Chapter 10: Who are the Chinese Internet users?

This is a key question, the answer to which explains why some Internet companies succeed and others fail. 

To begin with, most Internet users in China are young.  Whereas 70 percent of users in the U.S. are over 30, in China 70 percent are under 30.

Young people love social life and entertainment.  Baidu says 50 percent of its searches are entertainment related. It’s not surprising, then, that online games is the largest sector of the China Internet.  (Actually, music and movies have been rated even more popular in recent market surveys. But as they involve mostly pirated content, no one really makes money out of them.) There are seven major online games companies in China listed on different stock exchanges, compared with one search engine, two online portals and two online travel companies.  In the second quarter of 2007, the online game market reached RMB 2.67 billion, whereas the online advertising market (search engines plus portals) was worth only RMB 1.63 billion and the online travel market a mere RMB 624 million.  

The incomes of China Internet users are not very high so the online game companies charge each user on average less than RMB 100 (US$12.5) per month. Spending an afternoon or a night in an internet café is probably the cheapest form of entertainment a teenager can find in China; they pay a few RMB for the internet access and a few more for the online games. If, like a lot of girls, you are not a fan of games, you can always chat with friends via QQ or watch Korean dramas (probably pirated) streaming from computer servers somewhere.

Baidu’s search engine customers, which are mostly small and medium-sized companies, on average pay RMB 3500 (US$470) per quarter. But if they like a service they will come in in large numbers.  Baidu has more than 140,000 customers. The online game ZT online had 1.3 million active paying users in the fall of 2007.  Successful Internet businesses in China charge low prices but have vast armies of users.

Another point frequently overlooked by foreigners is that most Chinese are not very computer literate.  PC penetration is low in China, compared with the developed world, where most of the current Internet business models come from.  So if part of your business model needs computer savvy users in order to work, you need to figure out how to get around the problem – for example, Baidu uses sales agents and internal sales staff to help advertisers buy the “keywords” that help them connect to potential customers. Alibaba also employs thousands of staff to help small and medium-sized companies put their products and company information online. 

Finally, foreigners tend to forget that most people in China, whether Internet users or not, cannot read English. So that names that are watchwords in other parts of the world, Google, Facebook, Skype, Ebay, etc., are unfamiliar in China. Language is an overwhelming barrier. A powerful international brand name confers no genuine advantages. The best example is Google – in most areas of the world its name is synonymous with search, but neither it nor its Chinese name, GuGe, are well known in China.

“Strong brand name” – I’ve heard the phrase a lot from multinationals entering the China market. Yeah, well, strong in your home country maybe, but what does it mean to the average Chinese?

As more of these international companies fail to make a dent in China, I’m hearing the brand name mantra less often.  Maybe they’re finally beginning to get it.