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“Great and Terrible”: VAS Market in China [24.09.07]

“The VAS market in China is both great and terrible,” explains Ben Joffe, President of Plus8Star, a boutique consulting group engaged in innovation consulting in Asia.  Stating that the VAS market grow at a fast pace, as 20% of China Mobile's ARPU comes from data, Joffe shares that the mobile content market was estimated close to 1 billion USD in 2006 and keeps growing.

According to Juniper Research, the VAS market will total USD 15 billion in 2008, and by 2010 might reach USD 21 billion.  Juniper Research stated that mobile SMS and ringtone downloads have been the main revenue source for Chinese mobile operators.  Yet by 2012, 3G-based services will hold 19% of China’s VAS market.

Still barriers abound.  “The market is very opaque, as operators' regulations keep changing and rocking the life of the thousands of VAS service providers in China,” complains Joffe.  Besides, the majority of what is offered on the market today “is rather commoditized (ringtones, screensavers, ring back tones, SMS jokes) so it is very hard for them to differentiate.”

An important market feature is that local operators “tend to develop their own service every time they see a service is picking up,” and the examples include mobile music, mobile IM, and others.  Joffe sees that local mobile entrepreneurs are “fairly depressed as China Mobile reaps the rewards of SP's market building efforts.” 

At the same time, there are still bright spots on the VAS horizon.  Thus, many companies opted to focus on the off-portal market, with advertising models or cross-media cooperation. “In China, technology is not the key. Smart combination of ideas and proper execution are way more critical,” concludes Joffe.

Reflecting Joffe’s concerns, on June 5, 2007, China Mobile announced the launch of its own IM service “Fetion”. This service allows China Mobile’s subscribers to communicate with other users via mobile Internet by GPRS-network or mobile phone and PC.  Fetion’s service interface is analogous to MSN messenger or Chinese QQ service offered by Tencent company. 

China Mobile began its trials about a year ago and by April 2007 attracted 20.68 million subscribers.   Fetion offers color RBT and an on-line shop where China Mobile’s subscribers may check their balance, and also find out about China Mobile’s new services.  Games and video calls are also expected to be hits.  By launching Fetion, the operator openly challenged content providers and instant message leaders Tencent and MSN, which had 7 million and 300,000 mobile subscribers respectively by June 2007.   Now these companies face an emerging and powerful competitor.