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Home >> Business
UPDATED: 08:55, February 21, 2005
China's Internet industry: from childhood to youth
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The Internet has become a spectacle in the Chinese society. In the last ten years China's Internet has grown from a marginal industry to a mainstream and still continues to gain ground in the society. It started from scratch on a non-existent market and seems to be expanding to the limitless.

The population of Internet users has kept rising. By June 30, 2004, there were 87 million Internet users in China. The number topped 90 million by the yearend.

The Internet sector is also regarded as the industry in China that merges into the international market most closely. It has changed the life of many Chinese people.

For young professionals in big cities, Internet is their life style. Therefore, diversity has developed for the model of Internet business which used to be simplistic.

The recent research by China Internet Network Information Center (CNNIC) found the purposes of people getting online are as following in descending order: scanning for information, recreation, studying, making friends, obtaining free resources, communication, academic research, stock market transactions, emotional needs, online shopping, business affairs and going after fashion and curiosity.

E-mail, search engine, news service, viewing websites/web-pages, online chat (chatroom, QQ, ICQ etc.), software uploading or downloading services, BBS forum community and discussion group etc., online games are the functions that are used most often by Chinese Internet users.

CNNIC's report also noticed the increasing penetration of the Internet into people��s lives. People are spending more and more time on the Internet. The experiences of the Internet vary among netizens who no longer concentrate on a particular activity or function.

It is difficult now to give accurate estimation on how big China��s Internet market is now or will be in the future. Chinese Internet companies launched the second wave of IPO at the end of 2003. Within a year eight companies launched IPO on the NASDAQ.

There are now 16 China concept shares traded at NASDAQ. The market capitalization of the 12 Chinese network companies totals $10.7 billion. Of them Sina reaped a revenue of $52.5 million for the 3rd quarter and Shanda made $44.9 million.

Cash cows of Chinese companies listed on the NASDAQ are mainly online advertising, wireless value-added business, online game and specialized information service.

However, each player has developed its own revenue sources. The non-advertising revenue of Sina featured with wireless value-added services accounts for 64.8 percent of its total business revenue; online game service contributes 67 percent of Netease's total revenue; revenue from advertising makes up 60 percent of Sohu��s revenue; wireless value-added service generates 90 percent of the total revenue of Tom; 79 percent of the total revenue of China.com comes from its software and consulting services.

As known to all, the Internet originated from telecommunications value-added industry, media industry, publishing industry and information industry.

Therefore, it has inherited traditional characteristics of these industries and embedded them into its products. Like other countries the Internet services in China are basically available in the following types:

1) Publishing and advertising:

--- News and information, content subscription, customization

For example, People's Daily Online, Xinhua Online, Sina and Sohu etc.

--- Combined with mobile communications (short message, images and sounds downloading etc.)

All short messaging operators offer this.

China's mobile phone users have sent 176.06 billion short messages from the beginning of last year through October, according to figures released by the Ministry of Information Industry on December 16,2004.

The year end figure is expected to exceed 220 billion, an increase of about 50 billion year-on-year, according to the ministry.

If each text message costs 0.1 yuan (about 1.2 US cents), the business had generated a total of 17.6 billion yuan (about 2.12 billion US dollars) by the end of October last year.

--- Classified information and advertising (job-hunting and recruitment, finance and securities, tourism, health care, education, friend and spouse wanted, computer software and hardware market)

For example, 263 flea market, 51job.com. homeway.com, ctrip.com, openedu.cn, www.pconline.com.cn etc.

2) Interactive:

--- BBS forum and message board

For example, Qiangguoluntan (Strong Nation Forum by People��s Daily Online), Xici Hu Tong and Tianya Club

--- Chat and friend-making service

For example, 263 Chatroom, Sohu Chatroom and Sina Chatroom etc.

--- Personal homepage and Blog

For example, Blog China and Netease personal homepage etc.

3) Intermediaries

--- Online shopping

For example, joyo.com, jingqi.com, eguo.com etc.

--- Transaction intermediary and auction

For example, eachnet.com etc.

--- Payment settlement intermediaries

For example, Capital E-Store and iPayment etc.

4) Online game

For example, Shanda, Netease, Sina and Ourgame.com etc.

It is due to the boom of the online games in China that has made Ding Lei, CEO of netease and Chen Tianqiao, CEO of Shanda, the richest in China.

5) Search engine

For example, Baidu.com, 1 Sou 3721, zhongsou.com, netease.com and Sina etc.

6) Technical service

--- Email box and other personal communications

For example, 21cn, 8u8 etc.

--- Real time communication service

For example, Tencent QQ, Netease Popo and TOM etc.

--- Software or tools download service

For example, eNet.com.cn, Pconline .

--- Enterprise information advertising (website construction for small and medium

-sized companies)

For example, cnsme.com, sina.net etc.

--- Information infrastructure (Internet data center, access service, certification service and security service)

For example, China Telecom, Netcom, 21vianet, capital.com.cn

Some of the above services are combined. These service products all have reasonable profit modes and created success stories in the market.

Interactive products are first used only by high-end users. Intermediary services will be popularized and full-fledged with the development of credit card payment.

Concrete steps have been made for online game industry and business models of search engine service. And technical services are already mature.

By Jiang Yaping with People's Daily Online


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