The top five tips of China's Internet landscape
Published: Tue, 25 Aug 2009 18:39:01 GMT Hits: 8805
By Sherman So and J. Christopher Westland
Editor’s note:
This article has been adapted from the book Red Wire China’s Internet Revolution (
http://redwiredrevolution.blogspot.com) co-authored by Sherman So and J. Christopher Westland. The to-be-published book is aimed at helping the readers gain a firsthand understanding of how the Chinese combined successful components from their Western counterparts with innovation, to accommodate the unique characteristics of the Chinese market.
As the last of the 14-part series on China and the Internet, this week we will try to sum up what are the key differences and how successful Chinese Internet competitors synthesized components from their Western counterparts, all the while innovating to accommodate the unique characteristics of the Chinese market.
Chinese Internet entrepreneurs haven’t always – or even generally – come up successful. Yet a glance at the Internet playing field in China today should convince you that few can be successful in China without being steeped in the local culture. Foreign firms have, to their chagrin, found that business plans that have worked in the West can fail spectacularly in China. Yahoo, Google and Microsoft have experienced this, without clearly understanding why their previous success stories couldn’t be extended into China. Indeed, their Chinese rivals' successes are predicated on abandoning American experiences and practices.
First of all, China's Internet users are different as well as their needs.
1) China Internet users are young people looking for fun and friends
While more than 70 percent of the United States' Internet population is 30-years-old or more, the opposite is true in China, where 70 percent of users are younger than 30. They look for entertainment and companionship online, especially when most of them come from one-child families.
That explains why online games, which provide the perfect playgrounds for young people who are seeking friends and fun, is the most vibrant sector in China's Internet scene.
In fact, out of the 10 largest Chinese Internet companies by revenue, six offer online games as their major business. The largest one, Tencent, was able to turn its online chat services into a gold mine because it treated online chatting as a community for kids, not a tool for adults.
Tencent, too, derives a significant part of its revenue from online games. The rest of its revenue is mostly entertainment related items, such as avatars and ringtones.
Even search engine Baidu is heavily tilted toward the fun and friends concept. In the early days, it built its popularity with MP3 downloads. Many of its popular applications are built around a community. For example, its Postbar (Tieba), a virtual forum where users discuss all kinds of topics, now accounts for 14 percent of the site’s total traffic. Another service, Baidu Knows (Zhidao), a community-driven knowledge base where users answer each other’s questions, is also been a hit.
2) The competitive landscapes of many industries are different in China
Another point is that many industries in China have very different competitive landscapes than that in the developed western world. One example is the media sector.
While the media industry in the West is concentrated in the hands of a few powerhouses, China’s media sector is highly fragmented with very few strong players.
The weak media sector created an opportunity for web portal Sina to offer an alternative online.
It built its business by gathering content from newspapers and magazines across the country. And by focusing on topics that interest the general public, it stands out easily from traditional media companies that are either too small or too strongly identified with the government. In fact, most have become Sina’s partners, believing this can boost their reputation and influence.
Similarly, China’s dominant video sharing site, Youku built its popularity by partnering with television stations. Most videos watched in Youku are TV programs in the mainland, rather than homemade video clips uploaded by users.
3) The developed infrastructure in the US has yet to be established in China
Another major difference is the infrastructure.
In the US, payment by credit card was well established before the commercial Internet emerged. But this payment method was still immature in China when the Internet became popular in the country. Many innovations currently being developed for China's Internet sector are attempts to address payment issues.
For example, the innovation of Chen Tianqiao, founder of Shanda, the first major online game company in China, was not the games, but how they were paid for. Its games were licensed from Korea, where MMORPG, or massive multiplayer online role playing games, had been going strong for several years.
Chen’s solution was rather simple, but very much adapted to the business and social realities in China – prepaid cards bearing an access code and password and sold through hundreds of thousands of retail outlets. Chen also created a computer program to sell prepaid cards virtually in Internet cafés, the main venues for online game playing in China.
As mobile operators in China opened their platforms for third parties to provide data services, mobile phones also became alternative payment solutions. Tencent, which operates China’s largest online chat services QQ, used the mobile platform as a way for its users to pay premium service fees and buy its virtual currency Q coins to enjoy other benefits.
Collecting a tiny amount (five to 10 yuan, about $0.70 to $1.40) from hundreds and thousands of users could be painful and tedious work. But now, China Mobile and China Unicom can do this for Tencent through their payment channels and give the online firm a lump sum at the end of each month.
4) Internet businesses are still labor-intensive
As labour costs are low in China, many of the problems faced by Internet companies are solved by using people.
For example, selling keywords is problematic in China. While in North America and Europe tens of thousands of small advertisers bid for keywords online via Google’s Adwords and pay by credit card, the vast bulk of potential Chinese users have yet to reach that level of sophistication.
With the knowledge that very few people would voluntarily go online and bid for keywords in China, Baidu used third party selling agents to cold-call anyone who might listen and even go door-to-door if necessary.
Agents taught potential customers the keyword bidding process step-by-step, and when that was too difficult they simply did the work for them. The agents also collected payment on Baidu’s behalf. Later, Baidu took part of the operation in-house, creating its own sales force to cold-call potential customers.
Another example is online travel agent Ctrip. When the firm realised that very few people booked hotels and flights online, it sent promoters to greet travellers at train stations and airports. Promoters handed them a membership card, as well as a booklet with hotel prices and telephone numbers for reservations.
To handle the travellers’ calls, Ctrip set up a massive call center with thousands of staff.
Most of the world’s online travel agents give customers a number they can call – but that is usually just for exceptional situations. In Ctrip’s case, the opposite is true. The website is the exception and the call center, which handles more than 70 percent of the reservations, is the rule.
5) Internet Cafés are an important part of China's cyberspace
In the US, Internet café use is typically limited to tourists checking emails. In China, 42.4 percent of its online population visits Internet cafes, according to a survey done by China Internet Network Information Center (CNNIC) in 2008. With limited sports facilities and other entertainment options, an Internet café is usually where kids and teenagers in the neighbourhood hang out.
Internet cafés play a vital role in Internet development in China. For many, especially among the poorest, Internet cafés are the first places where they encounter computers and the online world.
Aware of the importance of cafés, Baidu has formed alliances with a number of directory websites, which are popular in the Internet cafes. The Internet café owners usually refer the novices to directory websites that show them how to find the sites that appeal to their particular interests. .
By partnering with these directory sites, Baidu has built up a strong following among Internet newbies. Just before its IPO, Baidu purchased the most popular directory site Hao123.com. Baidu also persuaded many Internet cafe owners to make Baidu.com the default site on their web browsers. These moves partly contributed to Baidu’s lead over Google in China.
As Internet cafes are entertainment hubs for kids and teenagers, trends can easily spread through Internet cafes – making them perfect marketing channels.
When online game operator Giant Interactive wanted to promote its game ZT Online, it chose Internet cafes. A squad of 2,000-strong ground-troop promoters was sent to Internet cafés in every city and every town to encourage players to join the new game.
The promotion worked very well. A year and half after its official launch, ZT Online became the second in China's Internet history to have more than 1 million players during its peak hour.
