The number of Internet subscribers in China will not exceed 180 million.
[+] China's Internet market is about to enter its saturation stage.
Before I gave a speech at China Telecom Fujian about a year ago, I made a study on future trends of the Internet market in China. After I finished reading the Internet investigation reports released by CNNIC over the years, I had a feeling that China's Internet market was about to enter its saturation stage.
As I dug deeper into this subject in 2006, I was more convinced. Despite numerous reports in China and other parts of the world boasting about the strong momentum of China's Internet sector, I chose to support a different opinion in the hope of helping companies to find the right marketing strategies.
All data in this study series came from reports released by CNNIC. In addition, I used two time-proven strategic marketing methods, Market Growth Curve (MGC) and High-tech Marketing Curve (HMC) in my prediction of the stages of China's Internet market. With further investigation in consumer behavior, I was able to eventually form a set of marketing strategies.
The above figure shows the trend of MGC. With just a few points marked for the accumulated subscriber number of each stage, a continuous curve can be formed. The most important task is to find the turning point on the curve as marked with the green circle on the above figure. Once such points are identified, all market stages become clear immediately.
[+] The number of internet subscribers in China will not exceed 180 million.
The following is a figure of Internet subscriber numbers based on data released by CNNIC over the years. The deep blue curve indicates the actual number of subscribers. A notable turning point appeared in December 2001, after which, the number of subscribers grows rapidly.
The subscriber number that corresponds to that point is 33.7 million, which, on MGC, is the point of 16%. With reverse calculation, it is able to predict that: 1) the market will enter its saturation stage after the subscriber number reaches 105.31 million; and 2) the market will touch its ceiling when the subscriber number reaches 176.92 million.
According to a CNNIC report on January 2006, the number of Internet subscribers has reached 111 million, which means the market already entered its saturation stage at the end of 2005. The following are some of the predictions that I have made on the Internet market in China:
1) The number of Internet subscribers in China will not exceed 180 million; 2) the room for the market growth for the next 5 years would be as small as 60 million subscribers; and 3) in the broadband (ADSL and Cable Internet) sector, the growth room is also limited to 30 million subscribers.
[+] Price sensitivity in a saturated market
Companies need to be aware that the 60 million subscribers they are about to face would be extremely sensitive to prices and less contributive to their revenues. For telecom operators that usually means they have to lower the Internet subscription fees to be able to attract this group.
High price sensitivity is one of the identities of a saturated market. Unfortunately, given the brag of the telecom carriers in China about the No.1 subscriber number in the world and the fast growth, the market has entered its saturation stage, as indicated in the following figure.
From the above figure, it can be seen that the broadband sector entered its high-speed growth stage back in December 2003 when the subscriber number reached 17.4 million. Calculations indicate that the sector would enter its saturation stage when subscriber number reaches 54.37 million. Checking the CNNIC reports, we can see that the broadband sector also entered its saturation stage after 2005.
Telecom operators are on the verge of a price war, as they will increasingly feel that the same amount of marketing efforts are not bringing in new subscribers as fast as they did in the old days. Under the pressure of subscriber number growth, price cut or covert price cut (for example, the offering of all-you-can-eat packages with a great discount of annual fee would be the fastest approach.
[+] The impact of broadband on value added services and Internet cafes
The spread of broadband has brought unimaginable benefits to the Internet industry. The data show that, in addition to more Internet surfing hours per week, it also allows subscribers to carry out more online activities, for example, more online shopping, more online advertisement contact and more exposure to broadband contents.
For telecom operators, the promotion of value added services to make up for their losses incurred in the cut of broadband subscription fees has become an inevitable task. Unlike the early mindset of "attracting consumers to subscribe broadband access by providing broadband value added services or contents", value added services will become the key revenue generator and the form will be increasingly diversified.
In addition, broadband is infiltrating fast into families. However, despite the rise in the rate of accessing the Internet at home, the rate of people who access to the Internet at Internet cafes has, surprisingly, gone up too. Obviously, home broadband has not substituted for Internet cafes.
Internet cafes might respond to the fast spread of the home broadband with price cut. However, with continued drops in subscription fees and with home subscribers continue rising by additional 30 million, Internet cafes are going to suffer setbacks sooner or later. In the next few years, a massive Internet cafe merge and acquisition tide will be expected. Eventually, the weak is going to be washed out and the strong get stronger.
[+] The Internet market in China: a dual-horse carriage
Despite the fast growth of the Internet subscriber number during the past years, the ratio of high-income subscribers (above RMB 2,000/month) and low-income ones has not been changed substantially, which indicates the infiltration speeds of the Internet among these 2 groups have been very close.
In other words, most of the new low-income subscribers have been Internet cafe frequenters, while high-income subscribers have been switching to broadband. This is the dual-horse carriage characteristics of the Internet market in China, which has affected many other sectors, for example, the online shopping.
A "saturated market" is not something to cause panic, because, in the first place, saturation is not going to happen immediately, but gradually (currently, the market is only at the start line of saturation); second, some sectors, for example, eCommerce, are going to see leap developments only in a saturated market. Therefore, a "saturated market" also means new opportunities.
In addition, despite the relative low attractiveness of the 60 million new subscribers, the number itself is still stunning. It could cause the collapse of industrial leaders overnight, or enable those lagging behind to enter the first echelon. It could be the last chance for startups. Therefore, companies should be very careful.
2006/02/26 - By Digitalwall.com - Way to
China Internet/Telecom )
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