Predictions on China Internet Market (5) Search Engines

The market should be observed again in perspective of the user quality and revenue.

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[+] The search engine market is getting saturated soon

As the size of online information volume, which is already an immense one, continues to grow, it is getting increasingly hard for users to find what they want. This explains why search engines have been receiving more and more attention since the birth of Google. Today, the sector is even dubbed "the fourth barrel of gold" in the Internet market.

However, if you are dumbfounded by the hot pursuit after search engines in the market and the drastic growth in user numbers during the past one or two years, and believe that the segment still has three to five years of sweet days to come, I would like to remind you of changing your expectation a little bit.

At the very beginning of this study series, I explained that China's Internet market is already in its saturation stage, and that the growth of the user number is starting to slow down. However, some applications would start their growth stage only after the Internet market gets into its saturation stage, while many others just go along with the big market into their own saturation stage as the overall user number growth slows down.

The following figure shows the proportion of Chinese Internet users that often use search engines. Obviously, it is maintained at the 60% level regardless of how fast the overall Internet user number grows. We have to admit that, on the Internet, there are a portion of people that do not need the search engine.

[+] New users or old users

It is true that the users of search engines are increasing along with those of the Internet. However, there is no significant difference between the growth rates. Therefore, when the growth of the overall Internet user number slows down, that of search engines will follow suit.

While search engines are still fighting for their shares of the market cake, few have noticed that the time is coming that the size of the cake stays unchanged. Obviously, the customers that one company pulls in might well be existing customers of other companies, instead of new Internet users.

Roughly, existing players in the market could be divided into a few classes. The first class includes pure search engines, such as Baidu and Google. The second includes leading general portals that operate search engines too, such as Yahoo! China, Sina and Sohu. The third includes a number of new faces, such as Tencent.

For all players, however, one common question is: as China's Internet market still has 60 million new users to come, is it a faster approach to start looking for new users now, or to attract existing users from their rivals? The question is of particular importance to those lagging behind.

[+] Investment on technology should be the top priority

A distinct feature of search engines is the fact that it is hard to control their users. As every search engine has followed the example of Google to offer a clean and simple homepage and does not request login, users could switch to other search engines at any time.

This feature requires search engines to have stronger technology ability. It is very easy for users to abandon a search engine, if it cannot help them to find or pinpoint the information they want. However, those with stronger technology ability and significantly smooth user experiences could be able to grow their user bases much faster.

It is because of this feature that Google and Baidu have been able to expand their market shares rapidly during the recent years. As to so-called 3rd Generation interactive search engines, such as Yahoo! Answers in China (ks.yahoo.com.cn) and Sina iAsk (iask.sina.com.cn), they are only minor players in the search engine market. Technology is the foundation. Without a solid foundation, interactions between users when they search will be insufficient to support those players.

However, sometimes, technology leadership is not an easy thing to do, particularly when all the rivals in the market are making big investments to enhance their technology ability. Users might not be able to feel any significant difference between search engines. Therefore, one thing a technology leader must do is to start large scale development of services that require users to log in.

[+] Introducing registration-based services to retain users

For search engines, it is easy to both get and lose users. How, then, could industrial leaders prevent from the loss of users? The first step to establish a relation with users is to request them to register, and to introduce services that request login. Those services could turn out to be a good reason for users to stay with a particular search engine.

One example is Google's free email service, Gmail, which integrates keyword search and content match advertisement. At the end of the last year, Google completed tests for its personalized search, which allows storage of search results of each user, or even the setup of an exclusive customized search engine. To use this service, users have to log in with their Gmail ID.

Besides, the community service is also a powerful weapon to prevent the loss of users. As I said, the community service has the feature of "Member Gets Member" or "Member Retains Member". In addition to its registration and login requests, the community service is also known for the high stability and loyalty of their members.

The purpose of the community service is to secure the user base. In that sense, the community interaction-oriented search service, such as the one offered by Yahoo! Answers in China and Sina iAsk is a weapon not for attack, but for defense purpose. Therefore, it is no more than a minor player in the search engine market.

