Web 2.0 is not the end of the revolution; it is but an evolution.
[+] Web 2.0 is a confusing term
- Read More
Prev : The Web 2.0 Revolution (9) New ECommerce
Next : Great Future of Wireless Broadband (1) Living in the WiFi City
- Today in History
The Web 2.0 Revolution (10) the Big Future of Web 3.0 - 2006/11/05
The B2C model won't disappear, so we need to think about how business patterns are likely to change when the cost of bandwidth, of online user communication more precisely, is in a downward trend.
[+] C2C eCommerce is in line with the Web 2.0 spirit
Among all the various applications rising with the diffusion of the Internet, eCommerce, particularly the B2C model, has the least to do with the Internet. While a consumer does place an order online, the vendor conducts the following procedures completely in the physical world - there is little to do with the Internet.
So we finally come to realize that Amazon is actually a retailer. It focuses on reducing stock and operational cost, lowering the cost of goods through bulk purchases, and lifting sales by promotion campaigns, just like any traditional retailers. Its gross margin is practically at the same level of the traditional retailing business - nothing much to expect here.
On the other hand, C2C model is more relevant to the Internet world. What operators like eBay provide was simply a transaction platform for numerous small buyers and sellers. Apparently, the model of e-market, which is formed by gathering many individual users, can expand at a much faster rate.
This was the time when Internet forerunners first learned about the power of the Internet. In the C2C model, the most costly problems, i.e. inventory stocking and logistics, of the B2C model is thrown back to small buyers and sellers.
By matching buyers and sellers, B2C operators are able to collect fees of posting items or advertisements. Online auction services have been in full bloom these days. At the time when it's just sprouted, there was no such term as Web 2.0, but who would say it's not Web 2.0?
[+] Craigslist replaces eBay, not newspaper classifieds
After ten years of development of the Internet, users now are able to get more bandwidth with less money. This is beyond question. As discussed earlier, when the cost of bandwidth drops to a critical point, new intermediaries will arise and old ones be challenged. Let's never forget the true meaning of Web 2.0:
The root of the Internet revolution is but one thing - the ever declining cost of digital storage and transmission bandwidth. Socially, it is reflected on "the continuously falling cost of interpersonal communication; on the business side", it is "the gradual disintegration of enterprises which used to thrive on their monopoly of capital and information".
Following the step of auction websites, classifieds websites such as Craigslist in the U.S. has become a popular new paradigm. The success factor of Craigslist is that, it shares with users the savings obtained from the declining bandwidth cost over the past decade.
Ebay's users will be charged for making transactions on it, but most Craigslist's users don't need to pay for their classifieds posted on the website. Yet Craigslist, a high-traffic C2C website, can still survive without being beat down by the massive bandwidth consumption. This tells us how much the bandwidth cost has dropped these days that it has affected the way business is done on the Net.
Most reports about Craigslist center on its huge influence on traditional newspaper classifieds. Yet to me Craigslist is indeed a newer breed of intermediary which challenges the position of auctions websites like eBay, an once-new intermediary that took the place of traditional businesses many years ago.
[+] How the Web 2.0 spirit is infused into eCommerce
So, does it mean that all old B2C websites need to start doing C2C business in order to adapt to Web 2.0? Not at all. ON the contrary, this is exactly what we should avoid, because B2C model will not disappear. Instead we need to think about how the way of doing business may change when the bandwidth cost, or the cost of communication among Internet users, continues to fall.
Take the tourism for example. We all know that selling air tickets or tour packages online has been the most popular line of eCommerce. Yet we also know that a group tour can be a torture to many of us, because the tourist agency can only offer an ordinary tour plan with very few characteristics. It is almost impossible to offer a tailor-made package, since it is very costly to gather a group of people who have similar requirements to travel together.
Well, this is exactly where we see an opportunity for Web 2.0. The "declining cost of communication among people" has made it possible for an agency to find a group of similar interests and age to tour together.
Through proper execution, it is likely to find enough people who would like to join a tour, even for not very popular routes, in a very short time at a fairly low cost. This will lead to the downfall of discounted packaged tours and the rise of unique boutique tours. Who in the tourism business will be able to seize the power of web2.0?
[+] Apply Web 2.0 to reduce the cost of B2C eCommerce
B2C eCommerce is characterized by low gross margin similar to traditional retailing business, therefore B2C operators will care more about cost control than those running other types of websites. If the introduction of Web 2.0 services will only lead to the increase of bandwidth cost, then it's really not a good idea to go after Web 2.0.
