Squeezing cash from China's billion phone app market

At some point in the past few months, China's billionth mobile phone customer switched on his or her handset for the first time.

The mobile network growth here has been remarkable, with some 80 million new subscribers coming online every year for the past decade.

But in some ways the real communications revolution has only just begun.

This year, China will overtake America as the world's biggest smartphone market.

And for many Chinese, the smartphone offers them their first personal route to access the internet - by some estimates 40% of those connecting to the web in China now do so solely via a mobile phone.

That offers IT developers, and mobile phone app makers in particular, an extraordinary opportunity.

'No better place'

In a small Shanghai office, with a few dozen employees beavering away at their computer screens, Guanxi.me is one startup company joining the gold rush.

It's estimated that 40% of those connecting to the web in China now do so solely via a mobile phone

"There's no better place to be than China," chief executive Alvin Wang tells me.

"There'll be an extra 200 million new smartphone users in the next 12 months. We want to be on those phones."

The app Alvin is developing allows users to build social networks and then, using geo-location data, track and meet those contacts in the real world.

"People are social animals but today's technology is more geared to replacing face-to-face contact. We want to enhance and increase face-to-face contact," Alvin says.

Guanxi.me is free to download, and that's important in China.

Here, smartphone users are much less likely to pay to download an app than their Western counterparts.

Cheryl Wu is a typical young Chinese smartphone user

Cheryl Wu is typical of many young smartphone users in China.

She has a job in real estate and spends her evenings meeting and socialising with friends; posting, tweeting and messaging her way through her nights out using a series of apps on her smartphone.

All of those apps, though, have been downloaded free of charge.

She particularly likes the Weishin voicemail app she tells me, because it's fun, convenient and free.

'In-app' sales

So how, then, do you make money as an app developer in China?

One way is to try to target "in-app" sales; give away the app for free, get users hooked, and then sell them the chance to enhance their experience for a small fee.

It's a model used most successfully by the bigger developers of mobile games technology and the idea is simple.

Although users in China may be willing only to pay a few cents for the enhanced service, when you're talking millions of users, that can soon add up to a lot of money.

But for non-gaming app developers, advertising revenue is the way forward, and July Cheng, a young mother based in Shanghai, is showing how easy it can be.

Her home-made app, developed for her twins, has become a surprise overnight success with tens of thousands of downloads.

Young mother July Cheng developed her children's flashcard app for her twins; she now makes more than $1,000 a month

For each one, July is paid a commission from the pop-up-ads linked to the app, and she now earns more than $1,000 a month this way.

"You just need one mobile phone, one PC and your good ideas," she tells me.

The holy grail for app developers, though, may well be finding ways to hitch a ride on China's booming luxury brand sales.

Apps like Guanxi.me have valuable social networking databases that could prove very attractive to high street retailers.

Couple that with the phone's geo-location data, and suddenly the mobile phone offers advertisers a way to get personalised offers into the hands, or onto the smartphone screens, of customers at the moment they pass by the shop door.

Copy cats

This kind of technology is being developed in many markets, of course, but it is in China, with the sheer scale of the mobile market and the country's booming sales of luxury brands, that the opportunities might prove the most attractive.

One major challenge remains however, and it's an old one: the country's notoriously weak protection for intellectual property.

"Once you start to become successful, your app will be copied," Michael Clendendin from industry analysts Red Tech Advisors tells me.

"I've no doubt about that, so the only way for you to survive in China is to try to pre-empt that by partnering with one of the bigger companies that might steal your app."

That will need to change if China is really going to unlock the creative potential offered by its ever growing mountain of mobile hardware.

Guanxi.me's Alvin Wang thinks it will, in part because Chinese companies will themselves join the chorus of international voices demanding a strengthening of legal protection.

"It's going to take a little time, I'm not saying overnight this is going to be the oasis for intellectual property protection," he says.

"But over next five to 10 years, there will be an increasing awareness from government, and pressure from Chinese companies themselves, to make sure real innovation is protected."