Jan Chipchase » The Rise of the Super Fakes

See also the following threads on fakes and street hacks.

What happens when a large % of your target market wants your brand cachet but is happy with a decent-enough quality fake?

It’s been a good month to be re-acquainted with the Chinese market for real/fake mobile phones – clocking up ~5,000 miles on the old continent bouncing between hundreds of interviews, visits to formal and informal mobile phone retail outlets. A recap of the current market situation with fakes, and few thoughts on where it is likely to head as the as mainstream consumers expectations of ‘connected devices’ evolve, outlined below.

There are three broad categories of fake mobile phone:

Any old phone with a Nokia/Motorola/Apple logo or two printed on the side. In India these are referred to as ‘China Mobile’ (no relation to this China Mobile) – phones that may or may not last out the month. These sometimes fool first time consumers in markets with low mobile phone penetration. Top photo on this page shows a fake ‘Nokia’.
Where the industrial design is copied, the device includes Nokia/Motorola/Apple logo but the device itself tends to be poorly manufactured. Some of the designs are based on products already on the market, but all the industrial designer needs is a leaked photo or official press release from another country to be able to manufacture the hardware – sometimes offering it for sale in a local market before the official device is launched.
Recently the quality of fakes/copies have reached the point where many consumers will assume they are holding the real thing in their hands – phones that look, feel and behave like the real thing – right down to start up sequences, graphical assets, user interface modalities for the the top-level user interface elements – the so-called Super Fakes.

The volume and quality of all three types of fake mobile phone in China has been notable – mostly they are branded as Nokia, but Sony Ericsson, Motorola, Vertu and Apple have also made a look-in. RIM, Samsung, LG and Palm are conspicuous by their absence.

The official perceived wisdom is that every fake or pirate product sold is money taken directly out of the coffers of the BigCorp, and whilst fakes undoubtedly do harm the brand, anyone who truly believes the situation is that black and white has been hitting the solvents used to clean battery contact heads. Implicit knowledge of what they are buying varies from person to person and market to market – in some cases consumers are only realise they have a fake when they take into an official store to be repaired, in others they never learn – assuming that design quirks of the Nokia/Motorola/Apple product are just that, something that certainly damages the BigBrand over time. But in many instances the cash-poor, slightly savvy consumer wants to own the brand, doesn’t or won’t pay the premium charged so they head to the, usually sizable used/fake/stolen phone market to pick up a bargain. Not that fakes are only found in the dodgy looking markets – high quality fakes do appear next to the real deal in glitzy stores. I’ve never seen fakes sold through flagship channels.

Sometimes fake mobile phones can be bought in real (or exceptional quality) packaging. Whilst the size of the grey market is challenging to calculate – in countries with high import tarriffs there is a significant incentive for local entrepreneurs to smuggle in the devices, and since it’s far easier to smuggle phones without bulky packaging and accessories these can be used elsewhere to increase the authenticity of fake products elsewhere. Simple arithmetic: what premium can be charged for a fake product sold in real packaging minus the cost of shipping that ‘recycled’ packaging? Phones sold through these unofficial channels may also come with real or fake, new or used batteries and chargers. In many of these markets and with few exceptions, the risk of being caught is negligible.

Every mobile phone market has people ‘in-the-know’ – the wholesalers, retailers, entry level street-hack repair guys, savvy consumers, who have ways of ‘testing’ the authenticity of the products they are handling: from typing in short-codes; to checking serial numbers; the placement of the made-in-xland sticker; right down to the colour of circuit boards. Interviews with many of the players in the space – revealed that the accuracy of these methods is largely based on hearsay and not a little street-level bravado. It should of course be apparent to anyone who offers phone-flashing services. Of course the retailers relationship with the wholesalers is paramount to understanding what they are buying and what they are able to sell it on as – stiffing loyal customers is not a smart strategy in any business. Generally the level of consumer awareness of what they’re getting for their money grows as they move onto the second, third, … tenth mobile phone – numbers that are just as valid for consumers in Kenya as Kunming.

As with the rest of the industry the ‘fake’ corner of the mobile phone market is about to undergo its own seismic disruption. Mainstream consumers will increasingly expect the benefits of owning a mobile phone to include, say, showing a friend a location on a map. The products they copy are becoming more integrated into online services – increasingly including location awareness, email, shopping, to dating – as consumers use and appreciation of these services grow the manufacturers of fake products need to step up and offer connected services of their own.

Ever more connected services will squeeze many of the low-tier fake manufacturers into an evolutionary dead-end. In a 1bn+ products a year market they’ve got some wiggle room, but the writing is on the wall – entry phones offering simple data services, email accounts and the like. But anyone who thinks that tightly integrated products and services can’t be copied doesn’t appreciate the profit to be had, the street level enginuity in the marketplace and the resources at hand: a highly tuned start-up on speed increasingly developing on their own software platform, with access to a manufacturing plant on tap. [Again, read the street hacks thread] Take a typical mobile phone development cycle and divide it by ~10 – a timescale that leaves enough time between the official announcement of a product and when it appears on the market to hack together a facsimile, manufacture and distribute and still make a profit before the official product hits the shelves.

Which in a round-about way brings us to Apple’s imminent entry into the Chinese market – and how they might counter the threat of fakes. A number of products on the market have already copied the physical appearance and interface of the iPhone including, for example he swipe-to-unlock, the icons and key-press sounds – features that are enough to convince the cute guy/gal sitting across you in the cafe that you’re packing the real deal. After plucking the low hanging fruit – existing fans willing to pay a premium for genuine products and services, expect Apple and their operator partner/s to be pushing free-to-low-cost applications at the unconverted – applications that requires some small, authentificatable interaction with a server to deliver a visceral + flow-level payload – just enough to communicate to the phone owner’s peers that the product is real, and not just another knock-off. Otherwise would-be Apple consumers can spend a 10% of the price for 98% of the product i.e. the features needed to successfully communicate genuine (fake) iPhone ownership.

All the photos on this page show ‘fake’ phones.

Boot note I : Apple’s ‘success; in the Chinese market assumes of course that their carrier partner actually wants to sell high volumes of their products, when their interest may stop at being seen to be the carrier selling their product – status and vanity works both at the corporate and individual level. High data use on fixed cost plans with no WiFi anyone? No one does a bait and switch and switch and switch like the Chinese. Let the games begin.

Boot note II: Top 3 fakes from the past month, in reverse order:

3. ‘Vertu Ferrari Edition’ perfectly weighted (it’s a heavy bugger) and a decent enough leather finish. Let down by minimal effort on the software. Starting price 1600 RMB (160 Euro). The authentic product retails for ~50,000 RMB (~5,000 Euro).

2. ‘Nokia 6700’ Appeared on the market before the official product is launched. A very solid copy of the industrial design, sold in an upscale department store next to authentic products. Only the dual SIM slots under the hood gave it away. Iffy software, fake ‘camera’ module. Bought for 1000RMB (100Euro) authentic product price not yet released.

1. ‘Nokia 5800’ The gold-standard and arguably the first Super Fake phone to hit the market. Exceptional attention to detail: industrial design; line art; battery design and placement; right down to the detailing on the inside back cover; boot up sequence; top level information architecture; use of graphical assets and fully working Media Bar button. Room for improvement? Integration with online services; graphic designer needs to go on a typography course. Starting price 800 RMB (80 Euro). The authentic product retails for ~2,200 RMB (220 Euro). Given the effort gone into this, certainly bound for export. [the left/right device in the photo below]