The China Vortex

I am a fan of Apple’s products. I believe that the hardware is well-designed, and so is the software. In particular, I believe that the design philosophy behind Objective-C and Cocoa frameworks are the best thought-out and implemented tools for any developer looking for a strong and robust environment for object-oriented programming.

Like other Apple fans, I get excited at the new hardware the company puts out on a regular basis. I have reconciled myself to the fact that the top-of-the-line Macbook Pro I now use will shortly be replaced by a newly refreshed iteration of this line, and I will soon torment myself when I see others with their newer computers. The sames goes for my iPod touch.

I am also a fan of Steve Jobs; he shows what can be done by a very smart guy who has fallen down a few times in life who now has a good plan, and who just focuses on implementing his plan. The guy knows exactly what he wants, and doesn’t let anyone or anything get in the way of his plans. He is the poster boy for a smart authoritarian and autocratic management in an organization. I’m convinced that without a firm grasp of the challenges the company faced in 1997, Apple would have quickly gone into bankruptcy.

Steve Jobs saved Apple.

This is why I get upset with the company’s policies towards China. I mean, for Apple to criticize the Chinese government for not being open and nice to minorities is just completely wide of the mark.

With this in mind, let me show you how the Chinese government, in comparison to Apple’s management, is in fact much more open and democratic:

• China now has a group leadership on the national level. Who is in the group leadership at Apple? And how much do you see others besides Steve Jobs talking about “different directions” at Apple?
• Who is going to be the successor to President Hu Jintao. I can name several candidates including Xi Jinping, Bo Xilai, Zhou Yongkang, just to name a few. Who is going to succeed Steve Jobs? I can’t name any.
• Leaking any information about any new products which have not yet been announced at Apple are grounds for immediate dismissal. Same goes for China.
• Apple employees are not allowed to publish unofficial blogs without company permission. Doing so may be grounds for dismissal. China has 100 million blogs; all of them are unofficial.
• In private meetings with Steve Jobs and Apple senior and executive management, the senior and executive management turn and look to Steve Jobs for permission to speak before speaking, even when they are addressed directly. The Chinese national government leadership is more relaxed than Steve about other senior officials speaking about national affairs.
• For many Apple employees, the most dreaded moment is sharing the same elevator ride with Steve. If he talks to them and he asks what they do, and they go not give a good response, he just might terminate them.

Basically, Apple (the company) is an extension and implementation of one man’s (Steve Jobs) vision of what the consumer electronics and computing industry should look like. And ironically, laws in the US permit Steve Jobs to run his company in a very autocratic fashion. I have not yet heard of people being “dismissed” from China because they were not productive according to one ruler’s definition. On the contrary, the Chinese government goes out of its way to keep the Chinese economy on a growth track, creating more jobs. (I must admit that I think many of these jobs are of questionable value, but that’s another discussion.)

And yet, Apple doesn’t like things the Chinese government does because they are less than democratic and are autocratic? How many current Apple employees do you see protesting at the way the company is run? I’ll tell you how many there are.

Zero, nada, zilch.

Sure, Steve Jobs is running a company and the Chinese government is running a country, but is there anything to suggest that Steve would act any differently and suddenly become open and democratic if he were running a country?

Come on Steve, look in the mirror. When it comes to autocracy, the Chinese government can’t hold a candle to you.

I’m really trying to wrap my mind around this and am trying very very hard to understand Apple’s criticisms of China. If anyone can explain this to me, I’m all ears.

In an earlier article, I talked about my take on the telecom shakeup in China in May. Three months after, it looks more like China Mobile is being slapped down by the State Council for growing too big too fast and being overly aggressive and dominant in the growing Chinese mobile market, which is now the single largest national mobile market in the world.

For this transgression, China Mobile is:

• Saddled with China’s own 3G mobile standard, TD-SCDMA, which by China Mobile’s own admission is behind the competing western-developed standards;
• Facing new marketing rulings which stand to help China Mobile’s competitors, especially the newly resurgent China Telecom;
• Even considering partnering with Apple to distribute the iPhone in China. The only way this would make sense for both parties is if Apple agrees to build China iPhone3Gs with the TD-SCDMA chipset, since TD-SCDMA is not currently supported by the iPhone3G.

The greatest beneficiary of the great China Mobile slapdown is China Telecom, which has shrewdly positioned itself as an underdog to the China Mobile bully. With its recent rulings, the State Council is cheering on the underdog.

China Telecom, for a long time, was the odd man out, until the May telecom ruling allowed it to introduce 3G mobile services in direct competition with China Mobile and China Unicom.