[+] Different behaviors between existing users and new ones

Currently, there are already 120 million users (old users) in China's Internet market, with an additional 60 million (new users) expected to emerge in the next few years. If a search engine launches a massive advertising campaign on TV, which type of user could it attract most easily?

After Jack Ma, the CEO of Alibaba.com, took control of Yahoo! China, he repositioned it from a portal to a search engine. By the end of November in 2005, he had burnt RMB 110 million on TV commercials and even carrying out entertainment marketing campaigns in collaboration with the music industry.

If you are a user of Google or Baidu and appreciate their powerful search abilities, you would not switch to Yahoo!'s search engine just because of its TV ads. Obviously, Jack Ma's strategy would only appeal to the users who are new to Internet, or even new to search engine.

The strategy is a right one in the early stage of a saturated market. However, the player needs to be aware that it is trying to attract new users. Once the strategy is set, there need to be continued offline marketing activities to ensure a satisfactory result, as in the saturation stage, users are more susceptible to the influence of ads, and apt to sticking to the first service they come across.

[+] User quality and keyword search ads

Users of Google and Baidu are those who rely heavily on search engines. With an average search volume larger than that of Internet green hands, those users are different from the new users targeted by Yahoo! China. However, the average search volume per user only means the operation cost for a search engine. It is the click volume per user on the keyword ads that generates revenue.

As I have observed, users of Google and Baidu rarely click the keyword search ads that the search engines depend on as sources of revenue, despite their large search volume. That is a feature of the users acquired in the high-speed growth stage of the market. For users acquired in the saturation stage, it is just the opposite: smaller search volumes but higher advertisement click rates.

The above figure is based on the data from 2005 Annual Report on China's Search Engine Market released by iResearch. Obviously, in terms of usage, Baidu and Google have the largest market shares. However, it is not the case in terms of revenue, which has the structure resembling a sand pyramid. For Yahoo! and Sohu, the situation is just the opposite.

The strategy of market segmentation would change in accordance with the attributes of users. Therefore, players need to think carefully about which type of user they want. The former has lower ad click rates. However, with its massive user base, it could achieve high ad clicks. In the case of the latter, the number of users is limited. However, they might prove to be users of higher value.

As to the functional segmentation and specialties of search engines, such as the MP3, image and map search, which have been hot topics of the media lately and everybody is doing, there is nothing else beyond the technology ability and information volume. Therefore, they are not really market segmentation. The real market segmentation should be discussed from the viewpoint of user quality and revenue. (
2006/03/26 - By Digitalwall.com - Way to
China Internet/Telecom )

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- Today in History

Great Changes in Wireless Internet Industry (3) Nokia's Strategy - 2008/03/23

Predictions on China Internet Market (5) Search Engines - 2006/03/26

Media, Community, and Blog (4) Production-Marketing Relations - 2005/03/27

Media, Community, and Blog (3) Deconstruct Blog - 2005/03/20

Stop Internet Marketing (3) All Determination; No Distribution - 2004/03/21

3G Time Comes (3) SMS, Email and MMS - 2003/03/23

Predictions on China Internet Market (4) Job, Education & Games

The most important thing for content providers is to take control over the "Channels of Contens".

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[+] Key target of online recruitment: the student market

For some segments, leap developments are only possible after the Internet market enters its saturation stage. Online recruitment is one of such segments. As a matter of fact, online recruitment companies are barely off the start line in a competition to attract users.

In face of the continued growth of the Internet market in China, the top priority for existing online recruitment companies is to attract more resumes. Those in possession of more and better resumes will gain the favor of potential employers. The following figure shows very obviously that students have been the prime source of resumes.

One of the prominent identities of the Internet market in China is the growth of student users each year (which has produced profound impact on the eCommerce market too). Students are usually more familiar with the computer and the Internet. Some even have longer Internet experience than many adults. Therefore, it is very natural for them to seek job opportunities online after graduation.

Offline enclosure movements do help online recruitment companies to increase their revenue and influence (for example, 51job.com's collaboration with a number of newspapers to print and publish 51job Job Weekly, which contributes 57.9% to the company's revenue). However, there's no means for such enclosure movements to achieve a speed as fast as their online counterparts.

[+] Online enclosure is much faster.

