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June 21, 2012

3Qs: China overtakes U.S. in smartphone market

Fareena Sultan, professor of marketing in the College of Business Administration, explains how and why China has become the king of the mobile-phone market. Photo by Christopher Navin.
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Fareena Sultan, professor of marketing in the College of Business Administration, explains how and why China has become the king of the mobile-phone market. Photo by Christopher Navin.

In 2011, China sur­passed the United States to become the world’s biggest smart­phone market, selling an esti­mated 23.9 mil­lion units in that year’s third quarter. Ear­lier this month, Microsoft’s Win­dows Phone was intro­duced to the Chi­nese mobile market, which has already begun to out­sell Apple’s iPhone. Northeastern University news office asked Fareena Sultan, pro­fessor of mar­keting in the Col­lege of Busi­ness Admin­is­tra­tion, to explain how and why China has become the king of the mobile phone market.

How did China become the world's biggest smartphone market?

The sheer size of China’s pop­u­la­tion is a dri­ving force in this growth. More­over, the first time many con­sumers in China and other emerging mar­kets will access the Internet will be on their mobile phones. There is also a thriving gray — or legal but unof­fi­cial — market of unlocked smart­phones that impacts this growth.

How did companies alter their marketing, branding and advertising strategies in order to compete in the Chinese mobile phone market?

The iPhone was not com­pat­ible with the Chi­nese net­works and Wifi was banned in China in the early stages of the intro­duc­tion of the iPhone. Apple tried to pursue a monop­o­listic revenue-​​sharing model as it had done in the U.S. with AT&T. How­ever, state-​​owned mobile com­pa­nies did not approve and nego­ti­a­tions with China Mobile, the largest telecomm provider, were not suc­cessful. Ulti­mately an agree­ment was made with China Unicom, which offered a one-​​time pay­ment for 5 mil­lion units without any revenue-​​sharing program.

In terms of appli­ca­tion devel­op­ment, there is a huge market in China. But there are also exten­sive intellectual-​​property-​​rights issues. Suc­cessful apps get copied quickly in China and mobile app devel­opers have to come up with newer and more updated apps on a con­tin­uous basis in order to remain successful.

In terms of adver­tising, Emar­keter pre­dicts that mobile ad spending in China will grow from $223.2 mil­lion in 2010 to $1.16 bil­lion in 2014, although the rate of growth is expected to slow down in the future.

Mobile mar­keting research that I have con­ducted with North­eastern col­leagues in the Col­lege of Busi­ness Admin­is­tra­tion, which we call “Brand in the Hand” mar­keting, explains how the mobile medium offers the ability for mar­keters to do branding and trans­ac­tions via mobile devices on a 24/​7 basis. Mobile also offers unique ben­e­fits to con­sumers such as location-​​based offers and higher inter­ac­tivity and engagement.

Addi­tional mobile mar­keting research that we have con­ducted found more accep­tance of mobile mar­keting in devel­oping mar­kets such as Pak­istan com­pared to more estab­lished mar­kets such as the U.S. In many emerging mar­kets, there is a nov­elty factor related to mobile mar­keting. Con­sumers in these coun­tries are more recep­tive to mar­keting and pro­mo­tional offers on mobile phones. This is also true for those Chi­nese con­sumers who are accessing such offers for the first time on their mobile phones.

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How did Microsoft shift consumer perception to help the Windows Phone inch past the iPhone in China?

The market share of the Win­dows Phone is around 15 per­cent higher than that of the iPhone. One reason for its market share supe­ri­ority could be that Microsoft is working with China Mobile, which has 70 per­cent of the sub­scriber base in China. Apple’s iPhone, it should be pointed out, does not work with China’s own 3G system, but China Mobile is inter­ested in con­tin­uing to talk with Apple to work on com­pat­ible net­works. This interest could be attrib­uted to the dom­i­nance of Apple and its iPhone among urban Chi­nese, who view the company’s prod­ucts as status sym­bols, as well as the poten­tial for data-​​intensive apps that have become Apple’s spe­cialty. As of now, Apple receives 58 per­cent of ad impres­sions among all mobile devices in China. The com­pe­ti­tion will inten­sify between Win­dows phones and iPhones if Apple can also estab­lish a rela­tion­ship with Mobile.

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