How Google Deal Can Help Motorola in China

With 920 Million Mobile Phone Accounts, the World's Biggest Handset Market Is Key to Success

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Motorola has been tight-lipped about what might happen after its acquisition by Google, but it's clear the deal can do much to help the handset maker in the industry's most important market: China.

China counts more than 920 million mobile accounts, and that number continues to grow. There's more: about a third of users go online with their phones, more and more people are turning to Google's Android phones, and millions are on the cusp of trading up to smartphones.

"People are much more willing to spend money here on phones than they are in the U.S.," said Ben Cavender, associate principal at the China Market Research Group in Shanghai. "When you talk to consumers about what they're doing for their next phone purchase, everyone is switching to smartphones," he said.

Google CEO Larry Page has said Motorola will be run as a separate business and suggested that one of the main reasons for the acquisition was to take advantage of the handset manufacturer's patent library. However, there are obvious benefits to cooperation, as Motorola rolls out new products (launching eight new smartphones in China so far this year) and tries to claw back to the position of dominance it achieved in the market in the 1990s.

Motorola was one of the first multinational marketers to enter China, and that country is still Motorola's biggest market outside the U.S. In its heyday, Motorola developed its Ming line of smartphones specifically for Chinese consumers. And MotoMusic, the mobile music site Motorola and its China agency Ogilvy & Mather Beijing created in 2006 to download music to mobile phones, grew to become the largest legal mobile music site in the country, with pop star Jay Chow as the brand ambassador.

Even now, Motorola's market share is bigger in China than elsewhere. Motorola's share of the global smartphone market was 4% in the first quarter of 2011, but 7.5% in China, according to estimates by Gartner, a U.K.-based research firm. Nokia has been a longtime market leader and still claims about half of the smartphone market in China, but has been rapidly losing popularity as consumers increasingly turn toward Android-based handsets made by Samsung, LG, HTC and Sony Erickson, analysts said. Apple has less than 10% of the market.

One major factor driving the switch is the availability of apps to Chinese consumers: As of April this year, Nokia offered about 10,000, compared to Android's 188,000 and Apple's 296,000, said Duncan Clark, chairman of the Beijing-based consultancy BDA China, which focuses on the internet and telecommunications sectors.

The hype surrounding the Google deal puts Motorola in a good position to capitalize on Chinese consumers' love of new gadgets as well as the important role a sharp phone plays in conveying a person's social status. Many can't afford to buy a car or a home, so a phone is often the first significant purchase.

Cellphones are also an integral part of urban Chinese life. They're a source of entertainment on long, sweaty commutes. In many cases they've taken the place of digital cameras, music players and TVs. Voicemail service is rare, so phones are always kept close at hand and answered during meetings, movies and meals.

Chinese consumers "constantly want the new thing, especially if it's a brand they respect because it gives them status," Mr. Cavender said. "Generally speaking, people are relatively conservative here in the sense that they want to know they're buying a safe brand. Google is a very safe brand, Motorola is a safe brand."

China could be a key market for testing future products jointly developed between Google and Motorola, based on its sheer size and the enthusiasm users have for new technology. Motorola has already done this in the past, with dual SIM card phones hitting China first and then being taken to other markets, Mr. Clark said.

"Google is different, it likes to think of itself as a technology company with global appeal -- that 's true, but over time Google will have to give consideration for large local markets such as China, especially now with handsets and apps," Mr. Clark said.

He also sounded a note of caution. Google's relationship with Beijing has been strained after the internet giant pulled its Chinese-language search engine out of the mainland last year, citing censorship and allegations of hacking attacks.

"There's some people in this government who are still quite opposed to Google," Mr. Clark said. "[Motorola] has had a longer experience in China than Google, a less controversial experience. The challenge is whether the government is going to punish Google and by extension Motorola for earlier transgressions."

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