Why The Mobile Industry Needs to Watch China’s Unique Ecosystem

Over the last decade, Western internet giants discounted China as an undeveloped market. But today, we see Alibaba claiming the largest ever IPO there. Facebook founder Mark Zuckerberg is trying to figure out a way to expand to China (among his wooing techniques:learning Mandarin and jogging around Tiananmen Square). And local Chinese companies, from Tencent to Baidu, are launching new apps and consumer-facing services at an increasingly fast pace.

Verto Data Shows Chinese Consumers are Spending More Time On Mobile Devices

Why is China so hot right now? For one, China is more on par with the West (compared to other emerging markets) in terms of consumer time spent on the internet, as indicated from our own data which was originally released during the Global Mobile Internet Summit in Beijing in April.

The Chinese tech ecosystem is certainly very unique. There are a number of restrictions on foreign companies (especially internet, social media, and media interests) operating in China, and that has led to a home-grown market of internet companies, social media platforms, and app makers. This means that the Chinese are using mostly Chinese services developed by domestic companies. Twitter, Facebook, Google, Snapchat and YouTube are blocked in China, but their Chinese equivalents (WeChat, Weibo, YouKu and many others) are expanding.

Chinese social media platforms and apps have quickly become a core part of the Chinese mobile experience. The list below shows the top properties in China, and Chinese companies overwhelmingly dominate the Chinese market, compared to the top-ranking companies in the US or Europe. It’s evident that very few foreign companies can attract or maintain any sort of foothold in China.

The App-Centric Chinese Consumer

It’s clear that mobile has taken a firm hold in China; the country boasts one of the highest smartphone penetration rates in the world, although the fragmented nature of the Chinese apps marketplace (especially for Android) means potential challenges for hardware manufacturers and platforms alike.

However, major social media platforms like WeChat have assumed the role of an operating system in many ways in China; they serve as a primary way for consumers to discover and download apps and games. Today’s Chinese consumer, as seen in Verto’s visualization of a typical day in life for a Chinese mobile consumer (below), is very app-centric.

But are the Chinese internet giants left with only local ambitions? No. Many of the big Chinese internet companies have already made acquisitions abroad, and companies from Alibaba to China Mobile have established outposts in New York City  and Silicon Valley.

The Chinese giants are also expanding to content, acquiring rights for U.S.-based media content like movies and TV shows, in addition to following the “Netflix model” and creating original content. The online video market is also expanding quickly in China – Baidu, Alibaba and Tencent are driving China’s online video market, which is expected to double to $6.5 billion within two years, as consumers increase their time spent watching TV and film on mobile devices and smart TVs.

How the Untapped Chinese Market Helped Spur Mobile Innovation

When it comes to the mobile payments ecosystem,  U.S. companies are largely focused on the creation of new payment services. Apple, Google, major credit card companies, and even mobile carriers are involved in a myriad of alliances. They’re outpacing each other with innovations and issuing their own visions of the ideal consumer experience. By contrast, companies in China are all about creating payment solutions inside existing apps that hundreds of millions of people are already using. (WeChat is a good example of this.)

“It is very mature technology and very safe, and showing how it works to the government helped us,” Tenpay General Manager Jim Lai said in a 2014 interview with Forbes. He also said the Silicon Valley has the innovative ideas for developing these mobile technologies, but China has the scale and the population willing to use the systems.

One of the key reasons China has been so adept at mobile innovation is the lack of legacy in this space. The customer experience at Chinese brick-and-mortar stores and those who launched the first generation of Chinese e-commerce sites was clunky, slow, and altogether inconvenient compared to mobile-based innovations; these new services have simply been able to offer consumers so much more, so quickly, that people immediately embraced them as a means to book trips, buy products, complete payments and so on. China was able toleapfrog the U.S. and other countries on the basis of such poor quality first-generation technology.

Chinese mobile companies found it easy to provide superior economics, scope and quality of service to consumers, compared to  the poor service offerings of the incumbents. In the U.S., travel companies like Expedia and Orbitz  have been providing consumers with the ability to quickly and conveniently make online bookings since the desktop era. Most Chinese consumers can take advantage of similar services today; only they do so in a mobile-centric environment.

Will Lack of Competition in China Inhibit Future Growth?

However, we must remember that the Chinese market is still relatively young and uncrowded. This leaves us with one big question: Are there enough start-ups and competitors in the Chinese mobile market to sustain high growth and great new solutions for consumers?

China is not an easy market, especially for a Western company.  That is one of the reasons the Chinese online giants have already acquired or taken stakes in many Western companies, with a strategic eye towards helping them to establish a foothold in China or integrating their services into an existing ecosystem. We expect this sort of deal-making to continue accelerating — just this week, Tencent was reportedly in talks to buy a majority stake in Supercell Oy.

“They’re playing a global game of domination on the internet,” says Patrick Riley, founder and CEO of search engine Ark. “It goes entirely against the reputation, what the United States thinks of Chinese companies, which is just copy-paste.”

Tech companies in China recognize their local strengths and innovations and are tapping talent and pursuing a U.S.-based presence (via acquisitions) at a rapid rate. With the right bets in Silicon Valley, Chinese companies can redeploy U.S. startups’ technology and talent to take their immediate next steps: expansion into other emerging economies such as India and Brazil. Perhaps Chinese companies will also emerge as significant players among the top 25 list in Verto’s Content Watch rankings in the U.S. at some point.

One thing is for sure – we should keep an eye on the Chinese internet giants and Chinese consumers to understand the dynamics of the internet growth over the next decade.
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