YunOS, the mobile operating system developed by Chinese e-commerce giant Alibaba Group Holding Limited (BABA), has its sights set on Apple, Inc.'s (AAPL) iOS to become second largest mobile operating system in mainland China.
A report by CNBC Monday noted that YunOS could secure 14% market share of smartphone shipments in China by the end of this year. This would be enough to surpass Apple. Although it was unconfirmed, Alibaba claimed earlier this year that YunOS had already surpassed iOS in China in the three months that ended March 31. (See also: Alibaba's Cloud Set to Take On Microsoft, Amazon.)
At Alibaba's cloud computing conference in October, YunOS product director Aiden Yong said, "We want YunOS to be the 'go-to' operating system for China's smart industry." But how significant would that achievement be? Mark Li, senior analyst at Bernstein, downplayed the growth prospects of YunOS, telling the South China Morning Post – a publication owned by Alibaba – that growth prospects for YunOS outside of China would be limited to "cheap or subsidized smartphones."
CNBC noted that YunOS' top smartphone suppliers include Alibaba-backed Meizu, XiaoLaJiao and Doov. Together, they are projected to help YunOS surpass 100 million units in total smartphone shipments. Bernstein, however, pointed out on Friday that the key motivation for hardware manufacturers to adopt YunOS is the subsidies from Alibaba. Without these subsidies, YunOS would not be as popular. (See also: Alibaba Stock Gets Support From Analysts.)
Beyond smartphones, Alibaba is also developing YunOS to work for television set-top boxes, smart home appliances, tablets and internet-connected smart TVs, reports CNBC. The company is reportedly giving subsidies from 20 to 60 yuan per set-top box to encourage the adoption of YunOS.
In other words, despite the strong strides made by YunOS, surpassing Apple in terms of market share may yield little in terms of profits for Alibaba, given the subsidies. And given the attention Apple pays to its profit margins, Alibaba's subsidy model is not a business Apple would care to compete with. (See also: Apple's 5 Most Profitable Lines of Business.)