When China’s independent app store Wandoujia was launched in 2010, there were less than a million Android smartphones in China. In contrast, today Android devices account for 86% of the country’s total 200 million smartphones. Back in 2010, Wandoujia’s CEO and co-founder, Wang Junyu, was confident that smartphones would become a big sensation. And so he wanted to make sure it would be easy for everyone to use smartphones in a market where about 80% of devices don’t come with Google Play pre-installed (Google Play is Google’s own app store and the main distributor of Android apps outside China).
“This is where we started,” explains Kai Lukoff, Head of the International Team at Wandoujia. “Users are looking towards other services to provide this content discovery gateway for their smartphone.” Wandoujia is the third-largest app store in China. The numbers speak for themselves. The company states its Android app alone has half a million new users each day (a number that accounts for half of the total new Android users China gains each day). Six hundred thousand apps are available through Wandoujia’s search, which has already been installed by over 200 million users.
App stores have acquired an incommensurable strategic value. They have an inherent ability to attract users, becoming powerful drivers of internet traffic. Most importantly, app stores provide internet companies a unique opportunity to gain mobile share in a market where 460 million people (75% of the country’s total netizens) are currently going online through their mobile devices instead of through their desktop computers, according to figures from the internet industry consultancy firm iResearch.
Even big players of the local industry like Xiaomi, Lenovo, Tencent, Baidu and Qihoo are developing their own app stores as a cornerstone of their mobile internet strategy. The flexibility of Android’s operating system gives them a clear advantage. Apple, on the contrary, has seen its China’s market share fall to a 5% mainly due to the closed and little-customizable ecosystem of its official AppStore.
“Applications are the biggest access point to the mobile internet right now,” says Kaiser Kuo, Director of International Communications at Baidu, China’s leading search engine. In August, the company pulled off the biggest deal in Chinese internet history with its $1.9 billion acquisition of the second-largest third-party app store 91 Wireless. Prior to that, Baidu already had its own app store, but with just 13 million daily active users, according to the company’s own data. It had a hard time competing against its main rival, Qihoo 360 which had 250 million active users.
“Acquiring traditional app stores like 91 Wireless, with over a million apps available, coupled with our ability to have people search directly for apps, allows us to have all the basics covered with different types of use-case scenarios,” explains Kuo.
The Rat Race
“Every internet company wants to build its own ecosystem, its own platform so that they can be in control of their traffic source, acquire users and attract app developers,” says Ibrahim Dai, Director, Global Business Development at TalkingData, a Big Data services platform for the mobile internet industry.
There is such a strategic need for the integration of services because of the fragmentation of the distribution channels, so far not seen in any other market. Dai explains that in China there are more than 400 app distribution platforms. Like Wandoujia or 91 Wireless, over a hundred third-party app stores were quick to smell the business opportunity left by Google Play’s poor performance in the Chinese network. Additionally, all kinds of social networks and cross-promotion sites are also used for app promotion as a means to boost user acquisition.
Will Tao, Analysis Director at iResearch, points out that each app store has different policies in terms of how to distribute content or how to advertise it on the top 10 list. “No developer will publish its app on a store that doesn’t have a good distribution in China,” he adds.
Product, design and technology are Wandoujia’s key value proposition. “The sense of how simple things are for the user is what sets us apart,” explains Lukoff. “We are more into building a long-term trust with those users, rather than trying to quickly monetize by sacrificing that.”
Having such a loyal user base is crucial to Wandoujia’s business model. Some of the apps listed on the platform are sponsored content from developers who want to promote their software through the ‘pull’ of users offered by Wandoujia. “They know when they have these eyeballs, they can monetize through in-app purchases, and collect reference from users that way,” explains Lukoff. In return, developers pay to Wandoujia between RMB 0.5 and RMB 5 ($0.08 to $0.8) per download of their app to a user’s phone.
It’s a booming sector and a very big market where several apps are offering similar content, explains Lu Gang, industry watcher and Founder of the popular tech blog Technode. “Developers need to move fast. One can’t expect to dominate the whole market. But developers can (gain) many users in little time, and then use this data to think about new business models,” adds Lu.
China’s app economy has created a multi-dimensional traffic-driven competition where developers can launch their apps in many stores at the same time. It’s a very complex ecosystem especially because most of the Chinese users make no distinction between one app store and the other, explains Dai from TalkingData. “You either have the app or you don’t. Users just want the app.”
This has brought apps into a new competitive arena: exclusive distribution. Wandoujia, for instance, has partnered with developers to release their content first on their platform. In exchange, apps will be featured on the home page for five days during which this exclusive period runs.
With this strategy, explains Tao from iResearch, users will indeed rush to one store to download the app. But he points out this will come at a cost: “The developer will lose other resources and opportunities, and app stores will need to be able to offer a higher return to the developer.”
So Baidu’s key strategic move is building a big ecosystem that gives developers the possibility to develop new and better content, more quickly and at lower costs. These are apps that are linked to the Baidu system but compatible with any Android device.
“We want to create a developers’ platform, which really offers a tremendous array of tools that helps developers to develop more powerful applications. And where they can make use of Baidu Maps, Baidu Search and Baidu’s cloud capabilities,” says Kuo.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]