Market Watch

Location-Based Services Take Shape in China

LBSN segment makes the first big leap

June 06, 2011

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Chinese companies view location-based social networking (LBSN) as an explosive growth opportunity and plan to follow the lead of successful LBSN systems in other nations, new IHS iSuppli research indicates.

Until very recently corporate entities and consumers alike in China had little awareness of location-based services (LBS), particularly the LBSN segment of the market. Although LBSN systems like Foursquare, Yelp, Google Places and Facebook Check-ins have been popular in the Western world for almost two years, similar apps were rarely found in China prior to late 2010.

However, Chinese companies are highly adept at copying successful businesses from developed markets and creatively adapting them for the domestic market. Just as Baidu, Sina Microblog/Weibo and Kaixin Net took over the likes of Google, Twitter, and Facebook in China by mimicking them, Chinese companies hope to reap big profits in LBSN simply by following in the footsteps of Foursquare and Yelp.

Virtually overnight, Foursquare-like LBS apps have started appearing in China, with roughly 50 players now existing in the domestic market. Several Chinese social networking startups, such as Digu.com, Jiepang.com and Sifang.com, already have attracted significant numbers of users.

On top of that, various Chinese Internet giants have joined the party. The leading Internet gaming portal Shanda Interactive Entertainment Ltd. now has Qieke.com, while Internet search giant Baidu has launched an LBS app named Shenbian. And Facebook’s Chinese twin, the popular social network site Renren.com, has integrated a new service called “Renren Check-in.”

To be sure, the LBSN segment in 2011 has become a new battlefront after the SNS service boom for Chinese Internet companies. In May, for instance, Sina launched its LBS platform vld.sina.cn (a.k.a. Wei Ling Di). Another company, Netease, continues to update its LBS platform named Bafang (bafang.163.com), first launched in October 2010. Finally, Tencent has disclosed plans to soon launch its own LBS platform.

Factors Enabling the LBS Business
The rapid development of the Chinese LBS industry can be attributed to three key factors: the widespread usage of smart phones, increasing mobile Internet bandwidth and the big boom of social networking sites.

Smart phones enabled with Global Positioning System (GPS) capabilities are the main platform for LBS apps. According to an IHS iSuppli forecast, navigation-enabled smart phone users in China grew 109 percent in one year to about 16 million in 2010; the total is expected to reach 46 million in 2012. Clearly, the continuous growth of GPS-enabled smart phones provides a big subscriber base for the mobile Internet in general and the LBS business in particular.

A second factor enabling LBS in China is the extensive adoption of mobile Internet usage, By the end of March, the number of 3G users in China had reached 61.9 million, according to official data. With demand continuing to rise for mobile Internet, collective support undoubtedly will be needed from the various 2G, 3G, 4G and Wi-Fi networks operating in the country.

A third factor, the big boom in social networking sites in China since 2010, also has helped to promote LBS apps. Social networking sites, particularly microblogs in China, have gained astonishing subscriber bases, with Sina Microblog/Weibo taking the lead in the face of more than 160 million active users as of April 2011—plus approximately 667,000 new users daily.

Wait a Year or Two
With most LBS development in China focusing today on LBSN features and services,  another year or two might be needed for Chinese companies to develop more innovative LBS apps as well as expand the user base and educate consumers before the market fully incubates.

For now, LBSN apps in China seemingly favor the business model of linking check-ins with coupons or discounts from local business. However, there is no clear evidence that such offerings will generate enough profits that could be shared by all involved parties—if at all.

As such, it will take time and effort for players in the LBSN space to form partnerships with offline business, find viable payment methods from consumers and establish profit sharing systems. Until then, no clear winners are likely to emerge in the China LBS industry.

Learn More > IHS iSuppli Portable and LBS Portal

Research Area
Automotive Technology
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