Once the hobby of tech geeks, iPhone jailbreaking is now a lucrative business.  In the U.S., the primary jailbroken app store, Cydia — named after the insect that bores into apple trees — earned about US$10 million in annual revenue and counted about 4.5 million weekly active users hunting for apps, according to a report in the Washington Post last April.

In China, jail-breakers mainly use 91 Assistant to download apps onto their iPhones.  91 Assistant is offered by Fuzhou-based NetDragon Websoft, which earned Rmb 70-80 million in revenue from the smartphone management tool last year.  The tool also has an Android version. Currently, about 70-80% of iPhone and 40-50% of Android phone users in China use 91 Assistant.  It is one of the most important distribution channels for mobile apps in China.

NetDragon has already spun off the mobile division, 91 Limited, and plans to list it in either the United States or Hong Kong, chief financial officer Joe Wu said.

 

The business of iPhone jailbreaking

With 91 Assistant, users can easily download software applications (or apps) from the Internet with their computer. In the case of iPhones, however, they must first “jail-break” the phone or other iDevices. Jail-breaking is the process of removing the limitations imposed by Apple on its iPhones.

“It is like installing a new OS [operating system] for the mobile phones,” said Joe, “Just like someone may buy a new computer preinstalled with Windows, but does not like it and installs Linux on the machine.”

Jailbreaking iPhones is legal, although Apple has said the practice “violates the warranty”.

Apart from downloading software, 91 Assistant also helps users to manage data on a phone, such as transferring photos, music, video, and other files to and from their computers, making backups for phone numbers, and so on.

 

The rapid growth

Being the first of its kind in China, 91 Assistant spread quickly among iPhone users. Today, 70-80% of iPhone fans in China, or 12-13 million people, use 91 Assistant to download applications onto their mobile phone, said Joe.

NetDragon runs a third-party app store to support the operation. So far, it has more than 241,658 different applications available. “It is an alternative to iTunes,” Apple’s official channel for selling applications, said Joe.

91 Assistant also offers a version for Android phones. More than 20 million people are using its Android counterpart, or about 40-50% of all Android users in China. Joe expects the number of users will increase rapidly this year. “Smartphone users in China will increase another 100 million this year. We expect half of them, or 50 million, will use 91 Assistant,” said Wu.

Joe’s expectation seems very likely to happen.  Adoption of iPhones is set to grow in China following the announcement last week that China Telecom, the country’s third-largest wireless operator, will offer the iPhone 4S from March 9. At present, only the slightly larger China Unicom offers the phone in mainland China. China Mobile, the country’s largest wireless company, uses a domestically developed 3G technology.  It has yet to close a deal with Apple.

 

Revenue and investment

NetDragon earned about Rmb 70 million to 80 million last year from its mobile operation, generating revenue through advertising and partnering with game and e-commerce companies. “Our mobile division is already profitable,” Joe Wu, NetDragon’s CFO, said. He expected revenue would triple this year as the user base increases and mobile Internet becomes more mature.

Several venture capital firms, including IDG, Vertex and DT Capital, have invested a total of US$34 million into the 91 Limited, although NetDragon still controls over 60% of the unit.

“This year, we hope to get our mobile division listed in either US or HK market,” said Joe, ” We prefer the US market as it understands Internet business better.”

 

Competition

Still, the very success of 91 Assistant has encouraged competitors to rush into the market.

One is Wandoujia, one of the projects incubated by Innovation Works, an incubator established by former Google China head Lee Kaifu in Beijing after he left Google in 2009. Wandoujia was launched in 2010 and with its sole focus on Android phones, has attracted more than 10 million users, according to an industry insider.

Another rival is iTools, which specializes in iPhones and other iOS devices. It is produced by Think Speed Group, which was formed by Feng Linyi and Kung Hoising, two early members of Tencent, China’s biggest Internet company, who were involved in building Tencent’s flagship product, QQ instant messaging services.

iTools, which is more convenient compared with 91 Assistant as there is no need to jail-break machines, has attracted more than 3.5 million users since it was launched last July. About 40% are in China.

Last November, Hong Kong-listed Come Sure Group Holdings signed a memorandum of understanding to acquire 51% of the company. The deal is expected to be completed by April. The company is also talking to Tencent for potential cooperation. “If they can get the support of Tencent, iTools can easily get tens of millions users,” said an industry insider.

In addition, Tencent also offers a similar product on its own.  Wu understand the competition is keen.  “There is no use to be afraid.  We just have to do our best,” he said.

 

Partnership with Qihoo 360

But there is a bright side to the story.  Recently, 91 Assistant has made a partnership with Qihoo 360 Technology to promote its product. Qihoo 360 is the country’s leading anti-virus provider.  It has over 370 million active users per month and it is one of the top-three internet companies in China by user base.  The two companies’ co-brand product, 360(91) Assistant, is quickly gaining market share.