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Little money made off Android in China during current 'chaotic phase,' says VC

A well-known venture capitalist said Monday that Google's Android mobile operating system in China is undergoing a "chaotic phase," with "almost nobody" currently making money off of it in the country.

During a panel at TechCrunch's Disrupt Beijing conference on Monday, David Chao, co-founder of venture capital firm DCM and a former Apple employee, attributed Android's chaos to the lack of an official Google app marketplace in China. According to him, there are as many as 70 third-party application stores for the platform in China.

Moderator Greg Kumparak pressed Google executive John Lagerling on whether the company plans to bring the Android Market to mainland China. But, he dodged the question, noting only that the Mountain View, Calif., software giant works to launch all its products in all markets if the environment is right.

Lagerling, who serves as the Director of Android Partnerships for the company, did say, however, that one of the issues that has arisen with the variety of Android app markets in China is the difficulty in supporting application updates, which has caused some confusion among developers.

Though Apple has seen explosive sales growth for the iPhone in China, with one recent survey suggesting that the company is now the leading smartphone brand in the country, panelists noted that Android is currently dominating China's mid-range market for smartphones.

"If you go to the market to buy a phone, Android is your only choice," said Wang Hua, founding and managing partner at Chinese startup incubator Innovation Works.

Referencing his time as an Apple employee, Chao compared Android's prospects to those of MS-DOS and Windows in the 1980s and 1990s.

"If you look at the numbers, Android surpasses iOS," he said, though he did point out that the developer argument in favor of Apple's platform is often that there is more money to be made on iOS than through Android.

Panelists agreed, however, that, in the long term, Apple may be at a disadvantage against Android in China because the market tends to be more chaotic and open. The iPhone's high price will also likely be a barrier to entry for many Chinese consumers.

"For the consumer side, Android is the only system that can enable $100 smartphones that can enable all consumers to enjoy smartphones," Wang said. "Android makes smartphones a commodity."

Lagerling went on to admit that Android needs China to succeed.

"If we screw up the way we build Android, then OEMs and developers will start choosing something else," he said. "We need to be attentive to the needs of the Chinese market. We are trying to take the pulse of the needs of the Android market."

Meanwhile, Chao sees China as necessary for Android because it will become the largest mobile internet market. "With Google's ego, [it] cannot ignore China," he said. The 3G subscriber base in China just hit 100 million, according to a note from Ticonderoga Securities analyst Brian White on Monday.

Chao also sees 2012 as an "explosive year" for Android, especially for tablets. "We're going to have 1000RMB ($157) and below tablets coming out. I think Android is going to be the game console of choice for China," he said. Gaming consoles are currently illegal in China, though the unofficial gray market for the systems has flourish there.

When asked who's making money off of Android in China, Chao replied, "Almost nobody," citing thin hardware margins and mostly free app downloads as the reasons.

However, Chao believes that over the next three years, Android is going to be "one of the most lucrative" markets.

For its part, Apple has already grown its China business into its second-largest market as of the September quarter, largely driven by the success of the iPhone in the country. Greater China sales for Apple in the third quarter of calendar 2011 reached a record $4.5 billion, or 16 percent of total revenue. Beside the U.S., China is the only country that accounts for more than 10 percent of Apple's revenue.