Let's recall the case of eBay. Are there any things other than the costs logistics and warehousing that we can throw back to online shoppers? How can we make the best use of the trend of Web 2.0 to lower the operational cost in the name of consumer participation, and achieve a win-win situation for both operators and consumers?
Take the example of tourism mentioned above. Wiki applications may be very suitable for sharing individual travel experience. So, is it possible that a travel agency can reduce the number inbound calls for customer service and further lift its online sales through these applications that enable consumers to share their content voluntarily?
Here I would like to leave these questions to B2C eCommerce operators. If you still think that Web 2.0 means those terms like Blog, or RSS, or SNS, and you have no idea how these terms can be associated with your own business, then please allow me to remind you once again: the key is cost.
- Read More
Prev : The Web 2.0 Revolution (8) Transformation of the Telecom Industry Next : The Web 2.0 Revolution (10) the Big Future of Web 3.0
- Today in History
The Web 2.0 Revolution (9) New ECommerce - 2006/10/29
The Web 2.0 Revolution (8) Transformation of the Telecom Industry - 2006/10/22
All discussions about Web 2.0 should be centered around the axis of the question: what will happen when person-to-person connection and transaction cost continues to drop?
[+] Always have a critical mind about the Internet
I have always felt that it is more or less a pity that people nowadays are unfamiliar with the train of thought and experience developed during the evolution of the Internet. The Internet has become a "fact", yet there are quite a lot of people who have no idea why it has become what it is today.
During these ten years, we have experimented various kinds of seemingly wild ideas, and we have experienced moments of excitement and confusion. These thoughts have been scattered in every article of mine completed all these years. After a good deal of contemplation and numerous trials, we have finally come to realize what is feasible and what is not.
I had a plan to organize this collection of thoughts and publish it under the name of "the ABC's of the Internet". Yet after having a look at the guidelines just put together, I am surprised to find that much of the stuff is being challenged by the new developments of the Internet and is very likely to be over-written.
Web 2.0, this very popular word, is not as simple or confusing as what is portrayed in the media. Only those who have experienced the intense exchanges and experiments of ideas in the days of Web 1.0 are able to understand that Web 2.0 is really a silent revolution.
For terms such as Blogs , Social Networking Service, participation economy and others, there should be a more straightforward rationale behind. In front of the Internet, the vast crystallization of the wisdom and ideas of the mankind, we should always have a critical mind with devoutness.
[+] The declining cost of storage and bandwidth
There is only one root cause of the Internet revolution - the declining cost of computer storage and network bandwidth. In the social context, it would mean "the declining cost of the interpersonal connection or communication"; in the business context, it is "the disintegration of corporations which thrive on the monopoly of information and of capital".
In the era of Web 1.0, the shrinking cost of online publishing had resulted in drastic changes in the media and publishing industries. However, as the cost was not low enough, we had not seen in other industries such revolutionary changes centered around the idea of common participation.。
How low can the cost go? It is not easy to show with real statistics. Yet I have the impression that in 1999, SINA, a Chinese portal, launched its free email service offering "huge" storage of 50MB. Considering that at that time the storage of a hotmail account was merely 2 MB, it was 'huge" undoubtedly because SINA even bought TV commercials to publicize it.
But now you can easily apply a free email account with 2GB storage, which is 1000 times as big as that of a Hotmail account in 1999. In other words, the storage cost now is one thousandth of that in 1999.
And it means more than just the decline of the storage cost. With the increasing mailbox capacity, users have started to send emails attached with big files. It has led to the growing traffic or growing bandwidth consumption, or more practically growing cost to the email service providers. The providers today are able to afford such cost, meaning there has been staggering reduction in the bandwidth cost during this decade.
[+] Web 1.0: reduction of cost has impacted traditional B2C businesses
In 1999, free online hard-disk services were quite popular for some time. Users can upload files to the host machine for free. After the bust of the Internet bubble, these all turned to be paying services, and Xdrive, an renowned U.S. Service provider, is one of these providers.
Yet today you can get 5 GB storage with a monthly fee of USD5 or so, and 1GB storage can cost you nothing. Due to fierce competition, Xdrive is now planning to offer 5GB storage for free, to be launched this September.
By raising these examples I am not intending to explore the competition in and development of the business of free email or online hard-disk services. Rather, I am trying to point out how low the cost of storage and bandwidth has gone in these ten years. What can really stun us is the changes of the industries driven by the reduced cost the bandwidth and storage.