In May 2005, ChinaHR.com set up a three-year-termed job channel on Sina.com, and agreed to share its revenue with the latter. That, in essence, is to buy resumes. But it's worthwhile. In fact, Sina.com is unable to provide the users with job services. Once the agreement is terminated and the job channel on Sina.com is closed, those who use the channel on Sina.com to look for a job will come back to ChinaHR.com again.

That was also one of the reasons behind Yahoo!'s acquisition of HotJobs. To portals, this kind of cooperation through specific channels could only bring short-term income, and might not prove to be a lucrative deal in the long run. When the online recruitment companies have built their brands, they will break away sooner or later. A better way is to acquire the online recruitment company for good.

In May 2005, globehr.com, a search engine focus on job search appeared, claiming that it had collected information from more than 200 recruitment websites around the country to provide users with one-stop job services. In addition, it also offers resume delivery services, which allows users to deliver their resumes in a large number and automatically to potential employers within a set range. Since the birth of the website, its user base has grown rapidly.

Unlike traditional online recruitment companies whose main revenue sources are potential employers, this service model, based on the information collected from other traditional job site, generates its revenue from bid-ranking ads. Since the revenue streams are different, and the job search engine brings more exposure for the information on traditional job sites, it seems that both models could co-exist peacefully. However, once such search engines start to request users to leave their resumes, conflicts might arise.

[+] Portals need to pay attention to this market

In addition, job search engines are not supposed to directly contact potential employers, otherwise the conflict would be even sharper. In the United States, there are similar search engines (e.g., indeed.com) too, but they all play the game strictly by the rules. Sticking to the key word advertising as their prime revenue source, they do not ask users to leave their resumes.

As a matter of fact, I believe the best model is to allow portals to operate such search engines. Portals could bring additional visitors to job sites and increase the chance of each job vacancy's being found. The bid-ranking advertising is also a revenue model suitable to portals.

What kind of bid-ranking ads is most suitable for job search engines? My first response is the education and learning information. As some job vacancies require high ability of English and others professional training background, such ads would be pulled out along with the job searches.

In addition to offline education and learning information, online learning information will also become a major sector. With the leap development of the online recruitment sector, online learning will gain moderate acceleration too. The following figure shows that the proportion of Internet users that often use online learning services has increased substantially since the end of 2004.

[+] Thanks to the broadband's infiltration, online learning has had leap developments

During the recent years, the proportion of Internet users who use online learning services (the yellow curve in the above chart) has increased drastically, just as the proportion of those who sign up for paid education and learning services both online or offline (the orange curve). The interesting part is, form June 2001 to December 2004, both curves were on a declining trend.

That is because the increase of Internet users was so fast during the time period, that it diluted both proportions. It was not until the recent years when home broadband users increased substantially that the proportions began to rise.

It also reminds us that for online learning service providers, the fastest way to accomplish their enclosure movement could be to introduce bundle sales with broadband service providers (such as telecom carriers or cable TVs), who, to some extent, are "channels of contents". Services will enter households along with the broadband Internet access.

Of course, there are numerous types of online learning, among which, the largest segment is the accredited education (which holds an 85% market share according to the 2004 Annual Report of iResearch). However, the market is already starting in a number of other fields, including corporate training, E-learning, language training and child education.

[+] Online game market has taken structural changes with infiltration of broadband

Obviously, the online game market is not as promising as the online recruitment and learning markets. After years of development, this Internet segment now faces too many embarrassments, including the market saturation, doubts from investors, negative media coverage and the inability of many players to survive.

Yet this is not a really hopeless market. From the above figure we can see that the game player base has maintained a fast growing trend. Nevertheless, the extensive infiltration of the broad band into families has brought structural changes, for example, to the place for playing games. Today, about 70% players play games at home, instead of in Internet cafes.

Over the years, a lot of changes have taken place to the model of the online game. The following figure shows that, other than the ever-green role-playing and leisure games, two types of game are now in the course of decline: the real-time strategy and simulated business operation games. In other words, users that play games via the broadband at home are less interested in such games.

