By William Ding
In her long history, China has been a place where monumental achievements have been realized, and in the realm of the Internet, we expect to see more of the same.
By the end of June 2007, the number of netizens in China reached 162 million, ranking second in the world only after the US. Globally, the use of the Chinese language on the Internet is second only to English. The Internet has entered a stage of extraordinarily rapid growth in China, and in the coming five years, the numbers of Web users and websites is expected to realize an even more dramatic rate of expansion.
How has the Internet developed in the various sectors in China? Let's take a look.
The preferences and requirements of Internet users have long been the primary focus of our attention, like other service sectors. We'll consider China's most popular Internet services and the services that have seen the fastest growth in the last two years.
Rise of national online games
Let's first consider the online game market.
Over the past few years, China has witnessed remarkable progress in the online game industry. In 2006, gamers numbered 46 million, an increase of 24 percent over 2005. It is estimated that by mid-2010, the number of online Chinese gamers will reach 90 million.
In 2006, Chinese online game providers realized revenues of 7.68 billion yuan, an increase of 60 percent in a single year; and in 2011, they will pull down an estimated 19.8 billion yuan.
The year 2006 brought rapid development in the online game industry, delivering to associate industries, including telecoms, IT, media, and traditional publishing, values of 21.05 billion yuan, 8.33 billion yuan, and 3.94 billion yuan, respectively, at a correlating annual increase of 21.4 percent, 16.3 percent, and 6.2 percent. Online gaming is now one of the most innovative industries in China, and globally the sector is recognized for its great potential for future development.
Now we'll briefly examine how China-made online games have developed in recent years.
The development of online games in China has progressed through four major stages. The first stage occurred from 1997 to 1999, during which time the country lagged behind other nations and business people turned their attention to the online game segment. The second stage occurred from 2000 to 2001, when most businessmen served as agents, building an embryonic form of profit for the industry. The third stage, 2002 to 2004, saw agents and independent R&D advancing simultaneously. The latter developed at a surprising rate and brands began to compete. The fourth stage began in 2005, when producers aggressively stepped up the development of new products while exploring new modes of business. The market standardized, flourished, and developed with diversity and independent R&D; and the contents of the games became healthier.
In the past, online games were mainly imported from the US, Japan, and South Korea. Few products were developed on China's mainland, with the majority of Chinese-made games the product of cooperative ventures between the mainland and Taiwan. However, today that competitive scenario has much improved.
In recent years, China has seen nonstop growth in the strength of domestic online games, and these now dominate the market. Made-in-China games have comprised 60 percent of the domestic market for two consecutive years. In 2006, China-made games became extremely competitive, generating 4.24 billion yuan and accounting for 64.8 percent of the market total – an increase of 87.4 percent over 2.26 billion yuan in 2005.
Breaking it down: 111 types of online games were sold on the domestic market in 2006, of which 79 were independently researched and developed by China, making up 71.7 percent of the total national sales volume. A recent survey revealed that in 2006 there were 218 different online games completely developed and made in China, an increase of 13.5 percent over the 192 titles sold in 2005.
As the download volume of the game website 17173.com evidences, there are in total 398 online game titles in China, 272 of which were independently developed and produced domestically, accounting for 68 percent of the nation's total. There are 16 titles of European and American-made games, 4 percent of China's market; and 73 South Korean games, accounting for 18 percent of the domestic market.
More Chinese-made online games have replaced those made in Europe, the US and South Korea. In 2006, for example, the portion of Chinese-made games increased by 4.8 percent, and their sales volume increased by 87.4 percent over 2005. There are no new arrivals of European and US games surpassing the volume of the World of Warcraft; and the portion of South Korea-made games was also reduced.
Let's examine how made-in-China games stack up against imported titles.
Chinese-made games showcase Chinese values and traditional culture. They are suited to the habits and sensibilities of Chinese players and exclude violence and pornography. The technology fully leverages the technical core, such as the source code, and it is incomparably state-of-the-art in eliminating cheaters, blocking pirate servers, revising edition, and providing value-added services; and they are competitive with imported games.
