Chinese Internet Users and the Role of Internet Cafes

The majority of China's internet users are under the age of 25, have at least secondary education, and are living in cities. They are not necessarily wealthy, though; as the figure below shows, approximately 74% percent of internet users have a monthly income of less than RMB 2,000 (~USD 300).

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360 Million Internet Users

As of the third quarter of 2009, there were an estimated 360 million internet users in China, according to the China Internet Network Information Center (CNNIC). During the first 9 months of 2009, China added a whopping 62 million users, almost 7 million new users each month.

Although many dispute these numbers (some claiming higher numbers, others claiming lower numbers) and the methods used to obtain them, it is clear that internet use is becoming widespread and China has now eclipsed the U.S. as the largest online population in the world.

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Why is Alibaba Separating Its Domestic and International Management?

Alibaba Group has announced that its online B2B trading platform Alibaba will split its management team into international domestic groups. Hong Kong's Media magazine speculates that the move is due to disappointment over the company's international expansion efforts:

Alibaba’s restructure runs in parallel with its plans to bolster its name internationally. Earlier this month, it announced the appointment of a lead creative agency in Europe, the Middle East and Africa as part of its US$30 million advertising campaign launched last year to promote its brand internationally.

 

David Wolf, CEO of Wolf Group Asia, said that while launching a large-scale advertising campaign to attract worldwide users to its site is good practice in the current e-commerce environment, the restructure may be a forced move as Alibaba has spread itself too thin.

 

"Alibaba has chosen to go wide and spread across global markets, but in China its competition is getting stronger and if it doesn’t focus on the domestic market, it may find it’ll be losing its leadership position," Wolf said....

 

Christie Travers, corporate marketing manager of DHK, a competitor of Alibaba, points out that hiring a creative agency in July, nine months after Alibaba launched its global campaign, is also indicative that its global push has struggled to gain traction....

Granted, Media focuses on the advertising industry, so its analysis focuses on aspects of the move that relate to advertising. We have a different take on the situation, however. We believe the split in Alibaba's business is primarily an attempt by Alibaba Group to place even more emphasis on the domestic market. The global economic downturn has hurt many Chinese manufacturers who depend mostly on international buyers through Alibaba's platform. At the same time, domestic e-commerce has been growing rapidly. Helping Chinese manufacturers sell to domestic merchants reduces these manufacturers' dependence on foreign clients, and at the same time it should help Chinese online merchants, many of whom use Alibaba Group's Taobao to sell their products.

This strategy becomes even clearer when Alibaba Group's payment processor Alipay and online advertising exchange Alimama are factored in. Of these four major businesses, Alibaba is the oldest. It is also the most dependent on participation from entities outside China. The company's recent growth is mostly coming from the domestic market, and this action allows Alibaba to build stronger links between China's manufacturers and its merchants. As domestic consumption becomes a more important part of China's economy, Alibaba Group is extremely well positioned to benefit multiple times as a products are manufactured, distributed to merchants, and sold to consumers.

Alibaba Group surely wants to build its international business, but to us this move shows that the company knows where its strength is and continues to build its business inside China.

Chinese Mobile Payment Users Gone Missing

Recent reports quote China Unionpay statistics stating China's mobile payment users grew to 19.2 million users in June. This came as somewhat of a surprise to us. In a report from April, China Unionpay's mobile payment subsidiary, UMPay, claimed over 40 million mobile payment users on its platform alone. According to other reports (1,2,3) in 2007, UMPay's mobile payment platform reached 50 million users. (UPDATE: UMPay's English website claims over 100 million users as of December 2008.)  No one else seemed to question these numbers, and that tells us that the market knows not to take them too seriously. While we don't necessarily agree with the stereotype that statistics in China are useless, in this case the stereotype appears to be correct.

In researching China's mobile payment sector, we constantly deal with contradicting "statistics" and wildly varying definitions of what constitutes an m-payment user. In our recent Mobile Payment report and other published work, we try and make accurate estimates for users and other key metrics, and then move on to more important questions--which business models are working, who is making money, and how the market will evolve in the coming years.

Is KongZhong profiting off unused TD-SCDMA credit?

Rumors on the Chinese net (examples here and here) are implying that KongZhong is involved in dealings to profit off unused TD-SCDMA credit.

According to these reports KongZhong is buying the remaining value from expiring trial TD-SCDMA accounts on a grand scale. These accounts were given free to users of China Mobile's newly launched TD-SCDMA commercial trials and were usually valued at RMB 800.

KongZhong is rumored to use the remaining balance in each account to purchase its own WVAS (wireless value-added services) products through China Mobile. The rumors state that KongZhong has spent millions of RMB buying these expiring accounts; the following diagram provides a simplified explanation of how this scheme works.

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