Saturday, August 29, 2009

China, Apple and the economics of free

Apple recently announced that it has reached a deal to bring the iPhone and its Apps Store to China. This is a very interesting and potentially very insightful proving ground for technology and economics which was actually made possible by the Chinese government keeping the masses poor.

The iPhone handsets will be purchased by China Unicom, who will not share subscription revenue with Apple. This means, for Apple to capitalize on this opportunity to reach such a huge market, they have to sell Apps, lots and lots of Apps.

But, that huge marketplace is made up mainly of very low income individuals. Apple, and its army of application developers must come up with highly desired software at a price point that’s agreeable to poor people. In many cases that price point may be zero, or close to zero. The game will be to figure out how to get a little money from an enormous amount of people, consistently. New streams of revenue related to applications may have to subsidize the production and distribution of the applications. It could be advertising, data collection, storage, establishing networks, or some function nobody has imagined yet. There are further challenges. The iPhones in China will not be WiFi enabled. It sounds like a tough bed to grow in, but the parallel processing nature of the world of iPhone application development should make it up to the challenge.

Some believe the “economics of free” is a threat to capitalism. It’s not. Capitalists adapt and continue to find ways to improve their own lot by improving the lot of others. Government can change the rules, but they can’t kill the game. That’s because capitalism takes advantage of and works with human nature, whereas socialism aims to suppress it.

Of course, I don’t endorse repressive dictatorships as a means of market-testing ideas, but there it is. Americans, through commerce, have the opportunity to try to improve the quality of life of people across the globe, under severe restriction. Demonstration of the power of free markets and free people is a far more effective tool than either diplomacy or force in making the most of such an opportunity.

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