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Apple's China controversy is the price of doing business

Daniel Howley
Technology Editor

Apple (AAPL) is facing continued backlash from its decision to pull two apps in response to ongoing protests in Hong Kong against the Chinese government.

The first app, HKmap.live, allowed protesters to crowdsource the location of police and barricades. The second was the app for the publication Quartz, which was pulled from the App Store in China following the publication's continued coverage of the protests.

While Apple's moves have drawn the ire of those in Hong Kong and politicians here in the U.S., Senator Josh Hawley (R-MO) questioned whether Beijing put pressure on the company to pull the HKmap.live app.

But for all of the uproar, Apple's move to pull the apps comes down to one hard truth: The company needs China, and will do what it can to prevent losing the market.

Apple needs China

The Chinese market is incredibly important for Apple. Of the $53 billion in net sales Apple did in Q3 2019, China accounted for $9.2 billion. That's well behind the Americas, but just shy of the $11.9 billion generated in Europe.

The company is also trying to stem the tide of Chinese users choosing homegrown devices from the likes of Huawei and other brands over Apple's own products.

And Apple, unlike Google, is still able to sell its various digital services including apps, and more in China. Google's Play Store, YouTube, and other offerings are banned in the country. That gives Apple all the more incentive to comply with the regime in Beijing.

This isn't the first time Apple has pulled apps from its Chinese App Store, either. The company was widely criticized for removing virtual private networking (VPN) apps from its App Store in China in 2017. That move came after China outlawed any VPNs that weren't explicitly approved by the Chinese government.

VPNs allow Chinese internet users to circumvent the government's so-called Great Firewall, a series of highly restrictive blocks that prevent citizens from accessing websites the government doesn't approve of.

The company also began hosting its iCloud storage and encryption keys for Chinese users in China in 2018. The move followed a Chinese law that required companies doing business in China to host their servers in the country.

The concern in doing that, however, was that the Chinese government would have easier access to Chinese users' data.

Apple CEO Tim Cook tours the company's re-opened flagship store in Manhattan. (Image: Howley)

Apple's explanation

While Apple has been heavily criticized for pulling the HKmap.live app from its App Store in Hong Kong, the company says it did so out of an abundance of caution.

"The app displays police locations and we have verified with the Hong Kong Cybersecurity and Technology Crime Bureau that the app has been used to target and ambush police, threaten public safety, and criminals have used it to victimize residents in areas where they know there is no law enforcement," the company said through a spokesperson.

Essentially, Apple is saying that individuals were using the app to either find the location of police to assault them, or use it as a means to find areas without police nearby to commit crimes without the fear of being caught.

But the fact that China's People's Daily, the Communist Party's mouthpiece, published a piece asking whether Apple was helping Hong Kong's protesters "engage in more violence," just before the app was removed makes for some awfully suspicious timing.

The Quartz app, while still available in Hong Kong, was pulled from the App Store in mainland China.

"We abhor this kind of government censorship of the internet, and have great coverage of how to get around such bans around the world," a spokesperson for Quartz said in a statement.

It's worth noting that Google has also taken heat for pulling a game from the Google Play store that focused on the Hong Kong protests. According to The Wall Street Journal, Google took the game offline because it violated the store's guidelines against trying to turn a profit on sensitive events or tragedies.

The price of business

Apple is not alone in seeming to side with China over protesters. The NBA, for example, appeared to be trying to appease the Communist regime by distancing itself from Houston Rocket's general manager Daryl Morey's comments in support of the Hong Kong protests. And video game giant Activision Blizzard banned and revoked the prize money for an esports tournament winner who expressed support for protesters.

Apple's decision to take down the HKmap.live and Quartz apps is simply the cost of doing business in China.

If the company wants access to the more than 1 billion potential customers within the country, then it's going to have to make these kinds of decisions one way or another.

And while there will inevitably be backlash to these moves, either by the Chinese government the company sides against authoritarian policies, or by the U.S. when it abides by China's wishes, it's unlikely to change consumers' spending habits here in the U.S.

"China is an important market and I don’t believe enough consumers in the US care what Apple does in China, so the pressure from U.S. consumers has little impact," said Gartner vice president Annette Zimmermann. And because Apple is too important to the company, it's unlikely to give up on its consumers there.

Zimmermann, who focuses on Apple at Gartner, explained that with so much potential revenue at stake in China, the company is, for better or worse, unlikely to leave.

Which means the company will continually be caught up in similar controversies in the future.

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Email Daniel Howley at dhowley@yahoofinance.com; follow him on Twitter at @DanielHowley.

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