The Staggering Rate of Smartphone Adoption

In a LinkedIn post from November of 2012, former Director of Google China and head of Beijing-based venture firm Innnovation Works Kai Fu Lee predicted that the installed base of smartphones in China would double to 500 million by the end of 2013 (note that Mobithinking estimates China had 212 million 3G users as of last October).  The heady growth numbers of Weixin, Tencent’s mobile social chat app and TechRice’s 2012 pick for China Tech Story of the Year, reflect this increasingly rapid rate of smartphone adoption in China. While Weixin will continue to reap the benefits as the likely default social/chat application for all Chinese, there will be room for others at the table.

Previously, I dove into the global expansion efforts of Huawei and ZTE in smartphones, but within China it’s Lenovo (second) and, perhaps surprisingly, the economical CoolPad (third) who have won the most market behind top-ranked Samsung. ZTE and Huawei follow at fourth and fifth, respectively.

Source: Kai Fu Lee, Linkedin

Source: Kai Fu Lee, Linkedin

 

More E-commerce, More Online Payments Faster

Beyond the growth of these brands, the question becomes: what other trends will follow the staggering growth of China’s smartphone base? As TechRice cofounder Kai Lukoff argues, globally it may mean that Chinese smartphones become the default choice for the developing world and reduce Nokia’s feature phone dominance to irrelevance. Domestically, I think it will have a profound effect on e-commerce and payments, though I am biased as an employee of the Alibaba Group, which stands to benefit.

Regardless of how much the Chinese profess their love of renao (热闹), or the liveliness associated with their market places, I think the ease of use, speed and elimination of information asymmetries and transaction costs the internet provides will see a lot of China’s new smartphone users embrace mobile e-commerce. While the culture of haggling over prices with vendors may have initially transferred to online marketplaces, shoppers in China are now more comfortable with the executing transactions quickly with a couple of clicks and password input. Take this new China e-commerce infographic from Alizila as evidence: in 2012, 60% of Chinese online shoppers have income of less than US $320 a month and 12% of total purchases were made from mobile phones.

Parallel to this emerging use of e-commerce platforms from smartphones will be the growth of mobile payments, such as those enabled by the new Alipay mobile wallet App. Alipay recently announced that its total mobile transaction volume surged by 546% in 2012 compared to the previous year, and that the number of mobile Alipay users increased by 223% . The decline of what can sometimes be a dangerous dependency on paper money (a dependency made more impractical by the size of China’s largest note, about US $16) could also further unlock Chinese consumption.

While Alipay’s mobile success suggests similar success for the mobile arms of Alibaba’s Tmall (B2C) and Taobao (C2C) platforms, growth will also come from the payment tool’s role in online-to-offline consumption. In this regard, Alipay is working with mobile application maker Appconomy’s Jinjin, which provides brands (Burger King, Pepper Lunch, etc.) with a location-based tool to reward loyalty, offer customized discounts, accept cashless payments and otherwise entice consumers. Smartphones will increasingly hold the keys to consumption—whether this consumption occurs completely online or at a physical point of distribution.

Empowering Chinese beyond the Big(gest) Cities

Alipay says that over 4.3 million people are already spending more on mobile than they are on PCs. The cities with the highest ratios of mobile payments to PC payments are predominantly western, including Lhasa in Tibet and Nanchong in Sichuan. Smartphone and mobile payments adoption will continue to display how e-commerce can unlock opportunities for people in poorer, rural provinces and allow them to tap the country’s growing consumer markets.

The Threat of Tencent

The numbers sound good, but Alipay will need to be wary of Tencent as the Shenzhen-based powerhouse looks to monetize weixin by connecting its payment tool Tenpay to the popular chat app. While others have argued 2013 will be defined by Sina and Tencent’s battle in social, an increasingly important plotline will be the pressure Tencent exerts on Alibaba in the mobile e-commerce space. Tmall’s B2C rivals 360Buy, Amazon and DangDang could also absorb emerging mobile market share should they deliver superior user experience for new online shoppers.


About the Blogger

James Hopkins is an American working for Alibaba.com in Hangzhou, China. He previously lived in the tech-heavy district of Nanshan in Shenzhen. The views expressed here are his own and do not represent those of his employer.