From Russia, no iPhone love (or.. In Soviet Russia, iPhone buys you)

Jonny Evans
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July 30, 2009
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Huge expectation that Russia would prove an incredibly lucrative market for Apple’s iPhone have been dashed. Gloomy reports claim Apple’s three carriers there are unable to meet sales quotas, and are receiving a steely response from Cupertino to their requests for subsidies, lower prices or some kind of carrot to win over Russian consumer hearts and minds.

A report reveals Russia’s three major mobile carriers reached a deal with Apple last year that demanded they sell 3.5 million iPhones over two to three years...but only 250,000 units shifted in the six months following the product’s introduction into Russia.

Worse, one of the big Russian retailers currently owes one carrier $8.5 million for iPhones it just can’t shift.

Expectation was high for the Russian market. The trade in grey market iPhones was extremely brisk there, with an estimated 400,000 jailbroken ‘phones already in circulation before Apple’s “official” launch. This apparently sated some demand among Russia’s small but rich middle classes.

What’s in the way of sales? Price, of course. With an estimated 15.8 per cent of the 140 million-strong Russian population living under the poverty line and an average per capita GDP of $15,800, the $1,000 Apple originally wanted to charge was just too high for the product to get the street appeal its managed to create in other countries.  Also, the price of oil has adversely affected Russia's economy.

Also in the way is the carriers. This lesson’s coming through loud and clear across all iPhone territories - consumers seemingly like to pick up their choice of device on their choice of carrier, rather than being stuck using devices they may like with carriers they don’t like.

Carriers have now stopped buying iPhones from Apple and are trying to renegotiate prices and or quotas, but Apple’s not ceding to these demands, Fortune informs.

“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,” one Russian commentator observes.

 

Comments (11)

anonymous (not verified) | July 30, 2009 - 9:01am

you know how much iphone 3g 18gigs cost in russia? $800 US!! off course no body would buy it! wtf is wrong with apple?! cmon lower prices!

admin | July 30, 2009 - 9:15am

18gigs?  Is that in Rubles?

9to5Mac Noob (not verified) | July 30, 2009 - 10:26am

average cost in Russia
iPhone 3G 8g - $640 US - 20500 in Rubles
16g - $780 US - 24500 in Rubles

iPhone 3GS 16g - $1280 US - 41000 in Rubles
32g - $1560 US - 50000 in Rubles

9to5Mac Noob (not verified) | July 30, 2009 - 10:35am

iPhone buys you LMAOOOOO !!!!!!

iphonerulez (not verified) | July 30, 2009 - 12:33pm

Apple should just write off this country along with India and wait until they catch up with the rest of the world in economic status. I'm also sure there are not many Porsches or Maseratis sold in either country. I sure as hell hope the Russian importers wouldn't ask those auto companies to give them a price cut just to fit their salaries. That's just nuts. If you can't afford it, then do without it. Live within your means. It's not like an iPhone is food or anything necessary. Paupers do not need to carry around an iPhone. Ship them some prepaid phones like Tracfone and Net10 sells. More than good enough for those people. Any crappy Nokia or LG make decent phone calls.

Like, I'm going to tell Russia to cut prices on their Beluga caviar because I can't afford to eat it at current prices. I'll eat peanut butter instead.

vox populi (not verified) | July 30, 2009 - 2:28pm

it's because of people like you that the countries of the world are still not developed equally

9to5Mac Noob (not verified) | July 31, 2009 - 12:28am

Obviously you have never seen the insane number of supercars cruising the streets of Moscow. They have both the worst and best cars in the world.
There should definitely be a big market for the iPhone in Russia, but maybe the brand is just not very strong there. Who knows.

9to5Mac Noob (not verified) | August 05, 2009 - 12:34pm

You obviously haven't done your homework. There are more German luxury cars in Russian, for instance, than in Germany itself. The wealth is abound, just like poverty. No different than in USA. Russia, however, has a smaller userbase for $1,000 phones. I am pretty sure that if iPhone were to be sold in the USA for that money, the sales would not have been so high. Trust me, even if I can afford to pay $1,000 for a phone, the price is just ridiculous.

