iResearch: Which Internet Sectors Are Thriving in China?

By November 04, 2006

With 111 million current Web users and a likely 25 million new users by year’s end, China has the stuff to make more than one e-business-smitten investor go bananas. It’s a €1.6 billion market that has really skyrocketed in the past five years, explains Hou Tao, assistant manager of the research department at iResearch, the leading Chinese e-business consulting firm. According to Hou, the bulk of market profits are generated by games, advertising, and search engines. Games make up the majority of Web-related revenues, totaling more than €60 million, but Hou downplays this: “Growth in this market soared until 2001; it continues today, but at a gentler pace.” Game companies Shanda, NetEase, and The9 alone make up two-thirds of the market.

Advertising is very strong. With explosive growth of 78.4% between 2004 and 2005, the market now totals €36 million. Hou projects it could be worth €1.6 billion by 2010—not surprising considering that online advertising currently accounts for only 2.5% of the overall Chinese advertising market.

“Among traditional services, the market segments poised to develop the most are search engines and online advertising. Regarding new services, I am very optimistic about the development of online music, which has recorded the strongest growth,”says Hou. This segment is currently worth €7.5 million.

Wireless value-added services have met with less success. Despite continued market growth, the rate is waning. SMS still comprises more than 70% of the segment; MMS, mobile games, WAP, and GPRS, while developing, still lag considerably according to Hou.

Lastly, the entire telecommunications sector is eagerly awaiting the launch of 3G—which the Chinese government finally greenlighted for 2006 after several years of delay. But Hou is not so enthusiastic: “I believe that mobile phone users are still not completely ready for 3G. It will take several years before we see a real leap.”

Julie Desné

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