Obviously, the Chinese government feels that there is a lot of room for pruning back on China Mobile’s dominant position in the mobile market.

Several months ago I wrote about how Apple’s opening of the iPhone SDK and its App Store would create a whole new business ecosystem for application developers for that platform. Apple offers globally accessible hosting and payment clearance in return for a 30% cut of the app’s sales price.

Now, there are early signs that the strategy is paying off for some early application developers who have developed popular apps for the iPhone and iPod touch (which uses the same SDK as the iPhone) users. Eliza Block, who developed 2 Across, a word game for the iPhone platform, has reportedly cleared in the area of $2,000 a day according to this article.

The App Store is a new updated version of the shareware movement which took hold in the early 80s with the launch of the Apple Macintosh 128K. In those days, homebrew developers would develop games, apps and productivity tools which were distributed on floppy disks. (Remember those? If you do, you’re showing your age.) More often than not, these came with a message which went something like “If you liked this app, please show your appreciation by sending a contribution to this address.” More often than not, people just used the apps without sending money, although there were a few kind and generous souls who did.

Now, Apple has become the doorkeeper for these independent developers. There is no more reliance on the kindness of strangers; Apple takes care of global distribution and payment for new apps in return for 30% of the app’s sales price. For devs, the App Store is the perfect barometer for what’s hot and what’s not.

In contrast, Facebook and others have not been able to find the magic balance point between independent developers and their own corporate needs for revenue. When Facebook opened its platform to developers, it ended up enabling app developers to spam the FB audience, driving many away from Facebook. Now, with Facebook Connect, FB is trying to find that balance point.

Chinese social media companies are no better at finding the right balance between independent devs and their own need for revenue. While there has been talk about open systems in China, all of the competing business models in fact, are not open. Apple’s system is certainly not open. it’s just that Apple is willing to share in order to grow the pie.

Apple and Steve Jobs have successfully put themselves at the juncture of technology, business and hardware, and are willing to share a larger cut in order to drive up sales of a very attractive new hardware platform. With growing earnings from hardware sales, Apple can afford to be generous with devs, and is effectively subsidizing a new business ecosystem. By making some independent developers financially successful with App Store and getting that word out, they do something none of their competition have been able to do yet.

The question for Chinese companies such as Tencent is whether they are willing to use their high corporate earnings to subsidize their own independent developers’ business ecosystem as Apple has, and share some of the revenue in order to grow the pie for everyone? Or do they still think that they can own the whole pie? Tangos Chan says that they still believe that they can own the whole pie.

But Tangos believes that this will change in the future. In the meantime, more independent devs will gravitate to developing for the iPhone platform. It’s better to open up sooner while there is still interest in their platform because opening up later means that they will have to be that much more generous in order to attract developers away from Apple’s platform.

After all, that’s where the money is. And I’m sure that Steve loves how his competitors’ moves help his platform.

What more could he ask for?

Over the past year, the tone of coverage of many China-related topics in the US has improved. For the most part, writers covering China have tried to look past the generally-accepted stereotypes, and have tried to get a deeper understanding of what is going on in China.

But occasionally something finds its way through the cracks.

This article is really exemplary; it seems like the writer has taken all the stereotypes about Apple and China, and thrown them all together in one basket. Judging from the tone of the article, and what he professes to be truth, it seems like he has never set foot in China. Otherwise, how could be believe some of the things he writes?

Let’s take a look at some of the choice statements:

Apple has less than 8 percent market share in China for media players, and far less than 1 percent of either PC or cell phone market share.

Yes, so? I wonder if the writer has walked into any cafe in Shanghai, Beijing and Shenzhen, and looked around? Or has he taken any of the subways in any of those three cities and looked around for the signature white earbuds? The question should not be the percentage market share. It should be the trend, and whether it is tracking up or down.

Apple’s second biggest hit in China, the iPhone, isn’t authorized. One Chinese analyst estimates that some 1 million Apple iPhones are currently operating on just one Chinese carrier — China Mobile — with a smaller number on other carriers. Most Apple “Authorized Resellers” in China sell black-market iPhones, and many even offer illegal cracking services — a process that reportedly takes less time than activating an iPhone 3G in California.

Apple makes money off of every iPhone sold, whether it is through authorized or unauthorized channels. Sure, Apple would like to have a carrier agreement in China, but having a group of fans, even though it is relatively small percentage-wise, which is very enthusiastic about Apple products, is a good thing. Besides, there are a lot of people in China who pay even more for more expensive feature-packed mobile phones in China. In fact, the iPhone is not the most expensive phone in the market. Ask Nokia.