Many people believe that the next trend of online games would be free services, in which case, service providers would have to seek other revenue sources, for example, selling virtual items to game players or adding advertisements into the game. As a matter of fact, any content-related industry would end up offering free services once they move online. Now that it is the reality for portals, can the online game sector be an exception?

[+] "Shanda Box" (i.e. Shanda EZStation) is not a content strategy, but a channel strategy

What role do you think Shanda (NASDAQ:SNDA), the largest online game provider in China, which started its business success from the game The Legend of Mir II is playing the content or the channel of contents? In fact, it must be clarified that, for providers of whatever content, it would be impossible to grow big without the ability to control the "channels of contents".

To online game providers, Internet cafes are the "channels of contents". Channel is the king. Supposedly, Internet cafes should have controlled game providers. However, The Legend of Mir II is such a successful game that it enables tight controls of the channels with the help of Shanda's unique Point Card System.(a sort of prepay topup game card through which the player can buy game points for playing the game. The system has been built in Internet cafes).

Yet the things are changing. The most lethal part is the fact that more and more players are playing games at home, instead of in Internet cafes, and paying their monthly fees through telecom carriers' phone bill, not Point Card System in Internet Cafes. Shanda is no longer able to control those players by controlling the channels, i.e., the Internet cafes. With the emergence of broadband access, telecom carriers are today the largest channels of contents.

Without players, online game providers would be completely incapable of coping with telecom carriers. Lately, Shanda announced that The Legend of Mir II would be offered free of charge, out of the fact that its Point Card System is no longer able to keep a tight control over the channels. The top concern today is not to charge fees, but to retain users.

The way to launch a counter-attack for Shanda is to turn into a new channel. This is exactly the basis of the "Shanda Box" strategy: to compete with telecom carriers for living rooms. By selling a PC based box to consumers with pre-built games and contents and the ability to access the Internet, Shanda has to have new channels direct to the players at home to deliver contents to support its development in the long run. The purpose of the box is not to integrate contents, but to build a new channel. (
2006/03/19 - By Digitalwall.com - Way to
China Internet/Telecom )

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- Today in History

Predictions on China Internet Market (4) Job, Education & Games - 2006/03/19

Predictions on China Internet Market (3) Online News & Blog - 2006/03/12

Media, Community, and Blog (2) The Dream of New Media - 2005/03/13

Stop Internet Marketing (2) All Action; No Reaction - 2004/03/14

3G Time Comes (2) Mobile Internet Is Not the Killer Application - 2003/03/16

Predictions on China Internet Market (3) Online News & Blog

Both the surplus and shortage of contents can create new business opportunities.

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[+] The four pillars of the Internet

As a matter of fact, the concept of "Four Pillars of Internet" was first raised back in 1999. Although many people insist that today we be already in the Web 2.0 time, we have not yet stepped out of the range of those four pillars. Therefore, in my view, Web 2.0 is only an improvement, not an innovation.

Specifically, the four pillars are known as four Cs, i.e., Content, Communication, Community and Commerce. So far, all Internet companies, without any exception, have been competing in those four fields.

Geographically speaking, competition modes can be divided into 2 major types. In continental markets such as the United States and P.R. China, Internet portals tend to be involved in all of the above four fields. However, these markets are so large that single-field-oriented websites are also able to survive and even compete with portals in specific fields too. For example, in the U.S. market, eBay has been standing up to Yahoo!

In island markets such as Taiwan and Hong Kong, which have much smaller sizes, each of the four pillars of portal websites is very strong and there is little room left for single-field-oriented websites, which, in most cases, end up to be taken over by or establish some kind of partnership with portals.

[+] Surplus and shortage of content

Talking about contents, online news is the first thing that the domestic Internet subscribers think of. With the occurrence of important domestic and international affairs during the years and the efforts in early years that portals have made toward their goals of becoming media companies, online news eventually grows to be a classic of China's Internet market.

The following figure shows the proportions of the Internet subscribers in China that search for news information on the Internet and of those who do not think online news could satisfy their needs. Obviously, the higher the demand for news gets, the higher the dissatisfaction rate is. That seems to be only normal human feelings.