The primary driver of this extraordinarily rapid development is the emphasis of traditional Chinese culture as an integral element of the game. Compared to foreign games, Chinese games feature a strong element of Chinese culture, thus eliciting a ready reception on the part of the players. The games, such as Dahuaxiyou, Menghuanxiyou, Datanghaoxia, and Tianxia 2, developed by NetEase, for instance, are based on classic Chinese novels, and are imbued with traditional Chinese culture. Today, the number of registered NetEase game players has exceeded 200 million, and associated online surfers has surpassed 2 million during peak hours.
Advancing dramatically since 2005, Chinese-made 3D games have excelled in quality.
Meanwhile, the types of products have diversified and feature local flavors. Elements of traditional Chinese culture, such as chivalrous swordsman and classic novels, including the Three Kingdoms and the Journey to the West, are more commonly seen. Game R&D has been readjusted in accordance with the Chinese market to target various groups of users, particularly since the rise of free games.
Does culture come into play in the match up between Chinese and Western-made titles?
As a cultural product for amusement, games can reflect reality. Success in development, therefore, lies in the designer's understanding of the player's cultural background, and upon a grasp of what elements players most enjoy. Cultural understanding determines the background, operation, and functionality of the games. There are great differences between the Chinese and the Western concepts of absolute good and absolute evil, competition, and manners. All these factors and more come into play in the varied and particular aspects of the games.
1. AD&D vs. Chinese martial arts culture
Western online gaming began with AD&D, a Western-style virtual world conceived to comply with a single order. The elements of this world are put in place in accordance with complex laws, most of which differ from reality and can hardly be explained based on the theories of our world. A manual to convey the details and rules is thus required. In contrast, the world of Chinese martial arts complies with history and reality. Though there is not much space for imagination, complicated rules are not required.
2. People and Environment
Western nations typically have less density of population. People are relatively isolated and must meet challenges alone when nature becomes unfriendly; and they long for collaboration and are fearful of nature. As a result, Western games emphasize teamwork, exploration and tasks. China has a huge population; and the relationships among people are relatively close. Moreover, the country long served as a center for the communication of world civilizations; and it has been more tolerant and generous compared with Western countries. This is why Chinese games attach great importance to the interaction among people.
The Westerner's fear of nature also determines the colors of their games, which are mostly dark and grey. As for the Chinese people, nature is never considered negative or very dangerous. People consider nature to be an inspiration for romance, so the colors of nature in the games are not that dark.
In 2006, the market for online games in China dramatically expanded, thanks to the popularization of the “free-game mode.” In that year 84 percent of games were free, and that revenue made up 60 percent of the entire online game market. The great financial success of the “free-game mode” lay in value-added services, which maximized the consumer's consumption potential while fully satisfying demand.
In addition, casual games have become one of the major income drivers in the online game industry. In 2006, these broke ground with stable revenues in scale, generating 2.02 billion yuan, which accounted for 26 percent of China's total online games.
This dramatic transformation may be attributed to the diversification of casual games.
Casual games developed through three phases: chess and cards, casual games benefiting intelligence, and large and medium-sized casual games. These changes resulted from the maturing online game market in China. Like other expendable materials, game products must meet the increasingly-diversified demands of consumers, serve the market, and serve consumers.
The online game industry in China has taken shape in considerable scale thanks to accelerating development over the last few years. Considering developments since 2006, we expect to see the following trends prevail in the world of online games:
The method of billing will be varied; and the potential for free games will remain enormous. There will be an enduring coexistence of various profit-making modes, including time-based billing, value-added service billing, and the 100 percent free mode, which will become even more prominence in the future.
The rising portion of casual games has become one of the major big-ticket markets. Increasing player demand and the resulting rapid development of the casual game segment has flourished.
Casual games feature an abundant range of subjects, enabling the classification of the market in accordance with various characteristics. In 2006, the market was further broken down into categories such as music, sports, and competitive.
The media have become bigger players in the online game arena, and associative advertising has become a new profit center. Advertising came more into play with the dramatically rising number of players, the popularization of free-game mode, the overall enhancement of independent R&D, and the strengthening cooperation with other industries. And so the strategic combination of games and advertising has blazed a new marketing path.
Richer content will dominate the subjects, disregarding violence. The fierce competition in the industry of online games has shifted the producer's focus from themes of violence to those of traditional Chinese culture, war and navigation. This makes for a healthier and more diversified overall presentation.
E-business with Chinese characteristics
In comparing the e-business of China and the US, we discover many fundamental differences, especially with regard to what sort of products are popular.
