Chinese vendors fragment Android

OvumBesides Facebook, Google is the best example of a global internet powerhouse that has essentially been blocked from entering the Chinese market in a fair and meaningful way.
This dissonant trend is particularly noticeable in the case of Google due to the enormous success of its Android operating system in China. With Google unable to drive the adoption of its popular services in China, Chinese Internet and over-the-top players have gained considerably at its expense.
Chinese device vendors are using Android for their own purposes, and are increasingly at odds with Google’s preferred vision of Android’s developmental direction. As a result, Android is fragmenting beyond Google’s control, and Google’s Android strategy is rapidly coming undone in China with no immediate prospects for correction.
Barring an unlikely accommodation with the Chinese government, we believe that Google’s only short-term option is to try and limit Android’s Chinese variations within China’s borders.
Strong smartphone growth
In Ovum’s recent report, Smartphones in Emerging Markets: Shifting Landscape, we identified China as the biggest global driver of smartphone adoption. We believe that there will be approximately 250 million smartphone shipments in China in 2017, which will account for 17% of global shipments. Smartphone growth is already strong in China, and both iOS and Android devices are selling in large numbers.
The fact that China’s largest mobile operator, China Mobile, doesn’t have an iPhone offering hasn’t stopped the device from being extremely popular in China. The iPhone is not available for China Mobile subscribers as it is not compatible with China Mobile’s TD-SCDMA network. However, the new iPhone 5 is expected to be available to China Mobile subscribers.
Despite the popularity of the iPhone in China, Android smartphones are the fastest selling devices in the country. Besides the high-end devices from the likes of Samsung and HTC, there are a number of Android offerings from local Chinese vendors such as Huawei, ZTE, Xiaomi, and Gionee. Many of these devices use Android versions 2.2 and 2.3, and they form the bulk of the rapidly growing “affordable” smartphone segment in China.
In sharp contrast to the tremendous success of Android in China, Google’s official marketplace, Google Play, is not a factor in the country. Android devices in China typically come without Google Play pre-installed as they have been flashed by Chinese vendors, which then install apps and services that are either developed in-house or by other Chinese companies.
Until now, Google has successfully created synergies between Android and its own services, spawning a vibrant ecosystem for content and apps across numerous markets. However, this synergy has failed to replicate itself in China due to Android’s increasing fragmentation. This fragmentation and Google’s limited presence in China has meant that the company has been unable to expand its services or establish a viable payment mechanism for apps on Google Play. While Chinese vendors are either skinning Android or building custom ROMs to drive their own user interfaces and services, larger vendors such as Samsung are also removing Google Play for the Chinese market.
As Google Play has struggled in China, several alternatives have filled the gap. Chinese mobile operators all have their own app stores and respective strategies for driving content to their subscribers, and third-party app stores have also emerged for China’s Android smartphone user base.
These include large players such as Baidu, Tencent, and Wandoujia/SnapPea, and several other smaller players such as Anzhi, HiAPK and TaoBao. Several content providers also provide direct links so that consumers can download content using their mobile or desktop browsers.
Payment for apps is usually processed through Alipay or via operator billing. Alipay is a similar service to PayPal, and has been instrumental in the growth of the Chinese e-commerce sector. These alternative payment methods are helping local app stores to gain significant scale at Google’s expense, which is something that the company will find difficult to combat in the future.
Barring a high-level accommodation with the Chinese government, Google is unlikely to make the same headway in China as it has done globally. This is due to China’s interests, both business and philosophical, being fundamentally at odds with Google’s.
While Android will continue to grow in China, we don’t believe that Google’s services businesses will gain a meaningful foothold. While Android’s growth has been instrumental in Google’s fight with Apple for control of the smartphone market, this success is now creating a strategic dilemma for the company.
Google cannot afford to let Android’s Chinese variations extend beyond China’s borders. If this happens, Google will increasingly face an either/or scenario wherein increased sales of Android come at the expense of the far more lucrative revenue streams from Google Play and Google Search.
The recent case of Alibaba’s partnership with Acer provides an indication that Google will not allow this situation to develop in the global market. The launch of an Alibaba smartphone, developed in partnership with Acer, had to be called off at the last minute due to Google placing pressure on Acer.
While Google can’t directly file suit against the likes of Alibaba, it has shown that it has no such issue with leaning on ecosystem partners such as Acer. This shows that deviations by Chinese vendors from the preferred vision of Android will only be allowed by Google within the Chinese domestic market.
Shiv Putcha is a principal analyst for emerging markets at Ovum. For more information, visit