After the success of the Apple App Store, mobile application stores have been headline news, and more players from different domains are rushing into this market. The major global players - although not all are available in China - are Apple (App Store), Nokia (Ovi Store), RIM (BlackBerry App World), Google (Android Market) and Microsoft (Windows Marketplace for Mobile), as well as GetJar, Handango and Handmark.
Ovum's Mobile application downloads forecast: 2009-14 estimates that from year-end 2008 to year-end 2014 the number of application downloads from non-operator channels worldwide will grow from 491 million to 18.7 billion, among which downloads in Asia-Pacific will grow from 27.8 million to 3.67 billion, with a CAGR of 108%. Mobile application demand in China is one of the major drivers, and its growth is expected to be even higher than in Asia-Pacific overall.
Seeing the opportunity and importance of this market, all three Chinese operators have launched application stores not only to develop more direct and indirect revenue sources but also to increase customer loyalty and to promote the ecosystems of their network standards in China. China Mobile launched Mobile Market in August 2009, and China Telecom launched eSurfing Space Application Market in October 2009. China Unicom Shanghai has launched WO Store, and it has also recently been reported that China Unicom has decided to build a group-level application store.
Chinese operators face strong challenges
Chinese operators are facing competitive pressure from existing players such as Apple and Nokia that already operate application stores. These players already have experience and established tools, processes, support and channels that satisfy developers' and end users' needs.
The Chinese operators will need to deploy their branded application stores across a steadily growing and diverse portfolio of devices while attracting and managing a critical mass of application developers.
It may also be hard for operators to convince subscribers to buy from their stores. Chinese subscriber behaviour tends to be cautious, with many subscribers used to free applications. In addition, the image of the Chinese operators has been damaged by unfavourable reports and rumours about overcharging.
Chinese operators must leverage their advantages
The leading platforms are less prominent in China compared to in mature markets, so there is still potential for Chinese operators to develop their stores. Operators in China also have direct access to their huge subscriber bases, which gives them economies of scale and a strong negotiation position. The similar culture shared by their subscribers also enables the development of more localised store interfaces, services and applications. Additionally, they have strong service delivery capabilities.
Furthermore, some non-operator application channels rely on credit card payments, but in China credit card ownership is low and online credit card charging is unpopular due to security concerns. Operators can provide more reliable and convenient charging than non-operators by simply adding charges to existing bills.
To overcome the difficulties they may face, Chinese operators must learn fast from existing players or partner with them. In order to reduce complexity, they can promote applications that are not device-sensitive. Consumer behaviour can be cultivated by strictly managing charging, ma king billing transparent and through other initiatives such as free trials.
In order to leverage their unique strengths , operators can combine their application business with service delivery, such as selling their current content and value-added services on the application store, and offering applications requiring continuous charging or service delivery by operators. Importantly, they need to limit their investment and expectations about this business in order to reduce risk. For more information, see the Ovum report Operator strategies in the application store ecosystem.
We are generally skeptical about the likelihood of operator-driven application stores catching up with those of the handset vendors and third parties, but we believe that dominant operator China Mobile has a good chance of succeeding. It has a huge mobile subscriber base, solid experience with mobile services and a good brand image. It has also formed partnerships for Mobile Market with leading handset vendor partners such as Nokia and RIM. In addition, it has the potential to achieve more synergies with its own handset operating system, OPhone, which it launched at the end of August.
China Telecom and China Unicom both have much smaller subscriber bases and weaker capability in mobile operation, especially in the mobile application business. For them, other less risky and less difficult options are recommended - for example, partnering with others or upgrading their portals.