However, the section of the curve for the past year or so shows that, as subscribers' demands for news rise, the dissatisfaction rate declines. That indicates in the field of news, online content has begun touching its ceiling. From the finding of CNNIC questionnaires, we can even see that subscribers are beginning to feel tired about massive information, which makes it only harder for them to find the contents they really need. In addition to highlighting the role of search engines, how to enable subscribers watch the news they really want (i.e., the My News concept) will be the next focal point of the online news sector.

[+] Personalization and broadband news: The focal points of the next stage

In addition, the drastic increase in broadband subscribers will drive online news toward its next milestone—live online broadcast. This is an indisputable trend given the fact that, so far, even in the most developed regions for the broadband, the percentages of subscribers watching live broadcasts online still remain low.

According to a report released by CNNIC in December 2005, as many as 37.1% of Internet subscribers have the experience of watching and downloading movies or TV programs online. However, I am rather inclined to believe that most of those subscribers only download the contents, but not watch them online.

Downloading, however, is also a form of news dissemination, as there's no rule specifying that only live broadcasts could be called news. Normal broadband news archive downloading could be a viable option. News editor staff of portals must develop and improve their broadband content editing abilities as well.

Compared with the digital TV or IPTV whose future is largely uncertain, I am more optimistic about live online broadcast which uses computer as the tool for watching. The report also reveals that, between 8:00 p.m. and 9:00 p.m., more than 60% Internet subscribers are surfing the Internet (instead of watching TV), and the percentage is still rising. Which one, then, do you think will become the mainstream?

[+] Myths about Blog

If there is enough, or even more than enough online news to meet our demands, what is the point for the existence of the massive information brought by Blog which is tagged as the grassroot media, and the numerous Bloggers? In its December 2005 report, CNNIC released that 14.2% subscribers used Blog frequently, 3.7% up from the level of June of the same year.

Will the figure exceed 70% (the proportion of Internet subscribers who often read online news)? If not, Blog will not become a mainstream media. In other words, Blog is not mass media, but demassified media for a niche market. It is impractical to expect a niche to take the place of mainstream media.

I often tell a joke that the so-called community service is "a group of people with the same identities gathering together to warm each other". Blog, which falls into the scope of community service too, cannot break away from that feature despite its distinct media characteristics. Of course, such a group of people could also support the business operation of an Internet company so long as the number is large enough.

Having finished the main dish of mainstream media, subscribers may still have the appetite for a dessert of Blog to avoid being drawn by the massive information. Internet companies that run Blogs need to have a clear view of their competition situation with portals in two fields, i.e. content and community. It is impractical to brag about overtaking their rivals in all of the four fields.

[+] Information with low demand might survive in large markets

In addition to news, there are, of course, many other types of online information. Surprisingly, despite their low demands compared to online news, the demand is strong enough to support the listing of Internet companies at NASDAQ, for example, traffic and travel information, which facilitates the listing of Ctrip.com (NASDAQ: CTRP), the largest online travel agency in China.

It indicates that in a sufficiently large market, even the proportion of the people is small with the demand for the information of a certain type, it is still possible to gather them together and create value by leveraging the borderless Internet. Real estate, automobile and medical information in the above figure has that identity and, therefore, should be heeded by startups.

In the CNNIC reports over the years, three subjects keep attracting my attention: online recruitment, online education and online games. The first two are typical hot subjects in the saturation stage of the Internet. Take online recruitment for an example, the proportion of this sector among Internet usages has soared during the recent years:

Online recruitment has been one of the first fields in the development of the Internet industry. However, it has not gained sufficient media attention in virtually all markets around the world. In the meantime, as the first profit-making players in the Internet industry, online recruitment companies have kept a low profile in counting their money.

[+] Online recruitment will be one of the key fields

In 2005, Monster.com, the largest online job site in the United States purchased 40% shares of ChinaHR.com, the largest local online recruitment company. In the meantime, 51job (NASDAQ: JOBS) landed on NASDAQ, too. Nevertheless, I believe that, in China, this market segment is just off the start line and still has a large development room in the future.

According to a report released by CNNIC in June 2004, the No. 1 reason for using online job sites is "rich available recruitment information" (35.5%). On the other hand, the largest problem is "too much false information" (31%), followed by "recruiters care little about information delivered through the Internet (26.4%)".