Apple succeeds because customers love the products and the brand. But in China, brands mean little to most potential customers, and hardware even less. Chinese consumers prize value above all.

This quote is a true gem and qualifies as one of the most ignorant sweeping statements about China for 2008, even though we are only halfway through the year. Obviously the writer has not been to China and walked in the downtown of any major city. Here is an article about the runup to the recent opening of the Sanlitun store in Beijing and another story about Chinese youth camping out in front of the Beijing Apple store, where they were behaving just like American Apple fans.
I guess that’s why there are no Mercedes Benzes, BMWs, and Chinese women don’t care about the labels they wear? Maybe he thinks that they still wear Mao suits?

The rest of the world’s love of the Apple brand has enabled Apple to get favorable terms with carriers around the world. But this hasn’t helped much in China. Apple initially demanded a big two-digit percentage of carriers’ wireless revenue as a condition for granting its coveted exclusivity deal, according to reports (one company says Apple demanded 30%). The Chinese carriers were apparently unimpressed by the value of Apple’s brand compared with the value to Apple of access to Chinese consumers. They appear to have forced Apple to drop its demand for any share of wireless revenues.

The reason Apple has not been able to get an agreement with China Mobile is because they are both big companies with very big egos who want to control everything. I would say that Apple and the carriers have trouble reaching an agreement because they are so much alike, and don’t believe in compromise.

One-party rule in China actually affects product quality. One example is that Apple will probably be required to disable the iPhone’s Wi-Fi feature in order to comply with the Communist Party’s strict Internet control and censorship rules.

The relationship between one-party rule and product quality is an arguable point. But if it is that simple, then why are ALL of Apple’s products made in China? As for the disabling of Wi-Fi on phones sold in China, that is a China Mobile requirement, not a State Council requirement. (If you think that the rulers of China don’t have better things to worry about than whether mobile phones in China have Wi-Fi functionality, you don’t know anything about the country and how it’s ruled.) Besides, with the recent re-arrangement of the Chinese telcos, it’s not as if China Mobile is able to control Wi-Fi as much as it would like.

China is number one in intellectual property theft

Apple’s whole business model is based on creating value through exquisite design, superior branding and the sale of creative intellectual property (IP) — then defending its rights against the IP thieves, pirates and counterfeiters.

How will this formula succeed if China doesn’t enforce intellectual property laws?

The music piracy rate in China is between 90 and 99 percent, depending on whom you ask. China is the global epicenter of intellectual property theft in general, and of Apple IP theft in particular — especially iPhones and iPods.

Fake iPhones, and phones that steal Apple branding; illegal iPhone unlocking services; trade in illegal movie and music files; all appear to be tolerated and even government-protected activities in China.

Oh yes, how can we talk about China without IP violations? Seriously though, this is an issue. The best way to fight IP though, is for a country to get more prosperous. As people become wealthier, they are more willing to spend money on software, music, etc. In China, it is also very important to explain the importance of IP to various government ministries, and even be flexible about how much you charge Chinese consumers. Many Chinese think that they should not have to pay as much for music as US consumers because they have a lower income and standard of living. Does that fit into any American companies’ equations? Up until four years ago, Microsoft had a very high level of illegally installed Windows licenses in China, and constantly lobbied with the US Congress to “punish” China. When Microsoft China changed tactics and chose to engage Chinese ministries, educate them, and lower the license fees (as China’s standard of living increased), first the ministries, then the schools, then the people started buying original software from Microsoft. Now Microsoft gets more revenue from China, and the relationship with the government is much less confrontational. Piracy of Microsoft software still exists, but again it’s about the trend, which is improving.

Steve Jobs is an exemplary business and marketing genius. But when it comes to learning about other markets, he is lazy. He would like nothing better than to set prices for all media products sold through iTunes himself, and he would like it to be the same all over the world. China is a major kink in his vision.

How many times has Bill Gates been to China? How many times has Steve Jobs been to China?

I rest my case.

If you are one of the estimated 800,000+ iPhone users in China, then there is a more than 99% chance that your iPhone is cracked since Apple does not yet have a carrier partner in China.

For many of those users, there is the fear that once Apple ties up with a Chinese carrier and starts offering the iPhone3G in China, their first-generation iPhone will become an iBrick because it will not be recognized by the Chinese carrier and/or Apple, and there will be no upgrade path. (Apple and Steve Jobs are kind of famous for not particularly caring about background compatibility and upgrade paths. If you’re screwed, you’re screwed.)

