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

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

[+] 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 )