China Mobile, you’re doing it wrong. TelecomAsia reported that China Mobile, the world’s largest mobile phone operator, wants a big slice of the app revenue pie. Real big. They seek nothing less than 50% of all revenue generated by mobile apps from third-party developers. That’s considerably larger than the likes of Apple and Google’s Android, which both limit their cut to 30% of the generated income from app sales. China Mobile, moreover, hasn’t figured out how to build incentive for developers to focus on their products, so taking such a big cut is a slap in the face at best.
China Mobile is opening their store-front to all of their mobile operating systems, aside from the iPhone, which has exclusivity with Apple’s market. The people of China can expect to see an empty marketplace when it launches on their phones in September of this year.
[Via TelecomAsia, Picture Via net_efekt]
How can you possibly say this:
“The people of China can expect to see an empty marketplace when it launches on their phones in September of this year. ”
50% of a much larger pie is, in absolute terms, much more than 30% of a smaller, say, American pie (mind the pun) or a UK one for that matter.
Lazy reporting. 50% > 30% therefore China Mobile is making a mistake and the app store will be empty. I can’t believe this makes front page on Mobile Crunch.
Lazy reading. Re-read the article and you’ll see that taking over 50% from third-party developers is high-way robbery.
That means that China Mobile builds this platform for applications to be created by other folks… in expectation that these folks will take half or less than all the revenue generated, only to have China Mobile take the rest.
I really did understand the article the first time around. It’s just you could have gone one step further to understand why they set their price at 50%. Apart from the fact that the Chinese mobile market isn’t exactly the most competitive, there are a few points to be made:
Firstly, there is precedent. Existing operator/content provider agreements are predicated on a 50/50 revenue share. This is the case in the US and Europe.
The new asymmetrical business model of 60%(Ovi)-80% (BB) SP revenue share with remainder to the store provider relates to content delivered via DEVICE/OS application stores. The key words being device and OS app stores. The reason they provide devs and content providers a larger cut is because their addressable market is much smaller (i.e. the # of android devices sold).
The offering in question is an operator application store. They are building a multi-platform store (a la qualcomm plaza). Instead of a particular device category, they provide devs and content providers access to hundreds of millions of subscribers. They therefore have the leverage to command a higher cut.
You are comparing apples (again, mind the pun) with oranges – I’m sure content providers targeting China would beg to differ with your statement on the app store being empty!
Though I have sympathy for developers, I am not so sure China Mobile is doing it “all wrong”. Here is why:
- As cool as iPhone might be, China Mobile controls the large majority of China’s 650 million mobile subscribers. There are an estimated 1 to 2 million iPhones.
- 50% of revenue for China Mobile is no news for the Chinese mobile content market. This has been commonplace for years. Have you looked at the share telcos regularly take out of a ringtone in most markets? Why would applications be different – it is just another name for mobile content.
- Another thing is that neither iPhone nor Android control the pipes. Telcos are not in the deal. So far, Telcos have a ton more distribution power than manufacturers and OS vendors.
- As mentioned by @Telco, there is elasticity in the number of developers: if they get 50% of a large market, it is all good news. If they get 70% of a small one, it is bad news. The proof is in the pudding: if China Mobile’s system works, there will be for sure hundreds or thousands of devs flocking to build apps.
The point is not whether “30% is the rule because Apple and Google do so”, but rather to consider the value chain and the possible commoditization of mobile content / apps. If we look at sports shoes, “content” is barely 15% of the sale price. Are applications already a commodity?
“The people of China can expect to see an empty marketplace when it launches on their phones in September of this year. ”
I simply dont agree.
I think them taking 50% of app revs when Apple only takes 30% is just plain greed.
Palm distributors used to take 50%-70% cut on 3rd party software, and there were still plenty of developers.*
There seems to be a pretty major incentive in terms of market size. Chin Mobile has about 500 million subscribers and even if only a small portion of them have newer phones capable of running 3rd party software, the user base would still be several times larger than the 30 million iPhones and iPod touches sold (as of the end of 2008).
If we were to assume that I’m selling a $1 application in both markets and 1% of each market buys the application. Given that (1) Apple takes 30% and China Mobile takes 50% and (2) Apple has 30 million users, then a developer would see more profit in absolute dollars as long as China Mobile has more than 42 million subscribers, which is highly likely given the subscriber base of 500 million.
