How We Discovered the Underground Chinese App Market
Or, how Robert Fortune’s tea heist shaped China’s iOS market
There is a dirty secret lying beneath China’s iOS app market, and our revenue is hiding somewhere in it.
In December of 2011, right before Christmas, we released our first iOS application Bilingual Child. Immediately after, we saw downloads flooding in from China.
We had tapped into one of the biggest markets in the world. We knew the revenue was just around the corner.
But it never came.
We figured it was because we were teaching Spanish to native English speakers. We weren’t giving our Chinese customers localized content.
So we created a new version of our application for Mandarin speakers to learn English. We rerecorded all of the audio with a native Mandarin speaker; had three translators cross-reference every word and phrase used in the application to make sure our Mandarin was correct; remade our main character, animations, and marketing assets to showcase our new bilingual Mandarin boy; and released the new version into the Chinese App Store.
Again, the downloads flooded in — but no sales.
We were perplexed. We knew China was a huge opportunity for us if we could break into it.
Something just didn’t seem right, so we dug in a little further to figure out what was happening.
The underground Chinese App Market brings more than $10 million a year in revenue from Stolen Apps
We discovered our apps on iPadIpa.com, a Chinese clone of Cydia.
Then we came across KuaiYong (aka 7659.com), an app market that allows users to install iOS apps without even jailbreaking their phone.
The site even uses geolocation to hide its store from users outside of China.
In 2012 42% of iPhones were jailbroken in China
That’s thirty-four million jailbroken devices with access to apps stolen through illegal app stores.
Since its rise in popularity this year, KuaiYong has actually decreased the jailbreaking of iOS phones from 42% to 32.3% by giving users access to stolen apps without the risk of jailbreaking. That still leaves approximately 28.3 million jailbroken iOS devices active in China.
How bad was the Chinese app market for us?
To date, we have made $58.98 in China’s iOS store, compared to $41,780.20 in the United States.
So why is China so willing to jailbreak their phones and download illegal software?
“Only if we have some understanding of why in Chinese civilization
it has been an elegant offense to steal a book will China and its
foreign friends know how in the future to discern and protect one
another’s legitimate interests.” —William Alford
It all started with tea.
In the 19th century, China was the only country that knew how to grow and make tea, a favorite drink of the British and a huge market worldwide. The Chinese not only had exclusive access to the seed but also essentially owned the process of production.
At the time, the British were the largest providers of opium to the world and exported the substance to China in exchange for tea.
The Chinese Emperor realized this was creating a nation of drug addicts and proceeded to confiscate and destroy all of the opium.
The British were left with a nation (the upper class anyway) starving for tea with no viable trade option. So the British devised a plan to steal China’s intellectual property and create their own tea plantations in India.
They sent botanist Robert Fortune deep within China to steal the tea-leaf farming process and the seeds themselves so the British could build tea plantations in India.
Within a generation, the plantations in India had far surpassed the production of those in China. The Chinese abruptly lost their control of the global tea market, and it would take them a hundred years to return to the level of production they had enjoyed in the nineteenth century.
The same tactic that Britain used to destroy China’s domination of the tea market, China is now using against us in the technology market.
For more on Robert Fortune, see For All the Tea in China by Sarah Rose
Intellectual property through cyber espionage constitutes the “greatest transfer of wealth in history.”
—Gen. Keith Alexander, NSA Director and CYCOM Commander
It’s been estimated that U.S. companies lose approximately $250 million dollars a year to China through intellectual property theft.
While the Chinese government recently vowed to protect intellectual property, They have done little to protect foreign companies. Often times, foreign companies cannot legally sell their products in China, so they cannot claim damages when their property is stolen and distributed.
Though the government has a heavy hand in restricting domain access on the internet, as well as which apps are allowed in the Chinese iOS app store — they seem to turn a blind eye to sites (such as Youku) which distribute copywrited material without consent.
The situation is much the same for such illegal app distribution sites as KuaiYong and iPadIpa.
So what can you do as an app developer looking to distribute in China?
Use advertising as a defense strategy.
We consulted with a freelance marketer based in China. He acknowledged that the problem was widespread and there wasn’t much we could do defensively to protect our application from being stolen.
While we couldn’t take advantage of our “’Buy All’ button”, we could take advantage of the traffic coming though our applications by removing the paywalls in our Chinese versions and replacing them with advertising that is not removed when distributed in the illegal marketplaces.
Despite the amazing potential the Chinese digital marketplace has, it has a long way to go before providing the protections that software developers need to enter the market with confidence.
Or, perhaps China has just found its own Robert Fortune.
References
1. For All the Tea in China by Sarah Rose
2. Wikipedia on Robert Fortune
I host The Rocketship Podcast where we cover business topics from early growth to funding and everything in between.
I’m on twitter @michaelsacca.
