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. If you like learning new things, and, clearly
you do, you’ll love the way Brilliant helps you understand new ideas, not just memorize
their formulas. To get started, go to brilliant.org/Polymatter
and sign up today for free. The first 200 people to use that link will
also get 20% off the annual Premium subscription. Thanks to Brilliant for sponsoring this video,
and to you for listening.
A really well made video, man. Like always.
Price, if you want to make money in india, sell cheap and affordable stuffs. If you want to sell premium and luxury products, go to china. Simple