New online services to thrive on mainland

With the mainland set to become the world’s largest internet market in the next year or so, analysts are forecasting a thriving environment for new services in the online retail, gaming and advertising sectors.

05 February 2008
Published by South China Morning Post

“The mainland will soon overtake the United States as the biggest internet market in the world in terms of number of users,” said Dick Wei, China internet analyst at JP Morgan.
 
Still, the experts disagree on when exactly this will occur. IDC claims the mainland already has the title as the No1 internet nation. It said the mainland’s internet population would grow from 234 million last year to 275 million this year, while the US would increase from 230 million last year to 247 million this year.

The more conservative China Internet Network Information Centre, a government-backed research institution, estimates the internet population was 210 million at the end of last year.

JP Morgan forecasts that it will probably take two more years for the country to surpass the US. China’s internet population would be 238 million by 2010, compared with 227 million in the US, it said.

However, most agreed that growth would accelerate as bigger and bigger networks appear across the world’s most populous nation.

“Growth in the Chinese internet sector will accelerate as roughly 20 per cent of the country’s population is now online,” said Richard Ji, a Morgan Stanley executive director.

As more people discover that many of their friends, relatives, colleagues or schoolmates are also online, use of the network will increase, says Jacky Huang, the senior analyst for digital marketplace research at IDC China.

Mr Wei said the internet population previously had been concentrated in key cities but this was changing. “As the government pushes for broader internet adoption and as the costs of personal computers and internet access continue to drop, more people from second-tier cities and the countryside will go online.”

Mr Ji said online communities, or applications such as YouTube, Facebook and MySpace, which stressed interaction between users, would surge on the mainland.

Mr Huang said overinvestment by venture capitalists in online communities and the Web 2.0 sector (websites that encourage user interaction) had created bubbles.

“But there are tremendous opportunities in the Web 2.0 sector, as people really like these services,” he said, adding traffic on online community sites was high and growing faster than traditional portals. “Once they figure out how to monetise such traffic, the sector will finally take off.”

Another sector poised for growth, but which has been lagging behind, is online shopping. Joyo and Dangdang were some of the earliest companies in the mainland internet sector but none have achieved enough scale and profitability for a public listing.

That contrasts with online portals, such as Sina and Sohu as well as online game company Shanda, which have been listed for several years.

Analysts believe the time has come for online retailers. “Users are getting mature and willing to shop online,” Mr Huang said.

Moreover, the infrastructure of e-commerce, which has been holding back online shops’ development, has improved. Online payment, such as Alipay from Alibaba, is becoming more popular and delivery services are in place.