In the Web 1.0 era, we saw the rising of Internet media, which later developed into portals; this had impacted on the traditional capital intensive and seriously concentrated media industry. Also there was the emergence of online job sites, which greatly reduced the employment/recruitment cost and impacted on the related industries.
The shrinking of cost has triggered significant changes in the above mentioned B2C business models. While the cost continues to drop, the B2Cs are either encroached or even replaced by C2Cs. Some businesses are dying away, and some are forced to move upstream.
[+] Web 2.0: cost continues to drop, and C2Cs are impacting B2Cs
C2C business models are not a new idea. Person-to-person trading or payment service such as eBay and PayPal in the U.S. has been there for years. Online classified advertisement website Craigslist is seen as a good model for Web 2.0 participation economy, yet it came into being long before the appearance of the term Web 2.0.
In the U.S. there are now some websites providing a platform for person-to-person loans. Normally people will only lend money to reliable acquaintance, because the cost to find a reliable stranger is too high. Now the cost to identify a reliable stranger has dropped to such a low level, so guess which traditional industries will get shocked?
From 1.0 to 2.0, the revolution is a gradual one, because the cost of storage and bandwidth is not plunging overnight but declining step by step. There must be quite a few websites or business models with the label of 2.0, but actually they have been there since the days of 1.0. They just become more outstanding in the time of 2.0 when the cost has gone a lot lower.
So all discussions about Web 2.0 should be centered around the axis of the question: what will happen when person-to-person connection and transaction cost continues to drop? If in the future there comes the so-called Web 3.0, just think what kind of revolution there can be with the cost approaching to zero.
- Read More
Prev : New Era of Online Advertising (3) toward Decentralization Next : The Web 2.0 Revolution (2) the Emergence of New Media
- Today in History
The Next Step for Web 2.0 (1) The Dawn of Emotion Economics - 2007/08/26
The Web 2.0 Revolution (2) the Emergence of New Media - 2006/08/27
The Web 2.0 Revolution (1) the Root Cause is Cost - 2006/08/20
Envisioning China's 3G Market (1) 3G Will Not Increase ARPU - 2005/08/28
PDA in Siege (2) Bottlenecks of the Smart Phone - 2004/08/22
Compete against the leader with further customer segmentation in the crowded market.
[+] The income from the coummunication service nurtures a community
Today, online communication services mainly include the earliest services, such as email and instant messenger (e.g., QQ and MSN), and the follow-on VoIP messenger (e.g. Skype) and P2P file transmission (e.g. BitTorrent).
When we review the figure raised by me which shows the community profit model, we can see that, in addition to the advertisement, the communication service revenue is also a key component of the Web 2.0 profit model.
Some companies started their business with free communication services and made profits from community services later. For example, Tencent QQ, the number one instant messenger service provider in China, develops its business operation from the right circle of the above figure to the left one, while those who ran free community services at the beginning have to depend on communication services, for example, the wireless value added service like SMS to make a profit. In this case, their business moves form the left to the right of the above figure.
From communication to community, or the other way round, it seems that those are two conflicting concepts. As a matter of fact, there is no conflict at all. The key lies in the “heavy user” I mentioned in previous sections. Users of the community service must be the heavy users of the communication service.
[+] Iron rules for the profitability of the communication and community service
Most QQ users, as instant messenger service subscribers, do not want to pay. Yet those who are willing to do so are just in its communities. The purpose of QQ Show, a community service based on QQ subscribers, sells virtual items to those heavy users. In other words, the iron rule for the profitability of the Internet-based communication and community service is:
“A% of the users of the communication service (most of them use the service to communicate with acquaintances) use the community service (and are willing to communicate with strangers), while B% are willing to pay for a greater rights to show themselves, including buying the larger storage, virtual items and wireless value added service.”
For both the communication service (among acquaintances) and community service (among strangers), there is another possible profit model: VoIP. For services like QQ, the VoIP service call to a landline of mobile phone could prove to be a revenue source just like Skype, although the policy in China is still not clear at the present time.
For community services, the simplest profit model is making friends via VoIP service. It is a brand new field, where a lot of models could be tried. For example, eBay, which has merged Skype, is trying to introduce the VoIP service into its auction service. To make profits out of VoIP services will become an important trend for community services.
