Huawei and Xiaomi to customize their own OS, which weaken the necessity of the holistic iPhone experience (hardware + software). iPhone users in China are not affected by the ecosystem “lock-in”. So switching is easy.
2) Because of 1, people in China cut across iPhone’s underlying OS and buy iPhone more of as a commodity – just like buying a Chanel bag or a Rolex. Apple is a luxury brand for status symbol.
- (But also thanks to this, most U.S. internet giants (e.g. Google, FB) failed to break into the Chinese market but not for Apple – Apple was able to enter China and succeeded in the market)
3) Because 2, while it’s always the case, when economic recession comes, iPhone sales is more vulnerable in China compared to western countries. People avoid buying luxuries during economic downturn (roughly started from last quarter).
4) Apple’s less vulnerable in other countries because Apple has deeper software and services moat. Westerns buy because they are “locked in” in Apple’s ecosystem.