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3G, e-commerce to boost China Internet

New generation of users, entrepreneurs drive new era

By Karen Chu
HONG KONG -- China's developing third-generation mobile broadband market, expanding e-commerce and a new generation of Internet-savvy business owners are set to keep that country as one of the world's most dynamic markets for digital and interactive media.

After a staggering rise in the number of Chinese Web users -- from 170 million in 2007 to 350 million 2009 -- mobile broadband users will next launch China's Internet era, Ken Yeung, CEO and executive director of TOM Group, told delegates Monday at the 2009 Asia Media Summit 2009, organized by research firm Media Partners Asia. "Mobile will usher in the third Internet era following the birth of Web 2.0," Yeung said. China already has 600 million mobile phone users.

The newly-developed mobile broadband market will also contribute to the growth of online advertising market in China. "The next two years in particular will see a considerable change in the mobile landscape in China," said Haoyu Shen, business operations VP at Chinese search giant Baidu. Although the growth of the Chinese online advertising market has slowed from 80% in 2007 to 60% in 2008, the rate massively outpaces China's GDP growth, some 6.8% from the fourth quarter of 2007 to the same period in 2008. 

Digital media's share of the advertising market is also on the rise -- from 7% to 11% last year. According to William Bao Bean, partner in Softbank China & India Holdings, the rise is attributed to a change in attitude by advertising agencies and media buyers, which are redeploying their key staff from traditional to digital media. Consumer attitudes are also changing as younger demographics prefer digital to traditional media. Also, in a country where most payments are still made using cash, enabling technologies on mobile phones also helps the growth in online ad spend.

Among the fastest-growing online market is "paid search," which amounts to RMB5 billion ($735 million) in 2008, a year-on-year growth of 80%, according to Shen. Paid search accounts for 30% of China's online ad market, with small and medium enterprises representing the bulk of buyers, although large brand advertisers are now also jumping onto the paid search bandwagon due to its relative affordability.

Demographics are helping here too. Growth is also driven by a generation of younger, Internet-savvy business owners who grew up with search, and by the expansion of e-commerce in China. E-commerce is currently dominated by one player – the Alibaba Group -- although that will likely change as consumers cut their use of search for offline purchases and begin to trust increasingly sophisticated retail sites.

Unlike developed Western markets, the size of China's business to consumer sector is still small and, according to Yeung, remains stunted by a lack of trust for online B2C platforms, such as logistics and payment issues.