[+] Unshakable leadership of QQ
Compared with the community service market, where numerous Web 2.0 companies are involved in the fierce competition, the instant messaging service sector has another landscape: the leader is far too strong to be shaken. The following figure shows the market share of the leading instant messenger commonly used in China.
With its admirable achievements during the recent years, Tencent QQ has proved to be unshakable, leading MSN Messenger, even the nearest competitor, by miles. It is remarkable that China’s Internet market is still witnessing fast growth of the subscriber number; therefore QQ has far better ability to attract new users than its peers obviously.
It is a characteristic of the instant messenger. Most users will follow their friends or acquaintances to choose the same instant messenger, producing a “Member Gets Member" effect. Eventually, the strong gets stronger.
However, the so-called “friends and acquaintances” is only a relative term. An Internet user might get into an environment, for example, the office where all those around use MSN Messenger, instead of QQ. In fact, MSN has been a favorable tool for office workers. Maybe that could be an opportunity.
[+] Instant messenger for making friends
The following figure lists the purpose of using instant messenger. Notably, 83.8% of the users use the service to communicate with friends and family members, proving my statement that “the communication service is used mostly among acquaintances.” That turns out to be an unshakable advantage for QQ, as most of the acquaintances of a person are using it.
Then there are 61.6% of the users use the service for job-related communications, which is the base of MSN, as well as a field that Tencent is trying to infiltrate. Although the proportion of QQ-loving young students has been on the rise during the recent years, they will get a job sooner or later, and then they would switch to MSN. That is an intolerable loss for Tencent.
Surprisingly, as many as 42.3% of the users wish to make new friends, i.e., get to know strangers through instant messenger. Let us ask ourselves this: among the 10-plus instant messenger brands, which one has the most powerful ability to “enable users to make new friends fast”?
If the answer is still QQ, it would render QQ almost invincible! If the answer is not so definite, there might be room for those instant messenger which position themselves as a “powerful friends-making tool” in this market. Let us wait and see which one will be the best.
[+] Compete against market leader with new market positioning.
We should not forget what we have discussed at the very beginning of this series: there is still a growth room of 60 million subscribers expected in China’s Internet market, for which every Internet company is posed to take a bite. What, then, is the profile of that group? My simple answer is: female subscribers.
Male subscribers have been the dominating force of the Internet market in China. However, with the saturation of the market, the proportion of female users will rise. Companies that cater for the taste of female subscribers (who have particular preference for beautifulness, artistic conception and feeling) will be able to control the steering wheel in the next round of development.
The market positioning, be it “special for office”, “special for making friends” or “special for lady”, is just an attempt to compete against the market leader through re-segmentation. The previous problem with the instant messenger market is the over-similarity of the functional positioning of every brand, which leaves users little impulse to change their service providers.
Besides, we can see that 42% of the IM users use the service to save their phone tolls. Obviously, to save the long-distance phone call expense is a great enticement and great enough for IM venders to add in the VoIP functionality.
[+] A large user base could be the core competence.
When Microsoft starts to beef up its MSN Messenger in China and Google announces its strategy to stride into this market by relying on Google Talk, Tencent start from a IM service provider, is continuing along its path of diversification to dig deeper in the fields of online game, eCommerce and even portal website.
Maybe the question should be asked this way: “if you were Ma Huateng, the CEO of Tencent, held 400 million QQ users in your hand, what would you do? Would you just let them chat to death?” For me, the answer is self-evident. I do not think there is anything wrong with Tencent’s diversification.
In the contrary, as I have stressed repeatedly, community service users are heavy users. Please remember it! Thanks to that characteristics, QQ users have greater interests in shopping, are more deeply addicted to online games and show higher usage rates of other online services than general Internet users.
From another viewpoint, we can see that, it is because of its huge user base that Tencent has been able to surpass the original leaders in many fields in the shortest time possible. When QQ is no longer the synonym of the instant messenger alone, the leadership of Tecent will be extremely hard to shake.
- Read More
Prev : Predictions on China Internet Market (7) Web 2.0 Economy Next : New Era of Online Advertising (1) from Media to Channels
- Today in History
The Mist of 3G in China (4) The Way to Survival for SP - 2007/04/22
Predictions on China Internet Market (8) War of Instant Messenger - 2006/04/23
3G Time Comes (7) 3G Is Nothing to Do with WLAN - 2003/04/27
3G Time Comes (6) Phones Don't Need to Be Smart - 2003/04/20
Both the surplus and shortage of contents can create new business opportunities.
