China's Mobile Market Primer for Marketers, Q2 2011

China continues to be by far the largest mobile market in the world with over 900 million active subscribers on its three carriers, over 350 million mobile Internet users, and over 250 million new handsets sold each year. Even at this scale, growth has not slowed down.  There continues to be eight to 10 million new subscribers being added each month, with about 50 percent of them being 3G users.

Two years since the official 3G network deployed in China, there are currently over 80 million 3G users, accounting for about 10 percent of the installed base. A bit slower adoption than many had expected. The lack of number portability, multiple 3G standards, and the lack of compelling handset choices on China Mobile’s TDS-CDMA network (read as no iPhone for the TD network) have all contributed to this.

In fact, Unicom has leveraged its iPhone partnership to attract millions of new users onto its network. But 3G penetration is picking up and there are even rumours Apple will make a TD-LTE version (4G) for China Mobile in 2012, which should be great news for China mobile.

Smartphone Adoption in China

Speaking of smartphones, China is no laggard in this realm. For Tier 1 cities in China, smartphone penetration is over 50 percent, which is higher than most Western markets. Nationwide, it is closer to 15 percent. Android phones and iPhones are the best sellers in China, taking market share away quickly from the perennial market leader Nokia.

Nokia still has a large installed base in China, but Chinese users’ preference for Nokia and intent for repurchase as their next phone has declined significantly. However, it is not clear how much user preference will change even with the newly announced Microsoft/Nokia OS-handset partnership. Smartphones from that coop aren’t expected to hit the Western markets until 2012, and it’s not clear when products will ship in China.

So Which Smartphone Is Going to Win the War?

The only two real contenders today in China (and most places globally) are Google-powered Android phones and Apple’s iPhones (running IOS). Android is definitely winning the price wars, and taking big share away from Nokia in the mid-tier and tech savvy markets. In the meantime, Apple is still the phone of choice for the high-end and brand/fashion conscious segments.

New high-end Android phones from HTC/Samsung/LG are all looking quite impressive with new features/specs like 4.3inch screens, dual-core CPU, 3D camera, and 4G antennas, all trying to take market share from Apple in the high end. Despite Google’s efforts, many consumers are waiting to see what Apple releases as its iPhone 5, which is expected to hit Western market in September. Grey market units will certainly hit China within a few days of launch, but the official launch of iPhone 5 in China will likely be delayed several months pending Chinese regulatory reviews.

Unfortunately, rumours say that the iPhone 5 hardware resembles more of an iPhone “4S”, with only minor feature improvements. The more exciting user benefits derive from the new IOS 5 operating system that focuses on realising the potential of Cloud computing on the iPhone. Lucky for current iPhone owners, these new features can be enjoyed by all 3GS and higher models of iPhones.

Based on my extensive usage of both the Android and iPhone, I like the flexibility of the Android OS, but still end up choosing the iPhone due to its increased system stability and better integration with my work applications.

In short, Android wins market share because it has more handset offerings and price points, but iPhone wins in mindshare as the most desired device for high-end influencers and therefore maintains its place as the dominant industry trendsetter for at least the next one to two years.

Ultimately, the Chinese consumer is the real winner as prices for smartphones drop to well under 1,000 RMB retail. With carrier subsidies, even the latest models become affordable for consumers of almost all income levels. In two to three years, pretty much all new phones sold in the market will be smartphones of some sort.

Takeaway for Marketers

So what should marketers do to take advantage of the increasing consumer dependence on their mobile devices?

Well, they should increase their mobile ad spending… seriously! Currently, less than 1 percent of marketing spent globally is invested on mobile related media/projects, and closer to 0.5 percent in China. Recently, Chetan Shama released a report showing mobile as a medium has more reach, finer targeting, and better ROI than all other media available to marketers. It is amazing how mobile marketing is not more broadly utilised in campaigns today.

The key challenge has been that most marketers and agencies do not understand all the technical and operational intricacies of mobile marketing and how best to utilise the variety of mobile elements available (branded apps, mobile sites, targeted mobile messaging, mobile couponing, mobile CRM, mobile lead gen, interactive messaging, 2D barcodes, augmented reality, mobile social networks, etc.)

In the following months, I will provide more detailed examples of what successful firms have done with mobile media and how you can benefit from their experiences to better integrate mobile as a core part of your future marketing plans.