It seems to make good business sense, even though it’s not exactly looking out for the consumers and the developers. But hey, we’re the ones who wanted capitalism in China.
*(http://www.nytimes.com/2009/05/31/business/31digi.html)
They simply have not learned any lessons: http://tinyurl.com/mchz3c
The art of cross market knowledge transfer has been non-existing in the mobile sector, so this is hardly a surprise…
China Mobile does it because they can. You’re talking about 1.3 billion potential customers and most publishers would give anything to tackle a market that size, with China Mobile, Unicom, and Telecom as the gate keepers. I agree with the bigger pie from Telco. A 49% cap on JV ownership back in the day didn’t stop hundreds of western companies from flocking to China. That’s 1/5th of the world as a new market. (though I’ll give it to you not all 1.3 billion people are equally potential customers)
Indeed ms cheng, but read my paper on the economics of mobile content models. Economic theorists have proven that by taking too much revenue share – thereby probably also over inflating prices, you are creating a smaller market that what you would otherwise have: http://tinyurl.com/nzmqc7 . It has to do with pure economics of the supply and demand model.
This is a classic case of being to greedy, and subsequently creating a smaller pie. Yes China is one hell of a pie, but why make it smaller??
JT Klepp I am not disagreeing with you, but I think there are difference factors involved in China Mobile’s decision making. I admit that at this moment I do not have time to read your paper (I’m at work; I do have to read tech blogs as part of my research), but I simply do not think the argument of economics is at the forefront of the decision making. China is a country (government) of nationalistic fervour, and I think that plays right into China Mobile’s decision. They don’t like the idea that foreign entities come in and “take advantage” of their user base, without China having a great element of control in that exchange. National pride goes a long way, and they have a government that can infuse that into even such business arrangements as this.
I live and work in Beijing now, and feel this is the general sentiment. Please feel free to comment :)
50% is what all the U.S. carriers take in rev-share from all Premium SMS generated programs by all third parties. So what is the difference? This really slows content providers ability to innovate and provide fair programs to consumers.
Apple got it right. China Mobile can act like Verizon or Sprint for now until they get it.
ms cheng, I do understand the reasoning. I guess what I am trying to explain is that by using that reasoning they are shooting themselves in the foot, because the market will not be as big as it should (ref other comments about the US market experience).
By lowering the rev share, they increase the market substantially more, thus creating a larger market, and eventually would make a lot(!) more money. Mathematically, if they try to keep 50% the market will be 100, and they make 50. If they keep 30%, the market will be 200 and they make 60. Everyone wins.
Agreed.
But is it not expected from the likes of MobileCrunch to at least perform a bit of analysis to justify why they ‘expect to see an empty marketplace’ ?
At least some mention of China Mobile’s ability to price skim, developed markets’ past/existing revenue sharing arrangements, and the effects of the shift towards the low-price, high-volume business models of today? perhaps even the free, ad-supported models of tomorrow?
More than happy to oblige :)
* The experiences of Japan, Korea and Norway have been well documented. The success is largely attributed to the business model. Strand Consulting (www.strandreports.com) probably provides the best research on this
* Andersen (pre Enron) wrote a report for the EU commission in 2002 entitled “Digital Content for Global Mobile Services”. In this, they provide economic models for effects of reducing VAT rates on content (the effect would be practically the same by reducing revenue shares). Contact me (http://tinyurl.com/l4lh67) and I will happily supply you with a copy (the report was free, but probably hard to get now)
* Ad-supported: I think the jury is still out on this one
* Lastly, feel free to read my own research entitled “Mobile Content: Keys to unlocking profits for the industry” (http://tinyurl.com/kortfp
). Written a looong time ago, but a lot of the arguments unfortunately still hold.
And for the record, I do not expect to see an empty market place. Just smaller revenues for all.
50% if it’s the only game in town will get a away with it. But if another established player comes in with a proven track record, distribution and marketing and only takes 30% cut. Who do you think the developers will choose? Keep in mind that the number of subscriber CHL has are without long term contracts. The moment that there are better options in the new 3G service comes out. CHL will no longer be in a commanding position.
This simply doesnt make sense to shorten up the market place, it would not be good for either consumer or sellers