) has broken a new global record in smartphone penetration, which
will have a dramatic effect on content and commerce in 2013 in the
world's most populous internet market.
[caption id="attachment_76554" align="alignright" width="300"
caption="Shenzen cellphone market, China"]
Mobile subscribers in China are now using 330 million
smartphones-a 150% increase over last year. Chinese research firm
iiMedia recently released
, which has not been widely distributed in English.
China's active smartphones now exceeds the total number of all
321 million mobile phones active in the US
. Kai-fu Lee, the former lead China researcher at Microsoft (
) and then Google (
), predicts that China will have
500 million smartphones
in use by the end of 2013. The implications of such a
dramatic flip from dumb-to-smart phones are far-reaching and will
ultimately affect the closely watched GDP growth rate in China.
Those 500 million smartphone users are going to drive new patterns
of online and offline commerce that will have global consequences.
This is particularly relevant as
increase the role
domestic consumption as a driver of its GDP
Smartphones are key to the future of internet usage, electronic
payments and product branding since relatively few people in China
access the web via traditional PCs. As the number of mobile
internet users grows, online services will undergo a significant
transformation with many new online services to be
conceived of as mobile only
. (See, for instance,
Facebook's China problem
.) This will be more pronounced in China where the penetration
rate of laptops and desktops per capita is far lower than the
US. Smartphones will drive brand awareness, pre-purchase
research, price comparison, payments for both online and in-person
transactions, and social media distribution of popular content.
Take China's auto market, which sells more cars than any other
country. New models can quickly take off in sales if their
manufacturers target such mobile consumers. Pre-purchase research
is critical in car-buying and more of it will increasingly occur on
smartphones. Well-orchestrated social media, viral video and
incentive campaigns can bring customers into dealerships and
translate into hundreds of thousands of units in sales.
Smartphones are already helping brick-and-mortar stores in large
internet markets. In the US,
$159 billion worth of goods bought
in-store were influenced by use of a smartphone during the
purchase. By 2016, consultancy Deloitte estimates that number will
an eye-popping $689 billion
. Smart retailers are taking advantage of this phenomenon by
giving consumers additional coupons for scanning a bar code
in-store for one-time incentives. Big-box chains are still growing
aggressively across the China and those who targeting this growing
mass of mobile internet users will have a critical advantage over
retailers who rely only upon traditional marketing.
Not surprisingly, the app market in China is rapidly growing
with the rise of smartphone users. Tencent's (
) Wechat has now hit
almost 300 million users
, the majority of them in China. And Baidu (
), the leading Chinese search engine, has just released a new
version of its Siri-like voice app making it easier to search for
both information and locations while on the go. Taobao, one of
the most popular ecommerce sites in China,
has an app for both iOS
and Android allowing users to preview and shop on their mobile
devices. Taobao is a division of Alibaba. Alibaba also offers
Alipay which is similar to eBay's (
) Paypal and will benefit greatly by this influx of
Figure 1: Smartphone growth in China as of Q3 2012 (scale on
left is in hundreds of millions of smartphone units; scale on the
right is sequential quarterly growth rate).
The smartphone sector in China is also upending
traditional technology hierarchies. While Google is not a
significant player in search in China, it dominates the smartphone
OS market. Android maintains some 67% of market share to date in
China. In contrast, Apple's (
) iOS only holds 10% of the market. Google's success with Android
in China may be somewhat of a Pyrrhic victory, however, since most
of the phones do not feature Google services that have been banned
in China. Instead these smartphones highlight services from
Apple's Tim Cook, meanwhile, was in China recently and predicted
that it will be
the company's largest market within a few years
. This may be true, but Apple has
a tough challenge unseating Android
or even coming close to its adoption levels in China. Apple
may be able to strengthen its position through cross-platform apps
running on their tablets and other devices.
A killer Apple TV
wouldn't hurt either in a country where internet bandwidth is
growing quickly, and there is a thirst for domestic and foreign TV
Figure 2: Smartphone operating systems market share in
In China, Samsung (
) is set to edge out Nokia (
) within the next quarter or two for the largest market share of
smartphones. This will put further pressure on the struggling
company which is
already under attack in many of its global markets
. Nokia is enjoying some success with its Lumia smartphones in
other markets which led to
better-than-expected earnings results
, but it is losing ground in China.
Then there are the locals. Huawei, ZTE and Lenovo each command
between 6% and 8% of the Chinese smartphone market. A less
well-known entrant controlling 10% of the market is
which is a subsidiary of Yulong/China Wireless and sold by China
). The Coolpad smartphones mimic many of the features of big brand
phones at a lower price point. Interestingly, Huawei, ZTE and
Coolpad are all now vying for a share of the US smartphone market.
So far, Coolpad has been the only one of the three to successfully
launch its products in the US. All four companies had significant
which wrapped up last week.
Figure 3: Brand market share of smartphones as of Q3 2012.
So what does it all mean? The world is about to witness a unique
phenomenon this year. The largest single mobile consumer market is
now emerging. New online and offline consumption patterns will
rapidly take shape and brands that jump on this wave can change
their market share in a dramatic way.
By 2015, the number of smartphone users in China will exceed all
mobile users in the US and Europe combined. There are no precedents
for this kind of shift. As China turns its focus to domestic
consumption, the largest mobile consumer base will no doubt play a
large role as an economic driver. And that will have ripple effects
around the world.
This article was originally published by Jack Hidary for
CNN/Fortune online and is being republished here with the
author's consent. You can find the original article