In Russia, the iPhone is an expensive flop
Map: CIA Factbook
Despite heavy advertising and early black market interest, Apple's (AAPL) iPhone is an expensive flop in Russia, according to a reportposted Thursday by Svetlana Gladkova.
Gladkova, Russian editor of the tech blog Profy.com, writes that Russia's three major carriers cut a deal with Apple last year that requires them to sell a total of 3.5 million iPhones over a period of two to three years.
But in the first 6 months after Apple’s phone became officially available, according to CNews Russian, the three carriers — in conjunction with their Russian retail partners — only managed to sell 250,000.
Now, according to Gladkova, one of the largest of those retailers, Euroset, owes the carrier it was working with, MTS, 279 million rubles — roughly $8.5 million — for iPhones that it can't unload.
Part of the problem, according to Gladkova, is that the estimated 400,000 iPhones that entered Russia through the back door satisfied much of the initial demand. "Many of the people who wanted an iPhone already had one," she writes.
But the bigger problem is the iPhone's sticker price. Most cell phones in Russia are sold without a contract, and contract-free iPhones were initially offered there for more than $1,000 each. That's since come down to $700 to $800, but even this, says Gladkova, "is definitely not a price that makes it an affordable phone."
The carriers, she says, have stopped buying iPhones from Apple and are now trying to renegotiate for either lower prices or smaller quotas — demands that Cupertino has reportedly refused. Meanwhile the retailers are stuck with million of dollars worth of inventory they can't move and which the carriers have no interest in taking off their hands.
"To me," writes Gladkova, "this looks like yet another example of how different the Russian market is and how difficult it is to achieve success for foreign players — even if they find local partners.
"But the worst part is that this disaster will hardly teach Apple anything and I’ll expect seeing ridiculously priced iPhone 3GS here as well — way after everyone who wants to have the latest model manages to buy it abroad."
cynik,
I'm a little late to this discussion, having recently followed a link from the Stolen iPhones article. The "Gestolen" iPhone reminds me of the German phrase applied to the activities of the Russion mafia in the early 90s: "Heute gestolen, morgen in Polen" (stolen today, in Poland tomorrow).
At an rate, it seems to me that yo are saying that Apple is not serious about "business" because it is not supporting *your* business. It also appears that the code that you are writing is being written in-house, that is, not for sale on the App Store. You are not making any money for Apple that way, so you are not good for *their* business.
To say that Apple is not interested in Apple is not interested in "the Enterprise" does not seem terribly accurate. I think what is at issue is not interest in Enterprise ("business"), but rather an inability to monetize it (i.e. do *business*). Why would Apple help you and your ability to code on iPhones if you are not generating accounts-receivables.
Just a thought from a idle fanboi.
DD
"@cynik. Maybe you’re just a poor developer that is unable to create applications that are actually useful. Or maybe you just don’t know how to use the APIs efficiently so that it takes advantage of the iPhone UI. Don’t blame the platform for your inadequacies. We can all fail or succeed on any platform."
Now it is true that I'm not the world's best programmer. And for sure, if I was better with C based API's I would have fewer problems with the networking side of things.
But I resent the assumption that i make apps that aren't useful. I think the apps I make are useful, because folks tell me so. And perhaps I was being a bit harsh with the iPhone, because after all I am the monkey who has chosen to spend time developing for it.
BUT…. I think you fail to understand just how limited the iPhone development environment is.
Are you aware that until relatively recently, Apple tried to tell people they couldn't even talk about it? It was so absurd.
Now my gripe is abut iCal and networking. I recently wrote an app that using scheduling (funny that, a business app that uses calendar). This application records times for workers on construction sites. Now I'm being paid the same for this work, regardless of how it turns out, because I am doing it in house, under contract. So I am not having a moan about the App store.
My point is exclusively about the Apple API's, and how hard it is to get around the Apple secrecy.
So, in this application, here is what I had to do in order to get the calendar scheduling operational:
1. Export the times to Address book, which is synced with address book on the company server.
2. Write an application for the server which extracts that data from address book.
3. Use that application to then post the times onto the calendar store on the server.
4. Which then updates the calendar on the iPhone.
Now if the good folks at Apple would release the iCal API for the iPhone, all that would have taken about one line of code, and the syncing would be in reverse order, and I wouldn't have had to hack into address book.
So don't tell me about how things can be done regardless. I am aware of that. I'm also keenly aware that my C skills suck, and that this makes me a bit of a phoney when it comes to programming because so much of Apple's foundation code is still in C. (address book, for example)
My point is that Apple are making life hard for business developers like me and easy for game developers. For whatever reasons, their whole outlook is geared towards helping people sell the new fart joke app on the app store, and NOT towards helping me write apps for companies who can't get anyone better than me to do it.
I don't think that is the way forward. For Apple or for me.
So I am going to bitch and moan about it. I want better scheduling and better networking API's.
I am also going to stay with the iPhone while I bitch and moan, because the bottom line is that Xcode is a peerless development platform, and is getting better all the time. Not only that, but the Apple products generally are first class hardware that can be relied upon, and nobody has ever taken me aside for a chat because, in the past, I recommended using Apple products.
