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Apple is taking a beating in India, the world's third largest smartphone market

Apple is taking a beating in India, the world's third largest smartphone market


India is 97 percent Android

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According to data from Strategy Analytics, Apple shipped just 800,000 smartphones in India in the second quarter of 2016. That's fairly typical of its recent performance in the world's third largest smartphone market, but still down compared to the same quarter last year, when it shipped 1.2 million handsets.

India is expected to buy some 139 million smartphones this year, but the majority of these will be Android devices costing less than $150. The same data for the current quarter shows Google's operating system capturing 97 percent of the market, and it's just not clear what, if anything, Apple can do to change this state of affairs.

The insurmountable barrier for the company is price. India is perhaps the most promising smartphone market in the world, growing 29.5 percent from 2015 to 2016, but the average selling price for handsets remains under $70. Apple's cheapest iPhone is more than quadruple that.

Apple has proven time and time again: it doesn't like selling cheap iPhones

Making a cheaper iPhone is the obvious response to this problem, but as has been proven time and time again, Apple doesn't do cheap. It likes to keep its margins fat (although it stresses that high prices are a reflection of its dedication to quality, not profit), and as Bloomberg's Tim Culpan points out, if the company started selling cheap smartphones in one market, that price could become normalized. Cheaper iPhones might be expected in other markets where smartphone penetration is low and there's potential for expansion, but this would throttle Apple's profits before they've even had chance to grow.

The company does have other options, including selling refurbished handsets (something that the government has so far blocked), cutting costs by making smartphones locally (which Chinese firm Lenovo has been trying), and subsidizing handsets through carriers. In these last two cases, though, Apple runs into problems concerning distribution, as smartphones in India tend to be sold off-contract, without subsidies, and through a large number of small retailers.

"In India, carriers in general sell virtually no phones."

Apple CEO Tim Cook spelled this out during a tour of India earlier this year. "It's difficult for an operator here to sell a product themselves because of the tax structure," Cook told local TV channel NDTV. During the same visit to the country, he added: "In India, carriers in general sell virtually no phones and it is out in retail — and retail is many, many different small shops."

That doesn't mean Apple doesn't hold appeal to Indian consumers though. A report from market analysts Canalys in May noted that Apple was challenging Samsung in the premium sector. In the first quarter of 2016, Apple's share of sales of phones costing more than $300 grew from 11 percent to 29 percent, while Samsung's fell from 66 percent to 41 percent. The iPhone-maker's overall market share may be small, but it has potential.

Accordingly, Cook says India resembles the Chinese market "seven to 10 years ago," and that the company is "taking a step back to view India more strategically." In practical terms, this has meant setting up an app accelerator, investing in its Indian mapping operation, and reaching out to Indian developers to build locally relevant services. If it really wants to, Apple can afford to wait out those "seven to 10 years" for the Indian market to develop, and right now, seems intent on building the foundations for its future business, even if its current market share is negligible.

"We're not here for a quarter, or two quarters, or the next year, or the next year," Cook told NDTV. "We're here for a thousand years."

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