Fortunately, Matt Cutts of Google has posted an article on his blog called “5 Steps to Upgrade From a Hacked iPhone To and iPhone3G”. The article is written for an American audience, but there is no reason why it could not apply to an iPhone user in China (or anywhere else).

The good news is that your first-generation iPhone will not become an iBrick, and you can likely sell it on Taobao. The bad news is in step two: there’s no way you can avoid spending money on another cool device from Apple.

UPDATE:One week after its release, the iPhone3G has been pwned (that’s geekspeak for cracked). So do you want to go legit or are you hardcore for open? It’s your call.

Yesterday I had the opportunity to watch Part 1 of Ted Koppel’s documentary series The People’s Republic of Capitalism on the Discovery Channel. Instead of going to Beijing and Shanghai, the normal stops for most first-time visitors to China, Koppel went to Chongqing, a city I have visited and written about.

The documentary is very intelligent and well-done, Koppel covers companies in the US who relocate their manufacturing to Chongqing, and the effect on the lives of the American workers who lose their jobs in the US, as well as the Chinese workers in the factory in Chongqing. He also compares how differently WalMart is viewed in China and the US. Koppel does a very good job of providing context about the effects of globalization, which mix good as well as bad for everyone.

Part of the reason the documentary format is appealing is because:

• Many news departments cannot afford to send someone to a foreign country to live in and understand a different society for any length of time, even for a country as important as China
• Most editorial head offices have their own agenda, and see things very differently from the local people, which leads to an unbalanced view
• The views of many Chinese are often dismissed because westerners think that they are, rightly or wrongly, closely supervised by minders and are only speaking the government line

Koppel is fortunate because he had an excellent record on his nightly news program, Nightline, which he hosted for nearly 20 years. And now, he is able to make the kinds of programs he likes, without having to worry about time and budget considerations. It would be nice if there were more journalists who could make documentaries the way Ted Koppel is able to.

The series is a four-part series showing on four consecutive nights. If you are outside the US, you will most likely be able to buy the series from iTunes, because Discovery regularly sells their documentaries in the Apple iTunes Store.

Just as with a master go player, whose moves seemingly look random in the beginning, Apple’s moves in the mobile and desktop space are beginning to come together.

While the iPhone3G was expected, the real aggressive play came with MobileMe, Apple’s completely revamped version of it’s .Mac subscription service.

With Apple’s announcement of the new iPhone3G and MobileMe web-based push-sync solution, Apple further closed the loop on the competition with a complete soup-to-nuts offering for consumers, and now has a strong entry into the corporate market. By licensing Microsoft Exchange to Apple, the Redmond giant gave Apple an entry path into corporations for the iPhone3G at the expense of Blackberry, and the future of its own Windows Mobile platform.

How will future versions of Windows Mobile differentiate themselves in the corporate marketplace, traditionally Microsoft’s stronghold?

Alvin Foo has excellent coverage of the iPhone3G on his blog, and now also provides a robust development environment for mobile developers.

The feature comparison chart above gives some feel for how things are shaping up for Apple, Microsoft, Blackberry, Nokia and Adobe. The immediate pressure is on Blackberry, then pressure will shift to Nokia which has a very wide product line, and is the largest seller of mobile handsets in the world.

Apple and Nokia have two different visions of the future: Apple wants to sync multiple devices including computers and mobile phones. Nokia needs to offer single computing platforms in multiple markets which provide excellent computing capabilities with voice capability as their only computer of choice, making it unnecessary to have multiple computers.

Can Nokia pull it off? Unfortunately Nokia is still too married to the voice phone capabilities of its phones, and has not been able to come up with a single data-centric vision of the future for the OS and applications.

Microsoft’s vision of the future is the same as Apple’s: multiple devices with push-sync across platforms. The trouble is that Microsoft cannot have solutions as elegant as Apple’s. The company is reliant on its strong corporate presence to continue to get revenue, but now Apple has a backdoor entry into that marketplace with its licensing of Microsoft Exchange for the iPhone3G. The next step is for developers to come up with iPhone versions of corporate apps for the iPhone. This will give IT departments an opportunity to evaluate the stability and security of OS X.

Microsoft’s matrix management and multiple business units and product lines make it difficult, if not impossible, to come up with single elegant solutions for both corporate and consumer markets. If Microsoft continues to launch operating systems like Vista on a much slower launch schedule than Apple, their position in the marketplace will continue to erode.

