Content, Asia Pacific, Channel markets

Apple’s China VPN Sinkhole

You can mark today down as the official end of Apple’s 46-year, carefully cultivated and preserved reputation as a principled iconoclast. Not that it hasn’t been long coming.

Over the weekend, Apple said it will extract all virtual private networks (VPNs) from its app store in China, a decision followed a day later by Russian President Vladimir Putin banning technology sold there that enable people to surf the web without state detection. The moves were so close in meaning, intent and reverberation that they seemed taken in lockstep.

Both governments separately pointed at private access to banned content, a reference to websites that open doors to the online outside world. China’s so-called Great Firewall blocks sites such as Facebook, Google and Twitter, along with global news pages.

Viewed through any lens, consider the open Internet bludgeoned yet again. Still, for Apple, the new Russian law, set for November 1 (via TechCrunch) and already approved by the lower house of parliament, is small potatoes. The iPhone maker has all of three stores there and, in March, antitrust regulators found it guilty of price fixing on the iPhone 5 through the iPhone 6S.

The China Syndrome

But China is another matter altogether, particularly considering Apple’s growing reliance on the technology-rooted country for an increasing percentage of its mobile sales. According to a Reuters report, Apple confirmed that it plans to remove all VPNs from its App Store - extending to services based outside the country - that don’t comply with a China law enacted earlier this year requiring VPN apps to be licensed by the Chinese government.

China users with billing addresses in other countries will still be able to access VPN apps from other branches of the App Store, Reuters said.

Of late, Apple’s China sales have taken a hit. In its recently completed FQ2, sales there fell 14 percent year-over-year to $10.7 billion, amid a sequential quarterly decline of 34 percent. Local mobile vendors Huawei, Oppo and Vivo are giving the iPhone maker more than a run for its money.

With the next iPhone rev, said to feature a quantum leap in AR and VR, headed for an around-the-corner release, the obvious conclusion is CEO Tim Cook isn’t interested in digging any potholes in Apple’s path for sales of the device.

But the vendor's reputation is already getting pummeled, drawing fire from VPN service providers pointing sharp-nailed fingers at the company for capitulating to the VPN purge.

“We never had an Apple app in China as we were expecting similar issues – that’s why we didn’t get affected by the removal from the App store,” Marty Kamden, NordVPN CMO, told MSSP Alert in an email.

NordVPN is still working in China on Windows desktops, with iOS and Android apps in development, he said.

“We think that Apple might not realize full repercussions of removing VPN apps from China, since there are also many freedom fighters or those in opposition to the government who need VPNs to remain anonymous or face a serious danger to their safety,” Kamden said.

More VPN Concerns

Other VPN providers have reacted similarly, accusing Apple of preferring profit over people.

VPN provider ExpressVPN, when informed by Apple that its software will be removed from its China App Store, told Reuters the decision “represents the most drastic measure the Chinese government has taken to block the use of VPNs to date, and we are troubled to see Apple aiding China's censorship efforts.”

Similarly, Sunday Yokubaitis, president of Golden Frog, which oversees VyprVPN, told Reuters that he “would expect Apple to value human rights over profit."

There’s no doubt Cook calculated that the fallout from VPN providers is but a fraction of what the company could engender if it stood up to China. Still, what happens next when the vendor is pressured by other countries - what will be the calculus then?

Apple is a little more than year removed from its much-lauded stand against the FBI’s attempt to compel it to crack an iPhone 5 used in the San Bernardino terror attack. In that instance, the company argued that it would not compromise the privacy of its customers.

Perhaps that arms-folded integrity doesn’t extend to profits over human rights.

D. Howard Kass

D. Howard Kass is a contributing editor to MSSP Alert. He brings a career in journalism and market research to the role. He has served as CRN News Editor, Dataquest Channel Analyst, and West Coast Senior Contributing Editor at Channelnomics. As the CEO of The Viewpoint Group, he led groundbreaking market research.