But they could be a lot more business focused.
Some clown earlier suggested that business was at the trailing edge of technology. I don't know who he thinks pays for technology to be developed. Presumably he thinks the market sits around on its ass and waits for game developers to make technology that might or might not be useful for making money.
That is precisely the sort of woolly child thinking that will lead Apple away from the enterprise market and towards becoming the next Atari.
Iphone is for these 3 purposes – Phone, Turn-by-turn GPS and Music in "one" device along with valuable apps like mint,weather,recorder,notes, email with a resonably sized LCD touch screen – it is mini mini micro personal computer in your hand. only negative is AT&T.
@Andrew in Seattle who wrote:
"At some point the US is going to realize what the rest of the world already knows, the iPhone is just a toy. Buy a iPod touch – and get a real phone. I can’t believe people pay so much for a toy that they play 99 cent games on. Seriously?"
Seriously Andrew, you ought to spend more time looking at the apps in the App Store and not just giving us your microsoft opinion. I have the Wall Street Journal on my iPhone and I don't think that is a toy. I have many other business apps that I use daily. Oracle (you might have heard of them, but I doubt it) is writing apps for the iPhone. And I've had quite a number of other cell phones, and I vastly prefer the iPhone for it's cell phone features. If I get the time, I'll send you my old Motorola Razor cellphone. That was the number one selling cell phone before the iPhone changed the game.
This rest of the world is buying the iPhone with reckless abandon. During the last two years there have been many Asian businessmen flying into the U.S. and buying as many iPhones as they could load into a briefcase, and then flying back to Japan and selling them for 3-5 times what they paid for them. They were averaging $30,000 to $45,000 profit per round trip flight. That's enough to make jet lag worth it.
Cynik is just a developer who didn't anticipate how strong the iPhone would be, and he didn't learn how to program it quickly enough, or well enough. Now he is watching the parade roar past him and now he is trying to blame Apple for his failures. There are now hundreds of developers who are becoming millionaires because of the iPhone App market. The phrase you need to understand is, "You snooze. You lose."
I love how Apple disciples always just shrug off bad news with stupid quips about "drop in the bucket" or "so what, the US is the main market"
And while Cynik may be over the top… are you guys failing to realize he's being sarcastic and a little extreme to make a valid point?
At some point the US is going to realize what the rest of the world already knows, the iPhone is just a toy. Buy a iPod touch – and get a real phone. I can't believe people pay so much for a toy that they play 99 cent games on. Seriously?
Brian, who cares if they HAVE business apps – the point still remains that NO ONE wants them (I wonder why…).
@Mr Brian,
I think you lack some global knowledge. In US, we are used to buying subsidized phones, which are generally free or very low price due to 2 yr carrier contracts.
In India, Europe and many other countries, phones are sold unsubsidized with no carrier restriction and freedom to switch carriers anytime you want.
This is a better policy than US. Indians spend more money on Cellphones than you may be willing to. They spend typically avg $200 for unlocked phones.
Thats why Nokia is the most successful company in India, and people do shed out money for high end phones. Apple doesn't sell unlocked iphone, they call it no-commitment phone, with which you are still tied to the carrier.
When you said"Perhaps it is hard to sell such an American product in Russia? In India, perhaps it’s that most of the people who can afford one work for Microsoft tech support. We all know they don’t allow their employees to have Apple products."
Sacto Joe, smartphones in general (especially Nokia and Samsung) are doing extremely well in Russia.
the way it actually worked was Iphones were purchased overseas and then "cracked" in russia. I know because i bought one at US prices for my friend and others bought theirs the same way at Apl stores. gerard san ramon californa\ia
@cynik. Maybe you're just a poor developer that is unable to create applications that are actually useful. Or maybe you just don't know how to use the APIs efficiently so that it takes advantage of the iPhone UI. Don't blame the platform for your inadequacies. We can all fail or succeed on any platform. One thing regarding business apps– if you don't have existing relationships with potential business customers, then you're going to have to do your own PR or heaven forfend, pay to take out your own ads. Seriously, Apple can't do everything for you. A lot of business apps are niche products, and you have to advertise to enable that niche to find you.
I agree, however, that it's gotten very difficult to FIND apps that I might find useful due to how things are organized and categorized. I hope that Apple refines this more.
Most ignorant statment to date:
"Since when has the business community lead tech?"
Since the technology sector was created, that's when. I don't see many 'consumers' needing duel i7 processors and 15000 rpm SCSI drives to play Starcraft II. Or RAID5 arrays to hold their iTunes music?
@cynik
Since when has the business community lead tech? Business is about as trailing edge as you can get. You don't need much of a computer, if indeed you need one at all, to sell things, make deals, arrange meetings, etc… Your cheapest Dell will do just fine.
Also, who mentioned the Soviet Union except you?
Apple has literally thousands of business apps:
http://www.apple.com/iphone/business/apps-for-iphone/
My bet is that you are upset that you can no longer sell your old 90's era applications, or have just lost a contract to an iPhone developer. No one is stopping you from developing for iPhone but yourself.
