Google and China: 5 Reasons Why it’s Tough to Bring Back the Play Store
China has always been a mysterious market of sorts. The way in which the Chinese tech market works is very difficult to predict. Just three years back, Apple was a laggard in the Chinese smartphone market and Samsung was at the top. Look how the positions have flipped now. Just two years back or so, Xiaomi was also the rage in China and its growth is now starting to cool down with Huawei stealing the spotlight.
Following up to the recent Alphabet formation and appointment of Sundar Pichai as Google’s CEO, The Information reported that Google was planning to launch operations again in China. For those uninitiated Google started stopping services in China in a sequential manner since 2010.
The main reason why Google stopped operating in China since 2010 was because of censorship issues. Google is now willing to censor content to be able to successfully operate in China. It’s also reported that Google plans to make a come back through its Play Store and then bring other services gradually.
Isn’t Google already in China in the form of Android?
Yes, Android is present in China. Even though Apple has been acheiving some of the best sales in China recently, Android by far commands the maximum market share in China. Approimately 70%+ devices in China are powered by Android and the remainder by iOS majorly. Android has been having a strong hold in the Chinese smartphone market every since 2011 or so, but Google hasn’t been able to capitalize on it or in other words make money from it.
Android basically comes in two versions i.e AOSP and Google’s Android. AOSP stands for Android Open Source Project, and is a bare bones version of Android with no Google services and apps pre-installed on it.
Google’s Android has GMS (Google Media Services) installed in it. A manufacturer trying to go for the GMS version of Android needs to follow certain rules set out by Google. For example, displaying “Powered by Android” at the boot screen. A certain set of Google apps need to be pre-installed mandatorily in case a smartphone is to be GMS certified and several other strings are attached.
Most manufacturers around the globe use Google’s Android on their smartphones with few exceptions like Amazon’s Fire Phone. However, in China, almost all manufacturers use the AOSP version of Android which doesn’t have any Google service or app on it.
So why is Android important for Google? Well, Google makes money from Android in the following ways-
1. Play Store – For every app that’s sold on the Play Store or every in app purchase made, Google gets a 30% cut.
2. Ads – Google’s Android comes pre-installed with Google services in the form of apps. These apps display ads that generate money for Google.
3. Data collection – Google knows a lot about us by looking at what apps we have installed on our smartphone and generates a profile on every Android user to display targeted ads.
In case, a manufacturer goes for AOSP version of Android, none of the above mentioned monetization methods would be possible for Google. The one little scope of monetization in AOSP is, if a developer decides to place ads in his/her mobile app using Google Ad Mob. This is basically the only possible way Google can make any money off a device running AOSP. So even though Android is famous in China, Google isn’t a part of it.
The Chinese market is simply too big to ignore. Just have a look at Apple whose latest financials have been buoyed primarily because of its strong performance in China, or have a look at the $13 billion GMV (Gross Merchandise Value) Alibaba had during its Single Day. There’s a lot of money to be made in China and Google doesn’t want to miss out on it, which is why the company plans to enter China by bringing back its Play Store.
However its going to be no easy task to bring back Play Store in China for the following reasons
1. Convincing manufacturers
More than 95% of devices operating on Android aren’t made by Google. If Google wants to bring back Play Store in China, it obviously needs to convince manufacturers to pre-install GMS (or Play Store) on their smartphones, and this is going to be no easy task. According to IDC, the top five smartphone manufacturers in China as of May 2015 are –
1. Apple – 14.5%
2. Xiaomi – 13.5%
3. Huawei – 11.2%
4. Samsung – 9.6%
5. Lenovo – 8.2%
Let’s leave aside Apple. As for Xiaomi, the company’s entire logic is based upon selling hardware at cost price and making money through software and services. The company has its own App Store in China, Xiaomi takes a cut from transactions made on its app store. Apart from that, given the fact that Xiaomi is trying to build its own ecosystem, having control of their own app store is very crucial for Xiaomi so that they can position their own apps and services at the front of the app store. If Xiaomi were to adopt Google Play, not only will they lose revenue but they won’t be able to promote their own services making their ecosystem weak.