As to the question: "Is it possible to find a satisfactory job through this means?", only 50% of the repliers give yes, 26.9% give no and 24.9% say they do not know or it is hard to say. Obviously, there are huge market demands that have not been satisfied. Also, there are many large players in this market, but few did a good job. Therefore, there is still a large room for the future development.

Content producers tend to believe that what they offer is invaluable. Sometimes they seek customer demands based solely on their own instincts. Through analysis on information needs and satisfaction rates of Internet subscribers, we are able to tell which fields have too much information, and which fields have unsatisfied information demands where business opportunities lurk. (
2006/03/12 - By Digitalwall.com - Way to
China Internet/Telecom )

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- Today in History

Predictions on China Internet Market (4) Job, Education & Games - 2006/03/19

Predictions on China Internet Market (3) Online News & Blog - 2006/03/12

Media, Community, and Blog (2) The Dream of New Media - 2005/03/13

Stop Internet Marketing (2) All Action; No Reaction - 2004/03/14

3G Time Comes (2) Mobile Internet Is Not the Killer Application - 2003/03/16

Predictions on China Internet Market (2) Subscriber Number Is King

Thinking on marketing strategies of industry players, start-ups and foreign competitors.

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[+] The strategy for winning out in a saturated market

The Internet market in China is still fascinating today because it has not been possible to predict who will win and who will loose in the end. Currently, the first echelon has the control of subscribers and capital. However, the advent of the next 60 million subscribers will be the key to the final result.

In terms of marketing initiatives in a saturated market, companies usually have to face a dilemma: is it better to retain client contributing high value (i.e. digging deeper and increasing the revenue), or to continue to attract subscribers contributing lower value (i.e. expanding wider and increasing the subscriber number).

There's always the problem of limited resource. For example, if a dotcom possesses 10 dollars, it has to decide which end to lean to: the retention of existing subscribers or the acquisition of the new one? The decision will eventually shape the mode of its new services (or products).

Obviously, the existing players in the market have more or less benefited from the first round of Internet enclosure movement. Some have got high website traffic or large subscriber numbers, some high revenues, others, who might be lagging behind in both fields, but high profits. Each company has a different strategic mindset.

[+] Eventually, subscriber number is king.

The question is: what's next? In my opinion, eventually the subscriber number is king. This is the nature of the Internet. Without a sufficiently large subscriber base, there could be no maximum value to talk about. When an Internet company increases its subscriber number from 10 million to 20 million, it more than doubles its power.

Externally, the subscriber number will decide whether you enjoy a strong position or a weak one in time of forming strategic alliances. Those with a large subscriber number could even sit at home and receive proposals from others. Internally, as the Internet is an industry that connects people, a large subscriber number means more opportunities of contacting one another, which, in turn, brings additional revenues.

From the perspective of products and services, those with the largest subscriber numbers could always have a larger time window in introducing new value added services or products. They could easily surpass rivals so long as their services or products are equal to those of their rivals. In other words, a large subscriber base is the key to competition.

At the beginning of a saturation stage, I suggest that large Internet companies continue to focus their resources on attracting new subscribers. They are going to feel gradually that the growth of new subscriber number is slowing down and they will have to take care of old subscribers. However, the enclosure movement should not stop, otherwise they would regret for it in a few years.

[+] The formation of market segments

Another identity of a saturated market is the formation of market segments, which mean groups of special subscribers, but not subscriber minorities. In other words, a segment does not necessarily mean a small subscriber base. For example, the female market is a segment, but the subscriber number is not small at all.

Due to the restriction of resources, when a large Internet company tries to address the demands of most people, it is hardly able to cover subscribers with special demands, as it is always difficult to both dig deeper and expand wider. In such cases, new market room appears.

By focusing on subscribers with special demands, smaller or industrial portals may have the chance to survive. Sometimes segments turn into small subscriber bases, but with the massive size of the Internet market in China, most segments could have sufficient subscribers, which will be able to support the operation of Internet companies.