[+] 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.
- Read More
Prev : Predictions on China Internet Market (2) Subscriber Number Is King Next : Predictions on China Internet Market (4) Job, Education & Games
- 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
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? "
- Read More
Prev : Predictions on China Internet Market (1) Saturation Stage Next : Predictions on China Internet Market (3) Online News & Blog
- 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
Internet is in dire need of being rejuvenated. Keyword: innovation.
[+] Internet business have exhausted all new ideas in a matter of a decade
The past few months have seen local media taking an inventory of what Internet has gone through in the past decade. On that basis, media have also suggested a couple of routes that Internet might embark on. By all means, a number of IPOs of local Internet companies in Taiwan during the past six months and the revealing of some quite appealing operating results have, too, been responsible for the re-ignition of media interest in Internet.
Compared to the ruins when the Internet bubble burst, the current Internet fervor should come as a solace to those who have fallen in those early battles. While I do not claim to be among those most fitting to make a stand on this topic, some media have approached with questions I had to respond to out of a concern for courtesy.
Interestingly enough, these interview questions revealed some discrepancies between the ways I and the media see things, explaining why my opinions have not been too successful in currying favor with the chief editors – more than one occasions. I could say proudly that I have been quite philosophical about the fact that media did not take a special liking to my remarks as I was not exactly a stranger to how media worked, and I call myself lucky to have the Internet as a free channel through which to express my views.
When it comes to the Internet, what comes to mind for most investors is extremely large fluctuations of stock prices and young entrepreneurs with their dotcom companies that last only months or even weeks. While there are endless reports and analysis on the media telling investors which to invest in and which not to, one can not help but wonder if Internet stocks' soaring prices are based on anything concrete.
Around late 1990s, the Internet that had just turned commercial was pinned on with so much hype in a very short period of time and had seen stock prices hitting the stratosphere before year 2000. The overnight boom could be ascribed to two types of innovation, one of technology and one of business mode.
The innovation with business mode, in particular, is the key. Before year 2000, whatever mature or nutty business ideas people might have had, other people have thought of them and have started up a company for them, for that matter. In fact, you'll be amazed how crazy some of these ideas were if someone would just collect them all and put them in a book. That, in its own right, would be a good idea, too.
[+] There is nothing cutting-edge about the Internet anymore
One thing we must recognize is that the bulk of innovations that have come with the Internet had come of age before 2000. Some made it; other didn't, while others are still struggling. That's about the status quo of most current Internet companies, without any news ideas, just seeking improvement on the basis of their innovations in the past.
The search engine, for one, is in very aspect an innovation. That is, nothing of the kind has ever been with us since the dawn of day. This is what I call a technology innovation, which has brought about the equally innovative business mode of keyword search advertising.
At this moment in the US, search engines companies have lock themselves up in a fiery battle over market shares. And their ways of going about gaining an edge are simply attempts to improve accuracy or expand scope of services base on the innovations 10 years ago. They are again fighting a war of technicalities, though.
VoIP, as the latest 15-minute fame holder, has in fact been in existence years ago when 56k modem Internet access was considered chic, and what powered it up from rags to the current riches was no other than much-improved penetration of broadband acess and improvement of VoIP technology headed by Skype.
One might question the importance of discerning innovation from improvement. But this discernment makes perfect sense, since any industry can improve on what it already has while innovation from scratch is few and far between and by any standard a matter of sheer luck, and only full-fledged innovation can produce millionaires overnight.
As such, it would be rather unrealistic for investors of Internet stocks nowadays to look forward to multiple-fold earnings seen prior to 2000, since Internet sector as it is has achieved the same level of maturity as the "traditional industries," which typically grow more on improved profitability of incumbent business model and less on major innovations.
[+] High returns go hand in hand with high levels of chaos and uncertainty
On more than one speech occasions I have posed to the audience the question, "what line of business is an online store in?" Most people were speechless. Stripped own, online stores are doing retail business. In this sense, online stores are no different from convenience stores. The same question can be asked of portal sites, and the answer would be just as simple. That is, portal sites are in the media business, just like TV stations.
Easy as I may sound when answering these questions, things were not exactly crystal clear prior to 2000, when portal website owners were feeling their way forward themselves. Even the management of these Internet companies had no idea where their companies were headed.