In order to pull off a plan as aggressive as Apple’s, you need a strong division management with limited product lines, reporting directly to The Man, Steve Jobs, who has the vision, and gets everybody in line to execute.

Apple’s loop continues to close…

In 72 hours, more than 600,000 persons in China, and 6-7M persons worldwide, are going to turn to that little something dearest to them and say those dreaded words, “Honey, you’re looking old”.

I’m not talking about their spouse, I’m talking about something they normally spend far more time with: their iPhones. Within 72 hours in San Francisco, Steve Jobs will take center stage at the Apple Worldwide Developers Conference (WWDC) to announce the second generation of the iPhone, which many refer to as the JesusPhone. We already know that the new phone will include 3G and GPS features.

Hmmmm…. Does that mean we can call the second generation of the iPhone the Second Coming of the JesusPhone?

For China, the big question is whether the new revs of the iPhone will include the Chinese government backed and developed TD-SCDMA technology, which is the local version of the 3G standard, and has now been handed over to China Mobile for care.

China Unicom and China Telecom will support competing 3G standards which are not China developed and are most likely already supported in the current chipset for the 3G iPhone.

The thing to watch for will be whether Apple starts ordering TD-SCDMA chipsets. In the meantime, dedicated users of the Apple iPhone in China will most likely switch their mobile phone accounts to China Unicom and China Telecom if they want to take advantage of China’s not-yet-launched 3G services. The thing that they should remember is that China Mobile holds the vast majority of mobile phone accounts, with China Unicom coming in a distant second and China Telecom just recently starting to offer mobile services. And 3G services have not yet launched in China, though everyone is expecting that to happen within the next six months.

In the meantime, you might not want to tell your spouse yet that she is looking old.

This article is a follow-up posting to my previous article about why China Mobile should buy Baidu.

One of the rules for mergers and acquisitions is that if one company wants to be acquired by another company, they have to be moving in generally the same directions. This way, less management attention needs to be spent on changing direction and redirecting resources.

If we take a look at China Mobile, they are a Chinese company which has been looking aggressively outside of China. With 500M+ mobile phone subscribers in China, it has the user base and cash flow to be truly a world-class company. China Mobile is proposing to set up a development lab with Vodafone and Softbank to work on widgets and others services to offer China Mobile and Vodafone subscribers. From the surface, it appears that these two leading carriers are trying to wrestle some of their technology dominance back from Apple’s iPhone, which will offer its own Apple App Store, selling mobile apps directly to Apple iPhone users beginning in June.

Interestingly, Vodafone is helping to bring Apple’s iPhone into the Indian market. According to a recent article, Apple may be discussing launching the iPhone officially in China with China Unicom. (Note: I disagree the author’s tone about Apple not getting it right in selling in China, I think that Steve Jobs knows very well what he is doing, and is biding his time until the 3G iPhone comes out in June. China is another piece on his chessboard, albeit a very important one.)

On the business side, China Mobile has been most agressive in Pakistan, following on its purchase of Paktel in 2007, and has just launched its Mobile Zone in the country. This looks like a test learning market for China Mobile. There are not many companies which can afford to “test” in a country with a population of 180M, China Mobile is one of them.

Based on this, it would be fair to say that China Mobile is leaning forward into overseas markets. It has enough money in its coffers to expand more quickly, but the most serious barrier is lack of international management talent who can execute in non-Chinese markets.

In contrast, Baidu is much more focused on the Chinese domestic market, where it continues to grow and pull ahead of Google. Everything suggests that the Baidu management believes that there is much more room for revenue growth domestically in China. The only tentative step Baidu has taken outside of the China market is with Baidu Japan (baidu.jp), which has only 0.3% of the Japanese search market.

Compared to Google, Baidu still continues to go after the easy money in China. Google continuously introduces and refines it search algorithms which are the secret sauce of its success. In comparison, Baidu relies less on search algorithms, instead using human search to assist in search results.

Baidu’s search results are also fundamentally different from Google’s. While Google’s search results strictly differentiate between unpaid organic search and PPC advertising, Baidu makes no such differentiation. The end result is that unpaid search results are pushed further back in position on the search results pages.

If there is one challenge in Baidu’s reliance on human-assisted search (as opposed to automated search algorithms as Google uses) and giving preference to paid advertising over unpaid in search results, it is that while it boosts revenue in the short-term, it is not extensible outside China, except for some of the other East Asian markets (Naver.com in South Korea is one such example. It would be nearly impossible for Baidu to oust Naver.com from its leading position as the home-grown leader in that very nationalistic market.)

