The Mobile Internet Market in China: Outlook for 2011

It has been ten years since the start of the mobile internet as a WAP application in 2000. With the extensive construction of 3G networks, the gradual spread of 3G applications and the advancement of Internet Web2.0 in China last year, the mobile internet has began to reveal its huge potential.

2010: Rapid growth in the number of users & an emerging industry landscape.

Mobile internet saw rapid growth in 2010, with the number of users and revenue increasing constantly. According to the 26^th Statistical Report on the State of China’s Internet released by CNNIC, as of June 2010, the number of users using cell phone for internet access amounted to 277 million, or about 40% of all cell phone users; among them 43.34 million were newly added in 2010, representing a growth of 18.6% from the end of 2009. The mobile internet revenue continued its fast growth on the basis of RMB 11.2 billion in 2009, and CCID Consulting expects the revenue of 2010 will exceed RMB 15 billion.

As for the terminals and platforms as carriers for mobile internet, hardware terminals led by cell phones also maintained their growth momentum, with annual shipment of mobile phones exceeding 700 million units in 2010, accounting for 60% of the global production. Smart phones and functional mobile phones also gained traction; smart phones saw an increase in its market share, while functional phones were still popular thanks to their low prices and ease of use. Currently, the mainstream mobile platforms include MTK-based Java, Symbian, Windows Mobile, Linux, Android, OMS, IOS and Brew, with the Java platform grabbing the largest share due to the huge number of functional phones, followed by Symbian, thanks to Nokia’s market share and Brew due to its monopoly of Qualcomm in the CDMA market.

The huge number of users helped accelerate the market maturation and business growth, characterized by an increased level of commercialization, continued advantages in entertainment features, and growing value as a tool of communication and information.

Mobile e-commerce represented by mobile payment saw a significant growth in 2010:

• China UnionPay, in alliance with eighteen commercial banks, as well as China Unicom, China Telecom and mobile phone manufacturers, established the Mobile Payment Industry Union;
• YeePay, a domestic third-party payment giant, acquired WestPay in Chengdu, ushering in the age of industry reshuffling;
• Mobile entertainment represented by music, e-reading and games also continued its fast growth. In 2010, China Mobile’s music base in Sichuan contributed revenue of over RMB 10 billion;
• following Hanwang, SDO leveraged its advantages in online literature to launch its own e.p.book.

Communications and information tools such as instant messaging (IM), mobile community and location services are gaining traction, with the number of active mobile IM users reaching 162 million and the number of mobile browser users exceeding 100 million.

Meanwhile, the business model of application stores is gaining popularity. MM (Mobile Market) launched by China Mobile last year now boasts 80,000 registered developers and 11 million registered users. It has sold a total of approximately 30,000 applications and has seen over 40 million downloads. Platform and mobile phone vendors such as SIKAI and Nokia have set up their own application stores. Diversity of businesses and services content has become a major feature of mobile internet development.

Despite the robust growth of mobile internet in 2010, problems still abound. Services and applications are mainly run on 2G networks while the 3G network are under utilized due to cost and bandwidth limitations; many applications are limited to functional phone plus WAP access uses due to the high prices of smart terminals; a significant proportion of the users are of lower age, poor education background, and low income; the mobile internet vendors have a relatively poor profitability and lack a sound profit model.

2011: Improvement of platform businesses & focus on competition for users

In 2011, the 2G plus WAP-based mobile internet model will become outdated while 3G and www application-based networks will usher in a new era of mobile internet.

In terms of terminals and platforms, smart phones priced around RMB 1,000 or below will encourage users to shift from functional phones to smart phones. With its bigger screen and more fascinating way of operation, touch-screen phones are for a better match for mobile internet and will gain popularity; it is worth noticing whether the Android mobile operating system launched by Google in 2009 will outdo Symbian to become the No. 1 platform; Microsoft Windows phone 7 (Wp7) will make a comeback, and its clout is too big to be ignored; openness will become a major characteristic of the operating system platform.

As for application delivery, with improved bandwidth and cost affordability, bandwidth-sensitive services like video download, video call and real-time monitoring will gradually gain traction. While with improved payment regulations and market environment, mobile payment will become popular in 2011, where mobile phone recharge, credit card repayment, utilities payment, ticket reservations, public transport payment, movie ticket payment and shopping payment may be easily done via cell phones. Moreover, application delivery methods such as application stores and application warehouses are bound to go mainstream, and major vendors’ application stores will generate significant cash flow; the advertising business will also help ensure the lucrative prospect of mobile internet.

Another major characteristic of mobile internet in 2011 will be the intense competition for users, with user access to become the hot spot for competition among vendors. Only by controlling “the first entry” for users can vendors be successful in the cut-throat market competition, no matter whether it is in the case of terminals or applications, platforms or services, instant messaging or location services, browsers or input methods.

Source: CCID Consulting