Date
19 October 2017
Chinese smartphones are pre-loaded with apps that have become a profit driver for manufacturers. Photo: Bloomberg
Chinese smartphones are pre-loaded with apps that have become a profit driver for manufacturers. Photo: Bloomberg

China smartphone profit chain goes on and on

Carey Cheung, a typical Hong Kong “gadgetholic” buys a new smartphone whenever he thinks he is using an outdated model. He never uses the same smartphone for more than two months.

He has had smartphones made by Apple, Samsung and HTC but never a Chinese brand. Last month, he made his first native purchase — a Lenovo A850 smartphone from Taobao.com, the largest online marketplace in China.

The phone, with a 5.5-inch screen and a Quad-core CPU, looks a lot like the Galaxy Note II, one of the flagship models of Samsung. The new phone cost him 900 yuan (US$148), just 17 percent of the price of an iPhone 5S.

Carey was happy with the price of the phone but was shocked by the number of pre-loaded applications. He said there were almost 20 applications from third-party developers pre-installed in the device and most of them could not be deleted by the user.

This is a common practice among China’s smartphone makers. And this is one of the reasons China’s smartphones are so affordable compared with their Korean or American counterparts.

In fact, 87.9 percent of consumers polled by iiMedia Research found that their new smartphones had pre-installed applications. Almost 80 percent found at least 15 such apps and 38.1 percent said they could not uninstall these.

Is that so bad? Apparently.

Nearly 70 percent said they don’t use the these apps at all. Besides eating up already squeezed storage space, the apps raise security issues and exacerbate data overuse.

In China, mobile users usually use 100 MB to 300 MB of data per month to surf the internet. But some users have found abnormally high data usage whenever they use a local brand. In a few days, the data usage limit would be reached.

Pre-installed applications run in the background when not in use. As a result, users have no way of knowing know what data has been transferred from their devices.

Since these apps reside in the phone’s ROM (read-only-memory), they cannot be deleted. The only solution is embedded in the “root” directory, the starting point of all computing functions. Here, files and apps can be erased but it takes advanced knowledge of computers to do it.

In addition, the root directory is packed with all sorts of permissions before anyone can get in. And when one does get in, one is confronted with a warning about loss of manufacturer’s warranty if anything is changed.

It’s a perfect profit generator in China’s smartphone industry and perhaps the biggest reason homegrown brands are so cheap.

Software companies and app developers gauge their market reputation by the number of users of their apps. They are willing to pay phone makers to let them pre-install their apps. In turn, they’re welcomed with open arms.

Obviously, the arrangement works perfectly for smartphone manufacturers. It’s not uncommon to find four different internet browsers, three anti-virus apps and several navigation software in a Chinese smartphone.

Small shops providing mobile repair services also have a seat at the table. They help consumers root the phones in order to delete third-party apps. Manufacturers would love to see people do that because it frees them up from their warranty obligations in an instant.

A case in point is NQ Mobile (NQ.US). 

NQ Mobile, a global mobile security privacy and productivity software company, was recently questioned by Muddy Waters Research, an industry whistleblower, regarding its claims about market share and revenue.

Muddy Waters called out NQ for claiming it has a market share of about 55 percent in China. The actual number is 1.5 percent, the research company said. Also, it said NQ’s paying customers in the mainland are fewer than 250,000, much lower than its claimed six million. NQ also claimed it has 460 million registered users.

NQ mobile may be one of the parties in the profit chain. It might have 460 million users, but how many of them download the software on their own free will?

Since Nov. 1, smartphone manufacturers are required to submit a list of pre-installed apps to the government before the phone is sold in the market.

However, few Chinese consumers are convinced things will get better. For one thing, the new rules don’t limit the number of pre-installed apps and no penalties await offenders.

The profit chain will go on and on.

Vivian Chung is a financial journalist with more than 10 years’ experience. She writes mostly on financial issues relating to Hong Kong and China.

– Contact the writer at [email protected]

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Vivian Chung is a financial journalist with more than 10 years’ experience. She writes mostly on financial issues relating to Hong Kong and China

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