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

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. We 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.

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 China Mobile.