Despite its high profile exit from the mainland search market in 2010, Google (Nasdaq: GOOG) has quietly regained its position as a powerful force in China these last two years through the rapid rise of its Android mobile operating system (OS) that powers many of the nation’s smartphones. Its new rise was on display last week, as the US Internet giant threw a major wrench into the smartphone plans of Alibaba, China’s leading e-commerce company. With most Asian cellphone makers increasingly dependent on Android, Chinese firms that will depend on the mobile Internet for future growth need to think about creating their own new mobile platforms to rival Android. Otherwise they will risk becoming hostage to the world’s biggest Internet company, which could use its clout to ensure its own products always take precedence over its Chinese rivals’.
The rapidly developing spat between Google and Alibaba broke into public view late last week when Taiwanese PC maker Acer (Taipei: 2353) suddenly halted delivery of an Alibaba-developed smartphone just before the product’s launch. Word quickly emerged that Acer had acted under pressure from Google, prompting Google to say the new Alibaba smartphones appeared to use unauthorized elements of Android. Alibaba responded that Google was purely speculating in the matter. (English article; Chinese article)
This fledgling war of words highlights the increasing addiction by Chinese smartphone makers to Android, making them highly vulnerable to this kind of intervention by Google. Recent data shows that Android now powers 68 percent of the world’s smartphones. Many of those are sold in China, which will pass the US this year to become the world’s largest smartphone market. Android’s rapid rise is due in no small part to its status as a free system to anyone who wants to use it, unlike most other operating systems which are used exclusively by their developers. As a result, nearly all of China’s major smartphone makers and a growing number of Internet companies now use Android to power many of their most popular models.
Google’s new move against Alibaba shows that Android isn’t quite as free as it once seemed, and that the US Internet giant intends to maintain a certain level of control over the system. To counter that dominance, China’s own Internet firms need to think more about developing their own rival products and then promoting them among the broader Internet and smartphone communities to give them the critical mass to succeed.
Alibaba’s new smartphone appears to be a step towards more OS independence, and search leader Baidu (Nasdaq: BIDU) is also rumored to be developing its own smartphone OS. Tencent (HKEx: 700), as China’s biggest Internet company with a strong record in software development, is perhaps the best placed to create a strong rival OS, but so far hasn’t announced any plans. While Google already has a huge head start with Android, it’s not too late for some of the Chinese Internet majors to leverage their big home market to create strong rival operating systems. To do so will require some creative thinking on how to quickly develop and popularize their products, but failure to do so could see them rapidly become hostages to Google and Android.
Bottom line: The ongoing smartphone spat between Alibaba and Google reflects China’s growing Android addiction, which the country needs to break.
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