The situation will become more prominent with the surge of the eCommerce market, such as websites that provide shopping services exclusively to women, or offer luxury goods, or even interior decoration services. Players will be able to survive so long as they provide comprehensive and professional services for their respective segments.

[+] The last chance for overseas players

Thanks to its eye-opening size, China's Internet market, which has been in a high-speed growth stage in the past years, has attracted many international Internet giants. Through direct investment or M&A, those overseas players have been flooding into China. 2005 was a particularly busy year, which saw the entrance of Yahoo!, Microsoft, Google and Amazon.

By choosing to enter at the starting point of the saturation stage, those Internet giants at least smell what the last chance is for them. Those that are going to enter the market after 2006 will have to face extremely tough battles with players already in China.

In face of acquisition offers by overseas companies, some local players choose to accept and some to refuse (some even claim that they have purchased a foreign giant while in fact they are actually purchased by that giant). All those, to me, are reasonable. As the focal point for portals will be eCommerce in the next few years, Yahoo! China has made a right decision to merge with local player: alibaba.com.

As the most important element for eCommerce is the website traffic, it is a right for alibaba.com to choice to partner with a portal. Most importantly, one must have the support of resources to seize a share in the remaining 60 million Internet subscribers in China market. In this sense, a strong brand and a powerful financial stand will be the backing forces.

[+] The key is to respect local people and market

It was right, too, for the largest online shopping site in China, dangdang.com, to refuse the investment of Amazon. As I said years ago, eCommerce is Local Business. The fact is it proves hard for external rivals to shake the position of local Chinese eCommerce players.

As a shopping web site goes from the start-up stage to the saturation stage of Internet market in China, it has stronger footholds. Therefore, it would be unnecessary to introduce external capitals. On the other hand, there was nothing wrong for Eachnet to sell itself to eBay many years ago when it was still at the high-speed growth market stage . The problem is, with the money it got from the foreign capital, how much market is has enclosed? If it's too little, that would be a pity.

In general, foreign Internet companies need to respect local people and market. This has been proved by the Yahoo!'s success and eBay's failure in Japan and Taiwan. From the very beginning, both the general managers and management teams of eBay in those two regions were from the United States.

For me, it hardly makes sense that, instead of China, some U.S. companies choose Korea as the place to set up their Asian head offices. Some U.S. companies try to integrate local subscriber database in China into the global one after the merger with local Internet companies in order to centralized control in head quarter. The problem is, as there are more than sufficient local subscribers here in China to support the business, why bother to do the database integration? The only thing left is to bring troubles for their subscribers.

[+] Marketing strategies in the saturation stage

For companies that already have their subscriber bases, the most important strategy should be "acquiring new subscribers through existing ones", i.e., the frequently used Member-Get-Member marketing method, where old subscribers are rewarded for introducing in their friends. Such methods, when used properly, could multiply the subscriber number.

To Internet companies, that proves to be a faster and more comprehensive approach, as the network enables much faster dissemination than the offline channels do. In addition to marketing activities, it should be an element to be incorporated into the functionality design of web sites to enable Member-Get-Member effects.

The segment most suitable for this Member-Get-Member model is the community service, including instant messenger services (e.g. QQ), Blog, and Web 2.0 services (e.g. SNS). Other than Member-Get-Member, no other reasons could be persuasive enough for companies to introduce Web 2.0 services.

Each online service has its profound meaning to internet operators, who, among all things, shall refuse the enticement of fads. For any judgment, companies shall retake the standpoint of "which market stage I am standing at right now? Is the introduction of this service helpful to the acquiring/retaining of subscribers at this stage? " (
2006/03/05 - By Digitalwall.com - Way to
China Internet/Telecom )

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- Today in History

Great Changes in Wireless Internet Industry (2) Yahoo!'s Strategy - 2008/03/09

Great Changes in Wireless Internet Industry (1) Google's Strategy - 2008/03/02

Predictions on China Internet Market (2) Subscriber Number Is King - 2006/03/05

Media, Community, and Blog (1) The Beginning of the Story - 2005/03/06

Stop Internet Marketing (1) All Market; No Marketing - 2004/03/07

3G Time Comes (1) What Is 3G? - 2003/03/09