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Internet Companies in China Should Reconsider Making Mobile Phones

There is a considerable gap to be filled in the mobile phone market, but it should not be done by Internet companies, says Tencent’s mobile Internet president Liu Chengmin today. Attending a discussion on the progress of Tencent’s 2012 marketing team, Mr. Liu gave a series of thoughts to explain this idea.

Chinese Internet companies that do not prepare themselves well are heading into a trap if they think selling mobile phones will gain them more traction. The market already has 359 million users, says Mr. Liu, so it is already very saturated and will have a fixed capacity to it. He believes that companies should focus more on perfecting mobile advertising and services. He, of course, takes the opportunity to proclaim Tencent’s superiority in this field…

All this is irrelevant however. What is most important to realize, is that creating a phone is not necessarily the best way to enter mobile Internet. “When you are doing most things, you need to pay attention to whether it has value in the eyes of the consumer, not on your own wishful thinking,” says Mr. Liu.

In other words, as many economists would explain, supply does not create its own demand. Why?

Because in the end people will decide for themselves which applications they want to use. You cannot simply “hijack” the market, explains Mr. Liu. You cannot always expect that users will want to use your software when they are using your hardware, and if you aren’t making money on hardware, then you’re fighting a losing battle.

Indeed, the model seems to be in the process of unraveling, and it is probably not the best strategy to follow when so many others are doing the same. Of course Apple has followed this strategy with iOS and App Store, but it cannot last forever. If everyone thinks they are unique when they aren’t, it creates problems (think high school).

I would say that the mobile phone bandwagon is a particularly radical form of growth in this market that is probably unnecessary. Internet companies who have never done phones before cannot possibly be prepared for it. It is a bubble, and I would liken it to the oft-seen scrambles in China for IPO “status” and excessive luxury products. Only those who do it the right way will succeed in the long run. You cannot simply create face if there is not enough face to go around.

Certainly it will skyrocket for some time, but undoubtedly there will be more phones than money to pay for them at some point. People are too eager to get rich fast or gain fame in this market. Call it pessimism, but I think there will be an adjustment here within a few years, and it might not be so pretty. Even China’s population isn’t infinite.

Anyway, it will be great for bankers and lawyers.

From “21st Century Business Herald” (Sina Tech)

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