Apple's iChat and China: The Perfect Marriage

With the Beijing Apple store on schedule to open for the Olympic Games, Apple (AAPL) appears ready to unleash their own sleeping giant. According to recent Chinese trends, instant messaging has replaced the conventional communication methods of text messaging, email, and social networking. "Young Chinese people don't ask one another for email addresses. They ask for QQ numbers" says Kaiser Kuo, group director for digital strategy for Ogilvy & Mather in Beijing.

The winner in this space so far has been Tencent Holdings (TCEHF.PK), they report that online QQ (Instant Messaging) accounts have reached 315 million or close to 80% of the market. IM provides users with real-time communication, something that the Chinese people demand from their online experience. As reported by the Wall Street Journal's Juliet Ye, "Those habits have helped turn IM into a social-networking medium in China, despite the availability of proper social-networking sites such as Xiaonei.com." Apple's somewhat unheralded video messaging application, iChat, could propel this phenomenon to a new level.

Chinese web surfers don't own their own computers. Only 12 out of every 100 households in Beijing reports computer ownership (paulnoll.com). Instead, they access the web through Internet cafe's where they download video and music to their cellphones. Cellphone ownership on the other hand, has skyrocketed. China Mobile (CHL), the largest cellphone provider has grown to 583.5 million subscribers. What would happen if IM was available on a cellphone? That's exactly what Apple CEO Steve Jobs is ready to deliver to the Chinese people; welcome to the era of mobile iChatting.

iChat comes standard on Mac computers and in a patent filing published at the end of last month, Apple paved the way for the video IM service to be included in the iPhone (appleinsider.com) as well. More specifically, Digg founder Kevin Rose submits,

The 3G iPhone will employ two digital camera's situated back-to-back; one on the front side of the unit behind the transparent touch-screen, and a second one on the back of the handset as it exists today. Combined with the mobile iChat application, the front-mounted cam will pave the way for live video conferencing over a high speed 3G wireless network with computer based iChat users, as well as other second-generation iPhone owners.

CNBC's Jim Cramer suggests that this product will revolutionize instant messaging the way Apple revolutionized the portable music industry with the iPod. He said,

The iChat is really, even more than iPod, a story of critical mass. I want to relate the iChat to text messaging, a business that no one thought would ever amount to anything and is now the lifeblood of Verizon's and AT&T's businesses. This up-from-nothing business needed others to have phones that you could text with before you could text more and more. Now, imagine that there is only one network, the Apple network, that allows video chat. You are a kid and you are trying to instant-message other people. You realize that "everyone" is iChatting, not texting. You have to get onto the Apple network. That's where we are now. Can you imagine what would happen if the iPhone got eye-text? You would not only throw away your H-P's and Dells, you would throw away your Samsungs, Motorolas and Nokias.

iChat in China makes perfect sense. Now it's just a matter of adding more iPhone distribution partners to the already announced deal with Hutchison Telecommunications in Hong Kong. After last month's overhaul of the Chinese telecommunications industry further deals are expected. A Chinese statement issued last Monday said that the mergers would set in motion the awarding of licenses for 3G service that supports wireless video, Web surfing and other services, according to an AP report. Apple has also backed off their insistence on revenue sharing which was a sticking point in early negotiations with the Chinese.

Don't be surprised if Steve Jobs announces a major deal with China during the 3G iPhone release on June 9th. It has been reported that China Mobile already provides service to over 400,000 unlocked iPhones that have been smuggled into the country for those subscribers unwilling to wait for official availability. With this type of pent up demand, one can only wonder what will happen if Apple releases their chat for the Chinese. Let's see what happens when two sleeping giants wake up at the same time.

Disclosure: Long AAPL

Comments

[wallawallab...:]

Suddenly, all other telecommunications modes are forever left in the dust.

Goodbye Nokia, RIMM, etc.

2008 Jun 06 06:11 AM

[charanischiu:]

Most young people in China carry their mobile phone by sending and receiving message every where instantly.

Therefore, the Apple iPhone with Chinese hand writing function should fill the need. With the large screen and zooming features which is best for watching text, pictures and video images.