Here lies the challenge: China Mobile is looking outside of China now, and Baidu is still looking to grow revenue on the domestic market, while nearly ignoring the overseas market.

Is there room to narrow the gap and create a new company for mobile search advertising and location services, first in China and then which can be extended overseas?

That is the challenge.

A few days ago I read an interview with Steve Jobs published in Fortune in March. One of the ideas which Steve Jobs put forth is that you really need to understand the technology issues, then follow how they will roll out in order to be successful. Apple has a certain advantage because it owns the operating system and the hardware. This means that the hardware and technology can be integrated much more tightly together.

This makes me think that one of the issues with the current media and advertising space in China is that there is not enough understanding of the integration of the hardware and software. Basically, DoubleClick came up with the idea of the banner ad, then Google came up with the idea which came from came up with the idea of PPC advertising on the search results page, and the algorithms which would optimize the system to become a money machine for Google. For too long, players in this space have come from the media space, offering a “me too” solution full of buzzwords but with little real content to differentiate.

What did Google do which was so different from Yahoo!, the leading Web 1.0 portal? They got very close to the technology, to the point where they built the servers and disks, and created MapReduce, Google’s search technology which could run on huge clusters.

Now, I hear a lot of talk about all the startups in China, but most of the time, I don’t see how any new technology is used to take a whole new look at how advertising should be delivered over a complex network. Most are consumer plays which do not deliver anything spectacular. That would not be an issue if they had a good feel for the marketing process, but more often than not, they do not. As a result, most advertising buys gravitate to the big online media companies, which include Sina, Sohu, Netease and QQ, as Kaiser Kuo frequently talks about in his blog at Ogilvy China Digital Watch.

In fact, we are just at the beginning of a whole new wave for technology and advertising: this is the mobile wave. Handset makers now only pay US$15 per handset for software, and with the upcoming development and launch of Google’s Android, per handset payouts are going to go down even more. This means only one thing: there will have to be a steady advertising revenue stream to finance all the content. The mobile network though is not one network, it will have to be two:

• The search and search results network including GPS location-based detection
• The network delivery system

In software development, there is the MVC or model/view/controller system for software design. The rules are defined at the model level, there is the presentation end for how the viewer sees the content (Apple is now taking a grab at this with the Apple iPhone) for view and the controller, which connects the rules at the model level with the view, and handles delivery.

Basically, Apple is trying to leverage its control of the iPhone audience at the view level to get leverage with the carriers, who act at the model level. In some markets it has been successful, but not with China Mobile so far. The handset makers such as Nokia, Samsung, and LG have solutions, but since their product lines are spread across so many products, they have little leverage unless they came up with their own operating system and hardware as Apple has. What are the chances of that happening? Microsoft has a solution with Microsoft Windows Mobile, but it is just one among many players and does not have a dominating position on any of the model, view and controller levels of the mobile network.

China Mobile has made no secret of its plans to control the platform as much as possible by virtue of its near-monopoly role in this space. Ultimately, it will have to make marketing choices about what audience it wants to serve: the casual youth market or the productivity worker, and how to maximize revenue from the market they choose. The only way for them to avoid having to make this choice is to offer contextual advertising on the mobile network. It would make a lot of sense for China Mobile to buy Baidu to protect its mobile advertising revenue stream from Google, and then make a serious technology effort to combine improved search algorithms with location services. Search technology involves a great deal of non-trivial technology which cannot be easily replicated, even by a company as huge as China Mobile.

As for smaller players, they will have to come up with ways to get revenue from a market which has been bombarded with a huge amount of free content.

Google has a tremendous advantage with the Google Android operating system, which will have hooks built into it for search and location services. If you think that they are giving a mobile phone OS away for free just because they are nice people, you are delusional. They are offering a new mobile ad platform with other services to attract developers.

I expect that the mobile network will very soon become the “smart network” compared to the PC-based network, which will become the “dumb network” because it does not have location sensitivity. (Of course, newer computers will have location sensitivity. This will then combine with Google’s current services to deliver ads which will make the current ad networks look like something from the Stone Age.) The PC network will continue to be good for banner and brand advertising, but if you really want smart contextual advertising which operates on a PPC basis, mobile will be the leader.

The smaller mobile players will have to pay “toll fees” to the model (China Mobile, China Unicom, etc,.) and view (Apple) players. It will be much harder to get onto the technology ramp for mobile than it is for the PC, at least in the beginning.