Chinese Websurfers: A Gigantic Market Emerges

By November 04, 2006

One essential difference between U.S. and European Internet demographics and those of China is that more than half of all Chinese Internet users are under 25 years old. That’s the largest community of young websurfers in the world, outranking even the United States. Marketing specialists and advertisers have it right: The best way to reach the much coveted market of young Chinese consumers is through the Net. Companies specialized in such matters, like U.S.‑based Market China Inc.(, describe it as “a gateway to China’s youth market.” For hot content, young Chinese Web hipsters go to general entertainment Yahoo‑type portals that are community focused. Top sites include, Sohu, and Netease ( All three are listed on the Nasdaq.

These portals have three revenue streams: online advertising, mobile phone services (SMS, MMS, downloadable ring tones, music, and wallpaper), and online video games, especially the wildly popular MMORPGs (Massively Multiplayer Online Role Playing Games), virtual worlds that millions of Internet players can plug into at any time.

The gaming industry plays a much bigger part in this economic equation than it does in Europe or the United States. Games are the gateway to a booming market in Asia, because that’s where people spend a good chunk of their time online.

If you need convincing, just step into any Shanghai, Beijing, or Shenzhen cybercafé. In front of just about every one of the 100 or so computer screens in the large, dimly‑lit rooms, you’ll see a teenager glued to a game…or draped across the keyboard having passed out from exhaustion.

Twenty million Internet users in China play online games, 60% of them through a fee‑based service. According to the Chinese Online Game Industry Report, video games will be a $1.3 billion per year industry in China by 2009.

The Chinese video game market is very interesting in that only 20% of the revenue goes to distributors, while 80% goes to developers. That has generated a great range of offerings because of all the competing content available to distributors. The value chain in the U.S. and Europe is exactly the opposite.

The raging search engine battle: Baidu vs. Google vs. Alibaba (Yahoo)

Internet portals constitute another highly competitive market, in fact the most hotly contested in China. Search engines are among the players jockeying for position. These include both Chinese dotcoms and global leaders, with Google and Yahoo leading the pack.

Baidu is the Middle Kingdom player that seems to be generating the biggest buzz. Quickly dubbed “the Chinese Google,” it is the number one Chinese‑language search engine. In 2005, 46.5% of Chinese Internet users chose it for their online searches., the global leader, has secured a “mere” 27% market share,” according to iResearch.

Founded in 2000 by two Chinese entrepreneurs who graduated from American universities, Baidu went public in August 2005. On the first day of trading the value of the stock skyrocketed 400% from $27 to $122.50. The company has earned an international reputation as another Internet success story.

But competition is stiff and the market still open to new players. Competitors of course include Google Corp., which had already snapped up a 2.6% interest in Baidu in 2004 and, amid much controversy, just launched a self‑censored version of Google in Chinese (

Yahoo acquired 3721 Technology Co. Ltd. in 2003 for $120 million and the search engine ("Yisou" means "No. 1 search.") in June 2004. Thus equipped, Yahoo boasted a combined market share of more than 30% in 2004, but slid to less than16% in 2005.

Now Baidu is competing directly with Alibaba, the e‑commerce leader that, already having outperformed eBay, joined forces with Yahoo last August. It plans to use Yahoo’s extraordinary $1 billion infusion of capital to secure a more solid position on the search‑engine market. Hard to say which player will win out.

E-commerce still just emerging, but...

Sociologically, the Internet in China can be compared with the early days of the Net in France: The wired population is limited mainly to major cities and upwardly mobile professionals. In China, that means the new middle class emerging on the eastern seaboard. The Chinese e‑commerce market, with its new consumer habits, still amounts to but a drop in the ocean.

According to China Daily, online sales nonetheless reached $1.23 billion in the first half of 2005. And analysts are predicting 80–90% growth between now and 2007. That potential has plenty of dotcoms scrambling for their piece of the pie.

Offering 300,000 books, music titles, videos, and DVDs, (acquired by Amazon in 2004) is China’s largest online bookstore. Its most direct competitor is Dangdang Bookstore Online, which recently announced that it plans to enter the C2C (consumer to consumer) market to compete with Alibaba and eBay China.

Dangdang started testing its future C2C platform on this past January. But Tencent, publisher of QQ software, is hot on its heels and has even edged slightly ahead with its auction site

Online‑payment competitors lining up

Behind all of this e‑commerce positioning, the online‑payment war is taking shape. As the volume of online purchases rises, the payment end of the business is becoming increasingly strategic. Alibaba’s longstanding AliPay platform matches the PayPal solution that eBay rolled out in China, and Tencent introduced its Tenpay ( solution when it launched Meanwhile, pure players like SmartPay and YeePay are proliferating and busy signing deals with e‑tailers, banks, and telecom operators. These operators already handle a significant volume of consumer billing with 400 million mobile phone subscribers in China compared with “only” 100 million Internet users.

By Patrice Nordey

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