Finding a Mobile Business Model: Lessons from China
 

Finding a Mobile Business Model: Lessons from China

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With 590.6 million Internet users, China’s online community is larger than the actual population of ...

With 590.6 million Internet users, China’s online community is larger than the actual population of
almost any country; India is the sole exception. However, this number only constitutes a penetration
rate of 44.1%1. The second largest population of Internet users comes from the United States, with
254 million, less than half of China’s, with a penetration rate of 85% for adults and 95% for teenagers.
Combine these numbers with the fact that China has overtaken the United States as both the world’s
largest eCommerce market and the world’s largest smartphone market to see that China offers Internet
companies unparalleled growth potential.

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Finding a Mobile Business Model: Lessons from China Finding a Mobile Business Model: Lessons from China Document Transcript

  • MARKET I NSIGHT Finding a Mobile Business Model: Lessons from China By Lawrence Lundy - Consultant ICT
  • Frost & Sullivan | Market Insight FINDING A MOBILE BUSINESS MODEL: LESSONS FROM CHINA With 590.6 million Internet users, China’s online community is larger than the actual population of almost any country; India is the sole exception. However, this number only constitutes a penetration rate of 44.1%1. The second largest population of Internet users comes from the United States, with 254 million, less than half of China’s, with a penetration rate of 85% for adults and 95% for teenagers. Combine these numbers with the fact that China has overtaken the United States as both the world’s largest eCommerce market and the world’s largest smartphone market to see that China offers Internet companies unparalleled growth potential. China has, however, unique regulatory dynamics that make tapping into this huge market extremely difficult for Western Internet companies. Social behemoths Facebook and Twitter are banned by censors, and Amazon and eBay have a minimal presence with their website access intermittently blocked or throttled, rendering them virtually unusable. Google’s struggles with Chinese censorship demands have resulted in a fractious relationship with the government, severely curtailing the company’s attempts to provide its core search product in China. Where these Western companies dominate the rest of the world, domestic companies dominate China: Alibaba dominates eCommerce, Tencent controls social media, Baidu rules search, and Sina leads Web portals. 2 Frost.com The next battleground for these Chinese giants is mCommerce. The company that manages to most successfully execute could be the first to truly monetize mobile globally in a sustainable way that generates profits equal to, if not greater than, those from the PC-era. Tencent, the social network that dominates PC and mobile Tencent is a diversified Internet company that generated revenues of $7 billion in 2012, making it the forth-largest Internet company in the world after Google, Amazon and eBay, with greater revenues and profit than Facebook.The company’s first core product was QQ, an instant-messaging service modelled on ICQ, the Israeli messaging service bought by AOL.While Tencent initially generated revenues through advertising and by charging for premium features, it now offers a huge variety of services, including social networks, Web portals, eCommerce, and online multiplayer games. Alibaba’s dominance in eCommerce has yet to be replicated on mobile Alibaba is China’s largest eCommerce company, with revenues of $4.1 billion in 2012. The company plans to go public in 2014, with estimates suggesting a valuation of between $55 billion and $120 billion2. The company operates three main eCommerce platforms catering to different audiences. Alibaba.com is a business-to-business trading platform; Taobao is an eBay-like consumer-to-consumer platform; and Tmall.com enables retailers to reach consumers directly. In addition to its eCommerce platforms,Alibaba offers a variety of other services, including a Groupon-like, time-sensitive discounting website called Juhuasuan.com and a third-party, online-payment platform similar to PayPal called Alipay. The company also recently moved into the social space with Laiwang to compete with Tencent’s QZone, and it has an 18% stake in Sina Weibo, the most popular micro-blogging site in China. 1 Desilver, Drew, “China has more internet users than any other country,” Pew Research Center, http://www.pewresearch.org/fact-tank/2013/12/02/china-has-more-internet-users-than-any-other-country/ [Accessed on 05/01/14] The Economist, “Tencent’s worth” http://www.economist.com/news/business/21586557-chinese-internet-firm-finds-betterway-make-money-tencents-worth [Accessed 06/01/14] 2
  • Frost & Sullivan | Market Insight The blurring of virtual and real-world transactions has pitted Tencent against Alibaba Whilst Alibaba and Tencent build businesses around very different Internet needs, the move to mobile has these giants of the Internet now facing off against each other in the mCommerce space. Alibaba has millions of credit card details, transaction histories, and trusting relationships with buyers and sellers alike, whereas Tencent has millions of social accounts and engaged mobile users. Comparisons to Western companies are not easy. In the West, for example, Facebook is the de facto social network on the PC; however, its transition to mobile has not been as smooth as Tencents’. Facebook lacks the dominant social app that Tencent has with WeChat. For its part, Alibaba can be seen as an amalgam of Amazon and eBay, but in fact is more dominant than either in eCommerce. That is, its dominance prevents Baidu from having the same monopoly over search that Google has in the West. Tencent has certainly been more effective at monetizing mobile than Alibaba has, and arguably more e ffective than any company, including Google and Facebook, who both rely on advertising. Tencent has been extremely successful at selling virtual goods to users and understands that the extension of this strategy is to enable users to make purchases offline with Tenpay. Alibaba’s business model for Tmall, with rents from storefronts and commissions, can be adapted for mobile, but the revenues from advertising on Taobao will be hard to replicate. However, with Alipay, the company is developing a very strong payment platform that is already attracting the interest of retailers and merchants. Tencent has the buyers’ attention, whilst Alibaba has the sellers’ attention. Frost & Sullivan believes that Alibaba will continue to invest in social features to attract buyers, and Tencent will continue to invest in its Tenpay platform and partnerships with retailers. With a growing Internet population, increasing smartphone penetration, and a growing eCommerce market, the revenue potential for mCommerce is boundless. For more information on Frost & Sullivan’s Mobile research, please contact the author: Lawrence Lundy: lawrence.lundy@frost.com Join our LinkedIn group: Future Growth Opportunities in ICT Follow meon Twitter:@lawrencelundy Follow uso n slideshare: FrostandSullivan 3 Frost.com
  • SILICON VALLEY 331 E. Evelyn Ave. Suite 100 Mountain View, CA 94041 Tel 650.475.4500 Fax 650.475.1570 SAN ANTONIO 7550 West Interstate 10, Suite 400, San Antonio, Texas 78229-5616 Tel 210.348.1000 Fax 210.348.1003 LONDON 4 Grosvenor Gardens London SW1W 0DH Tel +44 (0)20 7343 8383 Fax +44 (0)20 7730 3343 C O N TA C T U S +44 (0) 20 7343 8383 • enquiries@frost.com • www.frost.com FROST & SULLIVAN Frost & Sullivan, the Growth Consulting Company, partners with clients to accelerate their growth.The company’s Growth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth-focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs more than 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. For more information about Frost & Sullivan’s Growth Partnerships.