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Internet Trends in China e-Commerce and Search
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By  Robin Li

Looking back at over a decade of progress, one may track and break down the development of the Internet in China and Asia into four major stages.

First came the portal phase – The earlier successful Internet startups primarily served the public as Internet portals. Due to the relatively limited level and diversity of online content, large and comprehensive portals were the first wave caught by Internet surfers. During this stage, both in terms of market impact and visitor counts, the larger portals remained dominant. The major players included Yahoo Japan, South Daum in South Korea and Sina in China. And this trend was prevalent throughout the industry in Asia.

Then came the games – The next rising commercial crest in the market was driven by the developers and providers of online games. Along with the ever-accelerating supply of and demand for broadband, cyber games prevailed, and the industry concurrently expanded with the advancing technology. Accordingly, a rising and substantial number of online game providers captured their segment. The major players included China's SNDA and NetEase, and South Korea's NCsoft and Neowiz. During this phase, among all Internet firms, cyber game developers and game operators realized the highest profitability.

The third was the avatar. Exhibiting growth paralleling a remarkable tidal surge in the number of Internet users, volume in the trading of avatars grew steadily. It was during this stage that those companies that based their business model on avatar promotion were recognized by the market in a very big way. Strongly representative of success in this realm are China's QQ, with 65 percent the firm's income derived from avatar trading, and Hangame, which operates under the umbrella of South Korea's NHN.

Fourthly, search and e-commerce rose. Development trends in Asian countries have channeled search and e-commerce firms to the mainstream of the Internet market. A prime example is Naver of South Korea. Beginning in 2002, Naver's traffic counts surpassed the numbers of Daum to lead among South Korea's Internet industry players. In 2005, Baidu bested Sina's stats in the China market, and today Baidu is the world's largest Chinese-language web portal operator. Not surprisingly, the rapid expansion in the number of users has driven the rising popularization of Internet businesses. A concurrently rapid development of e-commerce was inevitable.
Although Asian nations may now be at varying stages of Internet evolution, due to factors such as differing growth rates and developmental level, generally speaking, their respective industries will all follow a similar path.

Searching out e-commerce

In recent years, along with the development of e-commerce in China, a high-profile group of high-performance e-commerce firms has emerged. But due to varying factors, the application of e-commerce in China, in scale and in depth, still lags in pace of development – especially when one considers the enormous potential of the Chinese market.

To understand why we consider e-commerce in China to be at the early stages of development, consider a study on the scale of the search market. In surveying the operative modes of diverse nations, we see a mutual-dependence and a mutual-promotion relationship between the families of search and e-commerce.

On the one hand, the development of e-commerce promotes demand for the application of Internet business and increases the public's reliance on the gathering of information with a preferred search engine, and so the search market expands. In turn, search engines serve as the prime facilitating portal for e-commerce, and as such these tools are the prime driver in the development of e-commerce. And so the scale of the search engine market serves as a barometer useful in evaluating the development of e-commerce.

But in China, the present scale of pay-per-click search services remains relatively minute. At only about one-tenth the volume of Great Britain, the segment is very small in comparison with the overall economic strength of China. From another perspective, this also reflects the fact that the Chinese e-commerce market remains at the very early stages. And these numbers also reveal the enormous potential offered by the search market.

At the mainstream center of today's Internet industry, search engines have become one of the most commonly used technologies in the developed world, while offering enormous market opportunities and the greatest developmental potentials in the IT field. Search has thus become an arena in which some of the world's top IT companies compete, obvious examples being Google, Microsoft, and Yahoo.
Search Market share – break it down

According to the iResearch data which track the visitor counts of search engines in China during the first three months of this year, Baidu captured 66.7 percent of the market share, followed by Google and Yahoo, the latter two collectively accounting for 24 percent. This, to some extent, reflects the competitive status of China's search market.

Baidu is today the leading web portal operation in the eastern hemisphere, and, quite clearly, its rapid growth has impressed the capital market. The market value of Baidu is now about US$11 billion, and the firm's daily stock trading volume averages US$1.8 billion. Both indexes rank Baidu as the first among hi-tech companies in China. Needless to say, Baidu has become one of the most watched Internet firms in the world.
Citizen systems – links and learning

Concurrent with the development of the Internet, and especially with the dramatic rise in the search engine segment, the capability of the Chinese public to obtain information has reached an unprecedented level. Search engines offer efficient delivery of information while enabling that information to be rapidly and effectively shared. Accordingly, China's netizens are exhibiting a dramatic and rapidly rising enthusiasm for publishing information on the web.

Seven years ago, when Baidu first introduced its search engine, only 5 million Chinese web pages were indexed, accounting for a mere 2 percent of global cyber information.

Today, the number of web pages published in China exceeds 4.5 billion, amounting to 20 percent of the world's volume. The power and influence of this rapidly accessible Chinese-language content is undeniable. Data volume, content quality, and information delivery systems continue to expand and improve, while the citizens of China continue to learn at a pace like never before in history.

One might say that the facilitation of this growing enlightenment and sophistication is the most important result delivered by the search engine.

Profile of Robin Li

Board Chairman and Chief Executive Officer,

Li has a bachelor's of science degree in Information Management from Peking University, received master's of science degree in Computer Science from the State University of New York at Buffalo. As one of the earliest Internet technology researchers, Robin Li is the initiator of ESP technology, and successfully used it in INFOSEEK/GO.COM search engine. Another of his important innovative achievement is the picture search of GO.COM. In 1999, Robin Li founded Baidu, which was listed in NASDAQ in August 2005.

( November 26, 2007)

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