C2C products in the US e-business market are mainly comprised of the new arrival of rare goods, second-hand products, and precious collectables. Of course, the US is a high-consumption nation, and households regenerate rapidly and there is an abundance of second-hand articles, thus e-business is voluminous in the trade of second-hand goods and precious collectables.
It is, however, different in China. The country's per-capita income is much lower than that of the US, and this factor naturally limits consumption. What's more, China differs dramatically with the US in people's concept of consumption, as well as their way of life. People prefer more durable goods, because most citizens are geographically stable – less likely to move from place to place – and this minimizes the quantity of second-hand commodities. Thus, China's e-business usually involves the trade of new products, and the category of commodities has greatly expanded. Consider the best sellers on eBay. Two thirds of the garments are brand new. Among telecommunications products, 70 percent are new, and the trade of new audio-visual devices, household goods and amusement and sports products are 80 percent, 80 percent, and 40 percent, respectively.
Why are particular products so popular in China? Let's take a look at the three best sellers on the C2C market in August 2007, virtual goods for games, cellular phones, and cosmetics.
Referring back to my introduction to China's development and the trends of the online game industry: It's clear that there has been an enormous increase in the number of online game players, and the free-game mode has been greatly popularized in the country. The emergence of new billing modes for virtual commodities is a product of this development, thus player demand is satisfied. The virtual commodity business among game consumers has also been driven forward to lead e-business in China.
Statistics released in August 2007 by the Ministry of Information Industry reveal that the number of mobile phone users reached 520 million in China, making up 38.3 percent of the nation's total in the rate of popularization. China leads the world in cellular phone ownership. The most distinguishing characteristic among the differences of the cellular phone market between China and the US is that in China mobile phones are considered to be a fashion symbol by many users, particularly young people. The latest brand symbolizes fashion and trend; and the surprising speed of regeneration quickens the frequency in the consumption of cellular phones. The ongoing vitality of the market is evident in e-business, a mode of trade with clear advantages. Online purchasing of cellular phones delivers deeper discounts and easier access to the latest brands, and consumers have responded accordingly.
E-business offers other substantial benefits, including the saving of time and money, and the providing of a space for communication. For instance, not only can cosmetic buyers gather information from online communities, they also get feedback from other users, allowing for smarter purchasing. There is no doubt about the appeal e-business offers to the buyers of cosmetics, because those consumers, mainly women, can seek out more information, are offered a multitude of choices and, of course, online prices are generally appreciably less than those of a retail outlet.
In comparing e-commerce C2C in China to similar operations and norms in the United States, great differences are apparent. Although C2C commodity trading is referred to as an “auction” in both nations, C2C in China is actually not an auction in the strictest sense. In China, due to the vastness of the land, complexity of the informational flow, disparity of economic development, and other factors, a considerable price difference may exist in the same category – even same commodity – in varying regions. When they turn to e-commerce, these conditions will motivate buyers to go on the hunt for products offering an absolute preponderance in terms of quality and price proportion. In surveying the categories of goods that are in highest demand in China's C2C segment, it is not surprising that those with more substantial discounts sell better.
The e-commerce model delivers a lot of information and rapid and convenient service to those seeking good buys on the Internet, regardless of location, and both buyers and sellers can benefit. While the buyers save time and the cost they would otherwise have to pay for the flow of goods, the sellers, with the help of e-commerce, overcome the geographical limits to expand their markets. Largely benefiting from this consumer psychology, e-commerce with Chinese characteristics has rapidly expanded in the nation. Today, this mode and scope of trade touches almost every aspect of daily life.
An important characteristic of e-commerce in China is this: Revenues from B2B business surpass that of search engines. And small and medium-sized companies account for more than 50 percent of the total volume of B2B trade. In 2006, that share reached 55.8 percent. But in the United States, large-scale enterprise alliances play the major role on the B2B stage. In contrast to the US, many small and medium-sized companies in China have yet to fully recognize the value the search engine can bring them. Instead, they tend to believe that B2B websites can help draw more clients and deliver more opportunity for growth. And they are more willing to pay for B2B services.