As for Samsung, the company has already had its horns locked with Google in the past. At one point of time, the company litreally had a clone for every Google app. It had its own App Store, music service, video service, voice assistant etc. Given how Samsung has been predominantly using Tizen in its watches instead of Android Wear and also the push for Tizen devices, I don’t expect Samsung to adopt Google Play with open arms.
Huawei and Lenovo might give Google Play a try. Huawei has recently been the manufacturer of Nexus 6P and given that Motorola was bought by Lenovo from Google its entirely possible the two companies might pre-load their devices with Google Play.
2. Saturated market
China’s smartphone maket is saturated similar to that of other developed countries such as US, UK, Japan etc. A saturated market means that most users have already owned a smartphone once and have a perdefined app store in mind whose UI and nuances they are famililar with. Play Store needs to convince these users to adapt to its UI and design which is a pretty uphill task unless Play Store provides something very unique.
3. App Stores’ moat
The four large app stores Qihoo (25%), Tencent (25%), Baidu (17%) and Xiaomi (13%) in China have some kind of moat around them to defend themselves against Google Play. Let me make it clear right away that the top four app stores in China are backed by multi-billion dollar Chinese companies who won’t give up market share to Google Play easily.
Tencent controls WeChat which is by far the most famous chat app in China and the most profitable chat app in the world. Often WeChat is used to promote apps. An App Store also at the end of the day is some kind of an app nonetheless. WeChat is a very popular platform for marketing apps and marketing an app store is something that’s crucial to increase awareness. However, Tencent is known to play hard ball. Since the company is an investor in Didi-Kuaidi (a Chinese ride hailing app) it blocks ads from Uber on WeChat. It’s then entirely possible for Tencent to block ads about Play Store on WeChat to protect its own app store which means Google would miss out on an important advertising channel.
Baidu controls the largest search engine in China. Many times, just like websites, people discover apps through search engines. Since Baidu has its own app store, its’ reasonable to think the company will link to apps in its own app store rather than that of Google Play.
As for Xiaomi, its moat is pretty clear. It makes its own devices so obviously it gets to choose which app store gets pre loaded and which doesn’t.
4. Chinese government
The Chinese government is known to be protective of home grown tech companies. Therefore it is possible for the government to help the local app stores more or create difficulties for Google.
Censorship is already an issue that’s yet to be resolved, and even if Google does end up censoring its content in China, there’s always the possibility of something going wrong and this can easily sour the relationship between Google and Chinese government. Apart from that, censoring content in China alone is sure to get Google a lot of back lash from international activists and governments. It’s also possible that if Google bends to the demands of Chinese government, even other countries might try to get Google to block content for them or else threaten to ban them. The kind of consequence this might have on free speech is devastating to say the least.
5. No need for apps
This is something that’s happening in China, thanks to WeChat. The app is more than just a normal chat app. You can book rides, get movie tickets, transfer money and do so much more on WeChat. WeChat has APIs which developers can use to integrate their services with WeChat. Just like how we have companies like Ola in India that don’t have a website or Flipkart which partially disabled its website in favor of an app only movement, there’s a new trend in China. China is taking it a step further. Developers in China are now only developing their services on WeChat. There’s no mobile app for several services and they’re only present on WeChat.
If the above mentioned practice keeps getting popular with time, the necessity for an app store altogether might keep reducing. Just like how some people use Internet Explorer only to download Google Chrome, we might reach a point in China where users use app stores only to download WeChat. WeChat has around 10 million of such integrations and MAU of 500+ million.
This is why we think the Chinese market is a tough nut to crack. The games and rules of the market is very different from that of rest of the world. However, at the same time, China is the only market that can provide a global like scale as of now. Twitter is present globally, yet has only 300M active users, whereas Tencent’s WeChat has 500M+ users. Smartphone penetration is rising rapidly in India, however China will continue to maintain its lead over India for quite some time in future. China is indeed one of the most brutal tech markets in the world, but if a company succeeds in China, the reward is well worth it. Living examples of this are Alibaba, Tencent and Baidu which have become some of the biggest companies in the world by operating in China majorly.
Can Google crack the China nut? What do YOU think?