I was amazed at how quickly the business platform could change for those Internet start-ups, who started out saying they would focus on being an Internet-borne media featuring search engines before they would try their hand at Internet advertising at that time. But before you knew it, they had their hands full with the Internet community service. That is, portal sites began buying up all the community websites they could find once the knowledge that community websites were all the rage hit them.
In 1999, it was eCommerce's turn on center stage. Like a moth to the fire, Internet companies swarmed to the front of "commodity," and that's when they realized how little they knew about commodity. Terms like souring and inventories simply blew their mind. Later on, in a strikingly similar fashion, these Internet wild geese simply felt inspired by eBay and the likes. They figured eBay would be the way to go since there was no inventories whatsoever. With that, dotcoms got all busy again, this time fussing over online auction websites.
The next chapter of the Internet fickleness began when B2C eCommerce encountered difficulty converting consumers who remained suspicious, forcing those who stuck around to push for B2B instead. That didn't last very long either before ASPs ran its own full circle of boom and bust. By late 2000, eBook stores had showed up and disappeared, just like clockwork.
The point I aim to make with the above elaboration on Internet evolution is that all the thinkable innovations have been thought of and put to trial before 2000. One can only imagine how chaotically dotcoms ran their business and how often they changed organizational structures and personnel. For Internet start-ups, there was no such thing as stability, and profitability proved a total stranger.
However, if a daredevil had risked one dollar with one of these start-ups and stayed put, chances are he/she will be a reaping some profits from their venturous moves right now. I, myself, for instance, once bought Sina.com at US$3 per share. Now the shares are trading at US25 per share. But if you ask me, such windfalls are growing rarer by the day.
[+] Next big thing: technology innovation and operating abilities
Back when Internet was at a time comparable to Mayflower docking in US history, it's not hard to imagine a scenario in which your boss asked you to handle Internet advertising this day and eCommerce the next, which worked like a free pass to total chaos. Here and now, Internet companies are characterized by better-observed division of labor, with the entire kit of guidelines and standard operating procedures (SOP) to boot, in the process giving rise to more recognizable corporate cultures.
Under the circumstances, it is rather hard to initiate a new business pattern. To avoid disappointment, we might want to pin our hopes on technology improvement or innovations. That, however, does not mean that investors should skip all existing Internet companies as components of their portfolios. It's just that timing of engagement and exit is all the more important right now and that one should refrain from high hopes of multiplying earnings.
For Internet companies involved in services characterized by less capacity for innovation and a higher degree of maturity, such as eCommerce, what can they do? I suggest that they work on their operating ability. That is, see it as a race of who can get more clients and who can sell more products at lower cost. In this sense, however, running an online store would be no different from running a department store.
What I intend to do is rip the high-tech skin off Internet companies, which by any standard are just as conventional as it can get nowadays, so that investors can have more realistic expectations of investment in Internet stocks, instead of being conned into believing otherwise. The bottom line is that Internet business is not a high-tech business any more. In fact, it is now officially a traditional business and mass media can quit handing out false hopes already.
- Read More
Prev : Ultimate Mobile Device (5) Universal User Experience Next : The Good Old Days of ECommerce
- Today in History
New Era of Online Advertising (3) toward Decentralization - 2006/07/30
What to Invest When It Comes to Internet Business? - 2005/07/31
Less distribution cost, shorter distance to consumers, larger sales can't be wrong.
The Internet has long been considered a type of media, hence the preponderance of discourse and discussion of Internet advertising and paid content that one can find using any search engine. However, few eCommerce enthusiasts can provide a straight/convincing story of how the Internet should co-exist with its alter ego of a distribution channel.
- Read More
Prev : Stop Internet Marketing (2) All Action; No Reaction
- 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
Pinpoint positioning and air-tight accountability are what make a Corporate website tick.
ECommerce has taken deep roots in Taiwan, where shopping online is increasingly a daily activity for many. Many business proprietors have abandoned the thinking that Internet is unprofitable. Instead, they have started to encourage employee participation in this market.
- Read More
Prev : 3G Time Comes (8) Who Are First Users of 3G? Next : Corporate Website a Handful (2) Division of Labor How?
- Today in History
The Web 2.0 Revolution (5) Search 3.0 - 2006/09/24
Crime and Punishment of P2P (1) Liberalization of Power - 2005/09/25
Three Musts of Digital Content Biz (3) Redefining Ownership - 2004/09/26
Corporate Website a Handful (1) Accountability Where? - 2003/09/28
Posts
All Comments
