Why It's So Difficult For App Developers To Take Advantage of China's Rapidly Growing Mobile Market

With a record 450 million smartphones expected to ship in China this year and recent news of Apple's partnership with China Mobile, foreign app developers are looking toward the East.

Despite the opportunities, a messy, fragmented, and unorthodox mobile advertising system presents these developers with a challenging way of doing business.

For one thing, China doesn't have the big mobile ad networks found in the West. Instead, there are "channels," and the top ones, like Tencent, Baidu, and Qihoo, are responsible for the large majority of app downloads across the country.

The major channels handle mobile advertising deals face-to-face (rather than providing access to development kits) and take 30 to 40 percent of revenue - and that is on top of an additional 30 percent given to a mobile provider. The benefit is that the app will be promoted within that channel's app stores, and possibly advertised on its desktop services as well.

Additionally, if a developer chooses to go through one of China's hundreds of smaller channels, it opens itself up to losing potentially huge revenue to pirated versions. This is because the big channels usually ensure the marketplace is free of pirated copies of software for which they are responsible, while the smaller app stores are open to abuse because the Chinese mobile industry does not require them to be approved by phone manufacturers.

The big channels' app networks are also essential because in China, a massive 90 percent of app revenue is attributed to in-app purchases. Most users do not spend any money within apps, but there are "whales" who have been found to spend thousands of dollars on their phones. A bigger network means more chances for whales.

There are no signs that China's mobile ad marketplace is consolidating into something neater. So for the foreseeable future, an outsider's key to success lies with arranging a deal with one of the major app distribution channels. And this comes with the hope that its network makes it worth it to sacrifice 70 to 80 percent of the revenues.