China has broken a new global record in
smartphone penetration and this will have dramatic effects on content
and commerce in 2013 in the world's most populous internet market.
Mobile subscribers in China are now using 330 million smartphones—which
is a 150% increase over last year. iiMedia, a Chinese research firm,
recently released this smartphone data, which has not been widely
distributed in English.
China's active smartphone now exceeds the total number of all 321
million mobile phones active in the US. Kai-fu Lee, the former lead
China researcher at Microsoft (MSFT) and then Google (GOOG), predicts
that China will have500 million smartphones in use by the end of 2013.
The implications of such a dramatic flip from dumb-to-smart phones are
far-reaching and will ultimately affect the closely watched GDP growth
rate in China. Those 500 million smartphone users are going to drive new
patterns of online and offline commerce that will have global
consequences. This is particularly relevant as China attempts to
increase the role of domestic consumption as a driver of its GDP.
Smartphones are key to the future of internet usage, electronic payments
and product branding since relatively few people in China access the
web via traditional PCs. As the number of mobile internet users grows,
online services will undergo a significant transformation with many new
online services to be conceived of as mobile only. (See, for instance,
Fortune's Facebook's China problem.) This will be more pronounced in
China where the penetration rate of laptops and desktops per capita is
far lower than the US. Smartphones will drive brand awareness,
pre-purchase research, price comparison, payments for both online and
in-person transactions, and social media distribution of popular
content.
Take China's auto market, which sells more cars than any other country.
New models can quickly take off in sales if their manufacturers target
such mobile consumers. Pre-purchase research is critical in car-buying
and more of it will increasingly occur on smartphones. Well-orchestrated
social media, viral video and incentive campaigns can bring customers
into dealerships and translate into hundreds of thousands of units in
sales.
Smartphones are already helping brick-and-mortar stores in large
internet markets. In the US,$159 billion worth of goods bought in-store
were influenced by use of a smartphone during the purchase. By 2016,
consultancy Deloitte estimates that number will reach an eye-popping
$689 billion. Smart retailers are taking advantage of this phenomenon by
giving consumers additional coupons for scanning a bar code in-store
for one-time incentives. Big-box chains are still growing aggressively
across the China and those who targeting this growing mass of mobile
internet users will have a critical advantage over retailers who rely
only upon traditional marketing.
Not surprisingly, the app market in China is rapidly growing with the
rise of smartphone users. Tencent's Wechat has now hit almost 300
million users, the majority of them in China. And Baidu (BIDU), the
leading Chinese search engine, has just released a new version of its
Siri-like voice app making it easier to search for both information and
locations while on the go. Taobao, one of the most popular ecommerce
sites in China, has an app for both iOS and Androidallowing users to
preview and shop on their mobile devices. Taobao is a division of
Alibaba.Alibaba also offers Alipay which is similar to eBay's (EBAY)
Paypal and will benefit greatly by this influx of smartphones.
The smartphone sector in China is also upending traditional technology
hierarchies. While Google is not a significant player in search in
China, it dominates the smartphone OS market. Android maintains some 67%
of market share to date in China. In contrast, Apple's (AAPL) iOS only
holds 10% of the market. Google's success with Android in China may be
somewhat of a Pyrrhic victory, however, since most of the phones do not
feature Google services that have been banned in China. Instead these
smartphones highlight services from Google's competitors.
Apple's Tim Cook, meanwhile, was in China recently and predicted that it
will be the company's largest market within a few years. This may be
true, but Apple has a tough challenge unseating Android or even coming
close to its adoption levels in China. Apple may be able to strengthen
its position through cross-platform apps running on their tablets and
other devices. A killer Apple TV wouldn't hurt either in a country where
internet bandwidth is growing quickly, and there is a thirst for
domestic and foreign TV content.
In China, Samsung is set to edge out Nokia (NOK) within the next quarter
or two for the largest market share of smartphones. This will put
further pressure on the struggling company which isalready under attack
in many of its global markets. Nokia is enjoying some success with its
Lumia smartphones in other markets which led to better-than-expected
earnings results, but it is losing ground in China.
Then there are the locals. Huawei, ZTE and Lenovo each command between
6% and 8% of the Chinese smartphone market. A less well-known entrant
controlling 10% of the market is CoolPadwhich is a subsidiary of
Yulong/China Wireless and sold by China Unicom. The Coolpad smartphones
mimic many of the features of big brand phones at a lower price point.
Interestingly, Huawei, ZTE and Coolpad are all now vying for a share of
the US smartphone market. So far, Coolpad has been the only one of the
three to successfully launch its products in the US. All four companies
had significant presences at CES which wrapped up last week.
So what does it all mean? The world is about to witness a unique
phenomenon this year. The largest single mobile consumer market is now
emerging. New online and offline consumption patterns will rapidly take
shape and brands that jump on this wave can change their market share in
a dramatic way.
By 2015, the number of smartphone users in China will exceed all mobile
users in the US and Europe combined. There are no precedents for this
kind of shift. As China turns its focus to domestic consumption, the
largest mobile consumer base will no doubt play a large role as an
economic driver. And that will have ripple effects around the world.
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