Interview | The China Observer: Key differences between mobile markets in China and Japan

Joel Backaler at The China Observer (who just won the “best business blog” from Chinalyst) recently visited Osaka and reported about the differences he noticed between China and Japan’s mobile markets. He asked our views on the topic here, which we cross-post below.

We decided to focus on the key market differences between China and Japan to explain our views. We see 3 main differences:

(1) Handsets
The market value represented by the revenues of mobile operators is comparable in China and Japan, but China has 6 times more subscribers, so the average value is much lower. In China, operators do not subsidize phones much compared to Japan, where a typical subsidy is in the 300 USD range. As a result, people cannot get great phones and innovation is slowed down. Add to this that the market is very fragmented between manufacturers (over 1,000 phone models released per year), delivering a consistent user experience and promoting services is very hard. In Japan, over 70% of phones sold this year had a mobile TV tuner, a contactless chip for payment and transportation, and a bunch of other features like GPS, Flash Lite, etc.

(2) Networks & Pricing
For mobile internet to spread, there is a need to have faster networks and better price plans. Deploying a new network takes years. In Japan, it took 3 years to get W-CDMA started.

(3) Services
So far, it is very hard to push services to users in China because mobile operators are not helping much, or are even adapting concepts they see outside to develop their own services, effectively using other companies as free R&D.
- This is good if you think of the market as a zero-sum game, where herding all possible revenues is the best option.
- It is also good if you don’t want any political trouble that external partners could bring to your career if you’re in China Mobile’s top management.
- Now, it is not good at all if you consider the market as growing not only in number of users but also in value per user. Mobile services cannot develop without user education, and mobile operators have teams to push nationwide things, but almost no capability to market specific niches.

In Japan, operators are positioned as service enablers and make most of their money not from content, but from data fees, which represent over 30% of ARPU, while messaging is using mobile push email and represents a tiny share. In China, Europe and US, SMS is such a great revenue generator that despite it being extremely limiting, operators have no motivation to do without. With “open” data channels, Japan has:
- a 700 million USD mobile advertising market,
- a 4.6 billion USD content market and
- a 7.8 billion USD mobile commerce market.
The numbers for China are far, far from those.

To sum up
- Users in China are not rich enough to afford advanced handsets and replace them often (a consequence of GDP/Capita)
- 3G networks will take a few years to spread. The situation is now equivalent to Japan at the end of 2001
- Services are handicapped by mobile operator’s policies, which do not look like they will change any time soon

That being said, several mobile content companies are doing interesting things, some of them are even able to monetize – especially if they run their business entirely outside operators’ influence. You can check out the “Mobile Internet Great Wall Club” to see who are the up-and-coming companies after the first SMS/Ringtones wave that is slowly losing steam (the mobile branches of Sina, Sohu, Netease, Tom, KongZhong, Linktone, Hurray).

Here is also a related presentation we gave in March 2008 comparing Japan and China’s mobile handset markets.