This blogger sound like she has a bone to pick with Apple.
Planted words here and there for the maximum effect.
BTW she was referring to the 3G iPhone which AT&T are selling at $99 and I believe the enterprising Russians get their supply of iPhones from the Far East which are unlocked at very competitive prices.
She should also mention the price of the wireless data plan which I believe cost an arm and a leg.
@ cynik, what is your problem? You chimed in and ranted at another Fortune article which was talking about the great sales of the iPhone and it being ahead of everyone else in this terrible economy. There it had NOTHING to do with the article, and hear it appears to be similar.
You either REALLY want enterprise class services on your iPhone, or you are a shill from some other phone company trolling to create discontent. You keep on harking about the developer community knowing the iPhone is a toy, yet the fastest growing market of apps on the iPhone now is business apps, see here: http://tinyurl.com/l9qvo6 and http://tinyurl.com/nl94l7:
"In the first quarter of 2009, there was a 50 / 50 split between business versus consumer application request for development.
In the second quarter, business applications have increased by 30 percent, resulting in a 70/30 split.
Request for quotes to develop new iPhone applications are up 20 percent from May to June 2009."
So please leave us all alone and go troll somewhere else, mk?
Fleshing out my earlier comment, if it's true that smartphones in general aren't doing well in Russia, then why isn't the title of the piece "In Russia, smartphones are an expensive flop"?
By making it seem like only Apple has this problem, this becomes an unsubstantiated slap at Apple, so far as I can tell. As an Apple stockholder, I'm not happy.
Cosmo Kramer of Seinfeld fame once said on an episode that "The Ukraine is a road apple." I guess the statement must have upset more than a few Russians who now won't have anything to do with Apples of any type. Too bad for them. I never figured the Russians to be cheapskates, though, so I figure it must be something else.
Those are all sales for Apple, regardless of why the reseller can't move them. It hardly amounts to a drop in the bucket as far as worldwide sales go.
Perhaps it is hard to sell such an American product in Russia? In India, perhaps it's that most of the people who can afford one work for Microsoft tech support. We all know they don't allow their employees to have Apple products. 
I think these markets will come along, and rapid adoption in other parts more than make up for these sorts of anomalies.
Maybe Palm can unload all those Pre's over there? Or G1s? I think there are plenty of them available.
****NEWS FLASH****
There is no soviet union anymore! It collapsed.
20 years ago. But heck, if a person can't wave a flag and feel good about himself because he belongs to a big tribe, what is the point of having enemies?
Anyway, seriously, there is a subtle point here that is being missed.
Ergo: IF.. the iPhone was a useful business tool, people from all nations would buy it. IF.. the iPhone allowed business owners to improve their productivity…. business owners from every nation would buy it.
However.. IF.. the iPhone is just an expensive toy that is organized so that it is really pretty useless to business owners….. then you'd expect only comfortable folks from rich states to buy it.
I think the litmus test of the BRIC nations is going to send a pretty clear verdict on the iPhone: It is a toy, and Apple are refusing to take the enterprise market seriously.
The developer community already knows this, and Apple is heading for a day of reckoning. If they are not very shrewd and they do not change course radically, Google and Palm will spearhead a general move towards open source code on open technology that SERVES THE NEEDS OF BUSINESS. And that will spell the end for Apple.
Apple have a head start with the code, but others are catching up. Google only needs to build a development environment that matches Xcode, and hoards of iPhone developers will make the Switch.
I will. For sure. I am sick and tired of Apple playing stupid games and trying to control everything, at the same time as simply not performing in the business marketplace. So is every other developer I know.
Go to the App Store. Look at the three hundred BEST applications.
See anything at all that could be of real use to your business? It is all games and fart jokes, and Apple is complete control of that situation.
You can mention any country you want, the basic issue is sales in "non-subsidized markets". I've been waiting to hear a new Apple strategy on this and was disappointed that none of the analysts asked about this on the last conference call. I guess total world domination will have to wait.
As for Apple not giving the Russians a break, that really is for them to understand their market and not for Apple to just forgive them their contractual agreements. Time for them to make drastic cuts, eats some losses, and move on. Perhaps they'd do better with this nifty tablet Apple's got in this bin over here?
If you want first-hand coverage of iPhone and all other things Apple in India, check out http://smokingapples.com/ a blog written in India. They will address the Indian market and carrier issues from time to time.
(I have no affiliation w/ SmokingApples beyond reading it.)
India too I believe. Countries that do not subsidies the price, are relatively poor, and are not super tech savvy are not a good fit I suppose. The BRICs are turning out to be bricks. China's up next.
This makes me laugh Apples another corporate trying to do the same things in Russia as Western Europe without understanding anything about business in Russia. I have worked here 6 years and I have seen this many times. Wake up! Simple research will tell you that is you bring an expensive IPHONE to Russia through dealers people will buy it in any other way. Russia survived for years using the black market and it is still there. Th IPHONE is a huge success here everyone I know has one but no one bought from an Apple dealer. A phone linked to a contract in Russia? Are you MAD, that is a loser before you start it is almost funny.