There are more than 30 million small and medium-sized enterprises in China, and many have already saturated their local market. No doubt, it is a tangible benefit of expediting: Utilizing B2B electronic business to boost their competitive leverage, gain more international orders, and better penetrate the international market. In recent years, increasing numbers of Chinese enterprises have joined in the electronic export trade business. For example: Consider, Alibaba – by June 30, 2007, their Chinese site had more than 21 million registered users. Statistics from iResearch show that the B2B foreign trade turnover in China hit 14 trillion yuan in 2006, accounting for 67.2 percent of the nation's total B2B trade volume that year.
In 2006, electronic-based B2B activity accounted for 6.2 percent of the total B2B trade volume in China. While the electronic business volume still makes up a relatively small slice of China's B2B pie, with the nation's rapid expansion in foreign trade, the potential for growth is vast. According to iResearch, B2B e-commerce trade volume in China will maintain a compound annual growth rate of 56 percent from 2006 to 2010, and it is expected to reach 7.5 trillion yuan in 2010. We believe that with the help of e-commerce, people from all over the world will enjoy more high-quality, moderately-priced, made-in-China products.
The Internet essentially has only a 10-year history in China, and more than half of China's netizens are under the age of 24. The Internet of China, a relatively young and robust arena, is now on a fast track.
With that in mind, now we shall review the development of the Internet in China in the fields of mobile Internet, P2P, blogging, social networking, and online video.
Value-added mobile service
Value-added mobile Internet service featuring convenient and flexible communication services is a promising and progressing segment.
In 2006, the number of value-added mobile service users in China rose to 370 million, up from 294 million in 2005, a 126 percent increase, accounting for 80 percent of the total mobile phone users that year. Today, the number of value-added mobile service users in China continues to rapidly increase, and the proportion of mobile phone users adding value-added services is steadily on the rise.
Currently, the expansion of the value added mobile service market in China is still concentrated on a few services. In 2006, SMS business accounted for 72 percent of the mobile service provider (SP) market, and the revenue generated by other services was less than half that of the SMS business. In the value-added mobile market, SMS business took the lion's share. WAP, personal ring back tone (PRBT), multi-media messaging service (MMS) and Interactive Voice Response (IVR) took about 90 percent of the balance of the market.
Why is SMS so popular in China?
1. It's easy and fun.
Hand-held SMS technology is convenient, economical, private, fashionable, practical and, in some respects, offers a game-like interaction between those communicating. While other hi-tech tools provide one or two such features, SMS delivers all.
2. In short: SMS is effective and friendly.
Increasing numbers of Chinese citizens are becoming accustomed to transmitting short messages to greet each other. During holidays, for instance, text messages are sent to express good wishes and family sentiment. According to statistics released by the Ministry of Information Industry, during the 2006 Spring Festival (eight days extending from the Eve of the Lunar New Year), the number of short messages sent nationwide hit 12.6 billion. That means, on the average, each of the 400 million users sent more than 30 text messages during the holiday.
3. It befits Chinese culture.
Receivers of short messages will reply after pondering and carefully considering the missive in their hand. Compared with direct dialogue on the phone, SMS is milder and more eloquent – in a sense reflecting the essence of traditional Chinese culture. Chinese characters, compared to written English words, are richer in terms of connotation and artistic conception, and are thus more suitable for writing and transmitting short text messages.
4. The media industry supports SMS.
Many TV programs, newspapers and magazines in China offer SMS platforms enabling interactive communication. Cell phone users often participate in various promotions based on SMS platforms, and the potential for transmitting messages to these platforms is greatly enhanced.
It is the above conditions that have boosted the growth of SMS. For the foreseeable future, SMS will remain an integral part of communication, and a vitally important part of daily life, in China.
Now, please consider other value-added mobile services beyond SMS:
(1) Cell phone stock trading
Notable branded drivers in the expansion of China's stock market are the “Mobil Securities” business promoted by China Mobile, and the “Palm Stock Market” offered by China Unicom. The hand-held technology has proven popular with an increasing number of sophisticated traders.
Since the extensive promotion of the “Palm Stock Market” launched in August 2007, China has realized a weekly addition of 25,000 users. By the close of September 2007, the number of users topped 500,000.
The continuous expansion in MMS mobile phone usage heralds maturity in the market. In 2006, China Mobile's MMS service generated 1 billion yuan. It is expected that prior to 2008, MMS service will maintain a growth rate of 70 percent.
