Understanding the Chinese market – Apple vs Google

Excerpts from a VentureBeat.com article that compares Apple’s and Google’s strategy for China:

For two years now, Apple has sought a carrier partner in China to distribute the iPhone there, but it has failed. At first, it was in talks with China’s largest carrier, China Mobile, but the two couldn’t agree on revenue share terms. Now Apple looks to be on the verge of signing a pretty depressing deal with China’s second carrier, China Unicom.

Things are looking a little better for Google in China right now, but the jury is still out there too.

First, here’s the recent background: China Mobile’s executive Luke Bao announced at MobileBeat2009 conference last month that the company was launching its own mobile application store. Since then, reports have provided more details about the plans: The apps store is coming this month, and its apps will be for use on the carrier’s new series of smartphones. Those phones will be based on China Mobile’s operating system, called the Open Mobile System (OMS).

The OMS takes Google’s Android operating system as its foundation, but builds an additional layer on top to offer additional features such as telephony, native java, CMMB/MobileTV, location based services and a customized user interface. The OMS will also send less user data (about location, etc) back to Google’s headquarters than some other Android-based handsets do, we’re told.

China Mobile’s OMS will be compatible with all Android apps. The first OMS phone to launch is the so-called “Ophone,” which according to people who have seen them, look like a total iPhone rip-off in terms of design.

This all comes after a flood of other, cheaper iPhone clones have already hit the market — none of them working as well as the iPhone, and thus creating confusion and dangerous brand dilution (the Chinese will get turned off by phones that don’t work, and they may not buy the real thing when if does hit the market).

Apple has sought total control over the management of its app store, but Chinese carriers fear they’ll lose ownership of the relationship with their customers — a reasonable concern. China Mobile says it plans to give developers 70% of their sales revenue on apps sold through its Mobile Marketplace, which is exactly the same revenue share Apple gives to the developers of apps in its app store.

Additionally China Mobile is reportedly going to waive fees and commissions entirely on app sales for a limited time after launches next week. If the launch goes as planned, its phones will hit the market at least a month or so before the iPhone will.

Apple is apparently in discussions with China’s No. 2 carrier, China Unicom (the carrier has 140 million subscribers, which sounds like a lot, but that pales when compared to China Mobile’s 600 million subscribers and 70 percent market share).

Two years ago, several analysts predicted Apple would have far more than 100 million subscribers of its iPhone in China 2008. We’re now a year later, and not a single “legitimate” iPhone has hit the market via a Chinese carrier. It gets uglier for Apple with each day.

So what about Google? Well, the history of foreign business in China suggests that you can do well if you’re giving the Chinese something they want — by not only adapting to local market conditions, but also investing in jobs (large foreign companies such as Siemens and IBM have done well this way). But get too big, and you may draw scrutiny. Google is essentially giving away its Android operating system, as a way to realizing its grand vision: Mobile phones with efficient web-based apps and browsing are good for Google’s core business of serving web ads. The question is, will this investment by Google really pay off in China, or will Google simply get drubbed again — as it has when going against Baidu, the Chinese search engine?

When Google launched in 2000 in China, it quickly became the leading search engine. But in part because of action by the Chinese government, it has steadily lost market share. Baidu now has 75.7 percent market share in search, compared to Google’s 19.8 percent share. The history for most U.S. companies in China has sucked, and there’s no sign it’s gotten any better.

View source here.

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