Apple in China: Trouble Selling Paid AppsRemember the furor, a few years back, when it was alleged that you could buy a pirated copy of Microsoft Windows for as little as $2? As time went on, it seemed like, with our mounting dependence on China, allegations of pirated goods from the streets of Beijing had been silenced. However, with the new Chinese penchant for Apple devices, these accusations have returned.

This may partly be due to the fact that some in China seek to mirror life in the United States; from their point of view, the iPhone and iPad have become status symbols. I find it both sad and humorous that two nations have taught their young that owning one of these Apple devices says “I have made it” to those around them. Having grown up believing that China was still a developing country, it is illuminating to realize that, within the major cities of China, it is estimated that one in 10 young adults, students, young workers, and entrepreneurs own an Apple device of some type. However, it is even more amazing to me that the smaller cities around China also boast that approximately 10% of their citizenry own an iOS powered tablet, phone, or other Apple produced device.

Given this percentage, one would expect that Apple’s sale of apps would be extremely high. However, according to reports, the one major issue that Apple is experiencing in China is a lack of revenue from applications that the company sells. It appears that, although China has become the second largest worldwide downloader of applications from the App Store (comprising 18% of all downloads), the country only generates 3% of the company’s revenue. The fact is that many in China don’t like to pay for applications and piracy runs rampant.

In fact, according to second quarter estimates, the App Store brought in approximately $1.2 billion in application sales worldwide. Of this, the revenue from the Chinese marketplace is estimated to have been a mere $37 million — far less than what one would expect considering the amount of downloads that the nation is credited with purchasing.

In the chart below, revenues suggest that China has a low contribution rate of only three cents per download. As you can see, the median global contribution rate is 19 cents per download, while the US generates a staggering 28 cents per download.

Apple in China: Trouble Selling Paid Apps

How Are Consumers Able to Circumvent the App Store?

When considering the numbers, one can easily see that pirating is commonplace in China and that Apple products are being jailbroken en masse and used to download illegal apps from alternative websites. Apparently, a lot of people in China have no issue with this practice and, therefore, it goes unabated and without censure.

Perhaps this is just desserts for those companies that have left America for greener pastures overseas, but investors have to be crying foul ball. This cry can also extend to the American consumer who no longer knows if the accepted Made in China label upholds the quality that a formerly American company might have promised. In fact, since it is hard to establish and ensure quality control in other countries, the American consumer has no say about what those countries do or do not do with the products being made with American brand names attached.

So, while Apple applications are being hijacked and shared for free or next to free, it’s safe to assume that products and apps from other sources are also being pirated. In fact, I wouldn’t be surprised to discover pirated copies of Microsoft’s latest operating system, Windows 8, being distributed on the back streets of major cities around the world prior to its October release date.

So what is your take? Would you be a willing buyer if you found a cheap, but pirated copy of either Apple or Microsoft software, or would you be the investor crying foul ball? I can see both sides, but most of all, it is easy to complain about companies moving overseas and taking American jobs with them, noting that, if they find the atmosphere in these other countries uninviting, they can always choose to move their companies back to the United States.

Comments welcome.

Source: Stenvall Skoeld & Company

CC licensed Flickr photo at the top of the page shared by Photo Giddy represents a Chinese teenager selling a kidney to buy an Apple product.