Wednesday, 7 July 2010

Americans Adopt Chinese Web Habits


Paul DenlingerBio |

Paul Denlinger is an internet consultant specializing in the China market who is based in Hong Kong and Beijing.  

When it comes to revenue on the U.S. Internet, it has traditionally come from three sources:
  • Display (banner) advertising;
  • Search advertising, made popular through Google Adwords;
  • E-commerce, with Amazon.com being the most outstanding success story;
The collapse of display advertising revenue for leading companies such as Yahoo!, which at their peak relied on large banner buys and campaigns from new Internet startups accounting for 1/3 - 1/2 of total income, was the single greatest cause of the popping of the Internet bubble in early 2000.
Lately though, something different has happened. These are:
  • The rise of social game publishers, led by Zynga;
  • The rise of group-buying, lead by Groupon;
In contrast to the U.S., online games have been popular in China since 2002 when Shanda Online Entertainment popularized the South Korean fantasy game title "Legend" in China. Almost single-handedly, that title made Shanda the single most successful IPO in 2004. Later, Shanda used its IPO cash to buy other studios and titles, becoming the single largest gaming network in the world.

A large reason for the success of online games in China was because consoles such as Nintendo's Wii, Sony's Playstation and Microsoft's xBox were never popular in China. A combination of high console prices, fear of game piracy on the part of publishers and government policy opened up an opportunity for online gaming.

In the U.S., Zynga has grown just as fast as Shanda, seemingly coming out of nowhere. Like Shanda, it is becoming a network too, leveraging the popularity of Farmville among many social game players. One could argue that Zynga is like Shanda, except it is starting from the U.S. market.


Groupon has leveraged the popularity of group buying, an activity which has long been popular in China since at least 2004. In China, group buying is called tuangou, and was an early popular use of the Internet for organizing. In China, the authorities have been wary of uses of the Internet which allow people to organize, but organizing for commercial purposes, such as group buying, are considered harmless, and thus are not obstructed. So effective was the tuangou movement that some retailers first sought to reject volume tuangou purchases of white goods and autos, but all eventually caved in, with some eventually setting up group purchasing departments to specially serve tuangou buyers. Now, they are a natural part of the Chinese retail landscape.

So, it is doubly ironic that Groupon's success in the U.S. has set off a flurry of Chinese startups who copy the Groupon model in China. It makes one wonder...

As gaming and group buying become more popular in the U.S., some trends to watch are:
  • Will social gaming eat into the popularity of console game titles and their publishers' revenue?
  • Will more game publishers move into social game publishing, seeking to duplicate Zynga's success?
  • How popular will social gaming become on the Android and Apple iPhone mobile platforms?
  • As social games take off, will display advertising revenues fall, maybe even to China levels? (In China, online game revenues have always been higher than display advertising revenue.)
  • If social gaming becomes popular, will in-game advertising ever take off? (In-game advertising has been a promise for years, but has never taken off.)
  • Will U.S. retailers embrace group buying groups the way Chinese retailers have embraced tuangou?
  • Will e-commerce in China overtake U.S. e-commerce in five years, as PwC has predicted, and will China become the largest IPO market this year?

No comments:

Post a Comment