2008 Jun 06 06:17 AM

[tom1234:]

are we there yet ---here comes $300.00 per share --

2008 Jun 06 08:21 AM

[huangjin:]

QQ's network is already accessible from mobile phones, the only thing they would need to add is a camera on the front of the phone. Is that impossible for Samsung, LG and TCL?

2008 Jun 06 08:52 AM

[Grammar Nazi:]

Interesting content, but for the love of God, somebody proofread these entries before they're posted. Apostrophes are supposed to indicate possession, not plurals.

2008 Jun 06 09:07 AM

[20smoney:]

if you are obsessed with grammer over content, don't read blogs. Go read some journals by Harvard professors.

2008 Jun 06 09:14 AM

[AlphaRon:]

As someone who lives in China I would suggest that for this critical mass to really happen iChat will need to be made available for PC's as Apple have done with Safari.
China is 99.9% PC based very much on their own indigenous and very low cost suppliers - this is who needs to be reached, and quickly.

2008 Jun 06 09:23 AM

[PK de C'ville:]

Great visioning. The PPS impact will be enormous; at least $20 PPS almost immediately on announcement and rising from there as the revenue steamrolls into the qtrly rpeorts.

Video iChat will be delivered soon by Apple ASAP, but the tech may not be ready next week. Looking forward to its arrival and let the good times roll!

2008 Jun 06 09:28 AM

[Antie:]

China just started 3G test with TD-SCDMA. There is no way that WCDMA iPhone could be launched there before this summer.

2008 Jun 06 10:23 AM

[omega:]

<if you are obsessed with grammer over content, don't read blogs. Go read some journals by Harvard professors.>

Hey, User 163362 -- grammar (and spelling for that matter, where you obviously face some challenges of your own!) really have only one purpose: to facilitate communication. Incorrect grammar and spelling make it tough to read and comprehend any sort of writing. It makes no difference whether the text is published in a scholarly journal or posted on a blog.

In both cases cited here -- the incorrect use of apostrophes for plurals and your misspelling -- it's pretty simple to figure out what the authors intended. But even these mistakes do distract from the content, diverting the reader's attention when noticing the gap in the grammatical logic of the passage, often causing him to go back to re-read the passage and double-check whether some aspect of the message was missed in the first reading, and generally interrupting the flow of thought that the author was trying to convey. Good writing paints a vivid mental picture; lousy writing interferes with that flow.

While these are hardly the most egregious examples of spelling and grammar errors, I support Grammar Nazi in trying to elevate the level of writing (and thereby communication) here and everywhere else words are put to virtual paper. Too many people in our blogging/text-messagin... society don't have a clue how to get their ideas across effectively.

2008 Jun 06 06:53 PM

[vitaminc:]

Ignorant OP.

1. iChat is not compatible with QQ so people will not exactly transfer their IM accounts.
2. China Mobile is very highly likely to carry TDS-CDMA and Apple's 3G iPhone is highly unlikely to have TDS.

2008 Jun 06 07:01 PM

[Dan Butterf...:]

AlphaRob -
<<iChat will need to be made available for PC's as Apple have done with Safari.>>
IMHO you'll get your wish ...
www.qqoz.com/qq/7/1338...

Auntie & vitaminc -
Next gen iPhone will not support TD-SCDMA and it will support W-CDMA the 3G license to be issued to China Unicom/Netcom (license to be issued within 3 to 18 months). Notwithstanding China's political and technical issues with 3G ... next gen iPhone will work today in China as it be backward compatible with China Mobile's EDGE/GPRS network. It's a fair bet that China Mobile will obtain both a TD-SCDMA (100%) and W-CDMA (not certain but probable) 3G license. I do not believe China will delay issuance of 3G licenses much past the Olympic games. The delay is a subterfuge to give the "TD" protocol every chance to succeed. And it must fly for China to save face ... Think Spruce Goose. Yet the carriers and important companies that support the telecom industry in China would prefer to ditch the China built TD-SCDMA and move on the international 3G standards and eventually LTE.

Back to Apple ... Given the high probably that China Unicom and China Mobile will obtain W-CDMA, both are viable carrier partners for Apple's iPhone. I expect one or both will announce a deal with Apple and it will happen in 2008.

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2008 Jun 07 01:13 AM