On top of that, Apple bullied those three carriers into signing a deal whereby they would sell 3+ million units. that's, uhm, impossible. Everyone knew that.

Timothy Post (not verified) | July 30, 2009 - 1:32pm

Apple wants to have its cake and eat it too.

I have bought iPhones both here in Russia and back in the US over the past two years and I can tell you that if prices in the US were as high as they are here then sales in the US would be even worse on a pro-rated basis.

The single most important point not mentioned in this article is almost no one here has a contract with a carrier. Less than 1%. Please show me another country where this is the case and then lets compare sales figures. Sales of unsubsidized iPhones here in Russia have actually been quite decent.

The problem is that all three major carriers (MTS, Beeline, and Megafon) in Russia wanted to sell the iPhone and so Apple strong-armed them into completely unrealistic minimum order quantities. It has been written that each carrier was required by Apple to purchase 1 million units.

On top of that, Apple priced the iPhones for Russia so high that the percentage of people able to afford the phone is quite small. Actually, if one were to do an analysis of what percentage of the population who can afford the iPhone actually bought one, the results would show that the percentage figure is very, very high.

The average cell phone in Russia cells for about 3,000 to 5,000 rubles. When the first iPhone hit the market it was priced at 24,000 rubles (almost $1,000) at the time. If we want to be fair, let's compare sales of the Vertu with the iPhone.

The question I would throw back at snide Mr. iphonerulez is how many iPhones would have sold in the United States or Europe if they cost $1,000. Obviously the sales figures would be much lower.

The basic problem is that Apple initiated the sales of iPhones in markets where consumers received deep discounts due to subsidies related to a 2 year contract. This subsidized business model doesn't work in countries where there isn't such a model.

The problem is that since iPhone can be unlocked, Apple can't sell them at normal prices in countries such as Russia because then those iPhones would be exported to countries where the subsidized model exists.

Apple made a strategic mistake in doing a deal with AT&T to begin with and now it is paying the price of lower sales in developing countries. This problem is not unique to Russia.

At the end of the day, if Apple were to sell iPhones for $500 in Russia the numbers would be incredible. All I can say id thank goodness we have the iPhone DevTeam!!!

michaelclark15 (not verified) | August 05, 2009 - 12:32am

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”
JN0-342 exam
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?PK0-002 exam

Brian, who cares if they HAVE business apps – the point still remains that NO ONE wants them (I wonder why…).
70-298 exam

9to5Mac Noob (not verified) | August 06, 2009 - 6:55am

I can't even begin to tell you just how wrong you are. iPhone is changing the way users use phones. iPhone users are 5 times more likely to browse the internet than Blackberry users. iPhone users are 10 times more likely to play games than their Blackberry users. Yet, iPhone users are still 80% as likely to use the iPhone for business purposes as Blackberry users. So, while it's completely true that the iPhone has had a more mass-market appeal than Blackberry, it's simultaneously true that a device that can only be used by GSM carriers, as opposed to Blackberry, which has CDMA and GSM (an important distinction in the US market, where Verizon is the top network), has still managed to pick up a huge business use following. I honestly think the primary resistance to using the iPhone for business purposes has far more to do with carrier exclusivity, at this point. Businesses want options, and want leverage against wireless carriers for the best volume discount possible. With iPhone, that's just not possible in the US market at least. Additionally, the iPhone is still viewed as a "young" platform compared to the older, more established Blackberry market. Uptake in businesses is actually way better than I'd have ever expected, especially since business in general tends to reject Apple/Apple products. If/when carrier exclusivity ends, and/or a CDMA version of iPhone is released (in US/CAN/JPN), expect a dramatic uptake in the number of businesses adopting iPhone. Sure, the iPhone *is* a toy. But, it's simultaneously a great, versatile device, that makes it easy to browse the web, and get stuff done for business, too.