Location based service in China

Chinese companies view location-based services (LBS) as an explosive growth opportunity and plan to follow the successful LBS examples in other nations, such as foursquare.

Until very recently corporate entities and consumers alike in China had little awareness of LBS. Although services 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 Weibo and RenRen.com took over the likes of Google, Twitter, and Facebook in China by mimicking them, Chinese companies hope to reap big profits in LBS 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 LBS 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. 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.

Why LBS became so popular overnight in China?
In my opinion, 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 GPS capabilities are the main platform for LBS apps. According to a forecast, navigation-enabled smart phone user in China 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 2011, 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  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.

What’s next?
With most LBS development in China focusing today on location based social network (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(just like foursquare’s classical business model). However, there is no clear evidence that such offerings will generate enough profits that could be shared by all involved parties.

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. Before that, there is currently no winner in China’s huge LBS market.

Given China’s huge domestic market and its unque culture, let’s discuss what might be different in the still young Chinese location based service compared to its counterpart in the States? Services, monetization model or something else?

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