PRBT users typically replace their tone types on a regular basis. As PRBT operators enhance expansion in service, the market will enter a stage of maturity and adjustment, and gradually a lessening of expansion will take place.
Not including personal blogging sites, in 2006 the number of China's registered blog accounts reached 39 million, 333 percent more than 2005. From 2003 to 2006, the number of China's registered blog accounts increased rapidly. The link index reached a peak of 500 percent in 2005. It is projected that the number of registered blog accounts in China will hit 127.7 million in 2010, but that the rate of link index expansion will gradually slow down.
Blog, a typical representative of Web2.0, largely presents the essence of User Generated Content (UGC) and achieves the interaction between authors and readers. Following are the typical characteristics of China's blog authors.
For most bloggers, their purpose in building their online space is to record their experiences and express their views. According to studies, 29.9 percent say that they are very concerned about their number of visitor hits. Only 17.8 percent say they would prefer not too many visitors to enter their personal cyberspace. From this one may conclude that most bloggers consider their space to be a personal medium – an online tool they employ to spread their ideas and opinions, rather than simply a page upon which to record their experiences.
At the same time, the other human element of the equation, the readers, are an important part of the blog medium, and as such, as a consumer group, they warrant research. According to a study produced by China Internet Network Information Center, blog readers in China exhibit the following characteristics:
The primary motivation of readers is recreation and relaxation – and blogs are an ideal platform for entertainment marketing.
More than 40 percent of readers reach their objective page after first landing on the website's homepage, or upon the first page of a channel -- and huge commercial benefits are offered to highly-trafficked blogging websites.
Nearly 40 percent of blog readers have used a blog search – and that function and associative page displays offer additional market potential.
NetEase's Yodao search, formally launched in July 2007, recently revealed its blog search function. Compared with competing products, the configuration offers more updated and comprehensive search results, as well as new features like article previews and blog stats. Some of these new functions track a blog's updates, page views, the number of times a blog's articles are cited, and the average interval between postings. The functions are well received by both bloggers and readers.
The long-term focus of future blog development should be on two important aspects: (1) Adapting services according to consumer demand, such as providing mobile blogging; and (2) Developing operational modes that yield substantive profits.
More than 50 percent of bloggers say they would like to quickly and easily upload their content and observations in real time – as events unfold. More than 40 percent would prefer to be able to monitor visitor activity at anytime. Thus, mobile blogging holds great promise. Along with the arrival of the 3G era and an end to restrictive bandwidth, mobile blogging will move to a phase of accelerated development.
Of the existing blog-based profit models, advertising, mobile blogging, blog publication, and the marketing of blog domain names have gained consumer acceptance, while charging for value-added services has not been well received. Blog advertising, promoted through a profit sharing model, is – not surprisingly – welcomed by those bloggers with high visitor counts. According to CNNIC, more than 40 percent of authors accept blog advertising. For about 50 percent, advertising doesn't have a major effect on their reading. With the support of blog authors and readers, there is enormous room for the growth of blog advertising.
The Internet, a remarkable medium with extraordinary value as a marketing platform, is also a refuge within which the readers of blogs seek relaxation and recreation. Perfectly in line with a popular entertainment marketing strategy, a successful blog model is that which delivers enjoyment to the users – the authors and readers – while delivering profits to the operators.
The Internet continues to change our lives in remarkable ways – evolving the way we use media, bringing us new and more effective vehicles of communication, while altering the modes by which we consume products and information. Together we can work for an even brighter future for the industry as we progress further into this remarkable era of innovation.
|Profile of Mr. William Ding
Chief Executive Officer, NetEase.com
William Ding obtained his BS in engineering from the University of Electronic Science and Technology in China. He went on to establish NetEase in 1997, and today that enterprise is a major force in the ongoing development of the Internet in China. His exper
t insight and dead-on decision-making skills have led NetEase to evolve from a private 10-person firm to become a major NASDAQ-traded company employing more than 2,000. In November 1997, he introduced the public to China's first dual language free email service. In March 2000, Mr. Ding transitioned his position at NetEase, moving from his post as CEO to become co-chief technical officer. Since March 2001, Mr. Ding has worked to build the future of NetEase as its chief architect. From June to September of 2001, he served as acting chief executive officer and acting chief operating officer. In November 2005, the board of directors appointed Mr. Ding to the position of chief executive officer.
(China.org.cn December 3, 2007)