• Japanese love shopping online

• Huge audience & penetration for IPTV in Asia

Digital TV penetration (%)

Source: Informa Telecoms & Media

• Asian Moms hooked on the Internet
• Asians are World's Most Engaged Net Users  (2008 Dec)
• China's online advertising market grew 21.2% in 2009 to $3.02 billion. That spending was split among search engines, online video, virtual communities and traditional internet portals. Events such as the 2010 World Expo in Shanghai, the Asian Games in Guangzhou and the FIFA World Cup, are expected to boost online ad revenue above $4.4 billion in 2010. Source: iResearch Consulting Group  AD AGE CHINA

ONLINE SHOPPING

More people in the region are shopping online, a survey has found. And Singaporeans are no exception.

The Visa survey shows shows that Internet users here were the second-highest spenders online in the region in the past 12 months. Only Australians spent more. And with more online shopping, credit card companies are gaining, with Visa leading the way. According to the survey, almost 60 per cent of online shoppers used Visa to pay.

The survey also looked at the top three reasons why people in the region buy online. Eighty-eight per cent said that online prices are cheaper. And 82 per cent said that it is easier to shop online than conventionally.

Online shopping is most popular in certain categories - digital entertainment, followed by travel and fashion. Most money spent online in the region is for travel. The average among travel spenders in the survey was US$812 in the past 12 months. Mohamad Hafidz of Visa Asia-Pacific said: 'Almost a quarter of the world's population - roughly 1.4 billion people - used the Internet on a regular basis in 2008. And in the Asia-Pacific, on average a person spent about 20.2 hours a month online. 

'Our survey has revealed that online consumers in the Asia-Pacific recognise the convenience of online shopping, as reflected in the high percentage of Internet users who buy a wide range of products from those for everyday use to the occasional high-value item.'

The Visa e-Commerce Tracking Survey was conducted by Ipsos, with respondents from Hong Kong, Singapore, Japan, Korea, Australia and India.  - 2008 November 21   BUSINESS TIMES

Slump May Help China's Online-Ad Market

Online advertising, which has gained traction in China in recent years, may be one of the few sectors to benefit from the country's sharp economic slowdown, as companies here look for more cost-effective ways to plug their products.

Ad-industry executives and analysts say the need to trim costs, while still trying to woo customers, could cause the online, or digital, portions of companies' ad budgets to grow, giving a boost to a market that has grown rapidly but remains puny compared with its size in the U.S.

"The economic crisis is...prompting a lot of our clients to rethink their marketing spending," says Karl Cluck, a Shanghai partner at Mindshare, a media-buying unit of WPP PLC, which has worked with clients including Nike Inc. and Motorola Inc. in China. There is "a lot more interest" in digital advertising, he says, especially for marketers of youth-oriented products.

China already boasts the world's largest population of Internet users, not to mention the most mobile-phone subscribers. But companies in China allocate 5% or less of their ad budgets to the Internet, depending on the estimate, compared with more than twice that share for companies in the U.S.

That has been changing, as young Chinese consumers gain more market clout and companies become more comfortable with the Internet in China. Nielsen Co. estimates that online ad revenue in China in the third quarter grew 42% from a year earlier to 3.72 billion yuan ($541 million). That rate was more than double the growth in spending on television, newspaper or magazine advertising.

Online video sites like Youku.com and Tudou.com are getting big advertising clients, including Samsung Electronics Co., Mazda Motor Corp. and Nike's Converse Inc. Marketing collaborations between brands and Chinese Web platforms also are becoming more common.

Last month, Coca-Cola Co. did an Internet campaign for its Coke Zero line, asking users of Xiaonei.com, a social-networking site owned by Beijing-based Oak Pacific Interactive, to submit photos to show why they deserved to be the next James Bond. Winners received a "day of James Bond," including a ride in a helicopter and an Aston Martin sports car.

The near-term outlook for online ads in China isn't entirely positive. Big advertisers in the auto and real-estate sectors are already feeling the effects of the slowing economy, and if overall spending falls sharply, online media will feel a hit.

Jason Brueschke, a Citigroup analyst in Hong Kong who covers China's Internet market, says the impact of China's slowing growth over the next three quarters may be greater than people realize. Even if marketing budgets being drawn up now are strong, "it doesn't mean the budgets will actually get spent," he says.

In a deep downturn, Mr. Brueschke says, marketers will need to choose the most valuable advertising, which is still television. Indeed, China Central Television, the monopoly state broadcaster, last month took in $1.4 billion for 2009 in its annual auction of prime-time commercial spots, a year-to-year increase of 15%.

Shaun Rein, founder of Shanghai-based consulting firm China Market Research, sees the CCTV auction as a positive sign of advertiser sentiment. The auction shows "ad prices are still going up in China," he says. "With most companies that we've worked with in China, they're keeping their marketing budgets kind of stable," but looking for ways to get more bang for their ad dollars through channels like the Internet.

Mr. Cluck projects that the Internet's share of some companies' ad budgets in China could increase by a percentage point over the next year. "That's where customers are going to be," he says. That means that even if the overall ad pie shrinks, Internet media will have a greater share of the total, and be well-positioned for any rebound.

Citigroup's Mr. Brueschke says money being spent for online advertising will more likely be allocated to bigger established Internet companies like Sohu.com Inc. or Sina Corp., rather than edgier sites like the video-sharing Web sites that have gained popularity in recent years. This happened during the Olympics; after the Games, China's top two Web portals posted much stronger growth while other large Chinese Internet companies, including Tencent Holdings Ltd. and Netease.com Inc., underperformed relative to expectations.

Despite his concerns about the near-term outlook for China, Mr. Brueschke thinks China is in a better situation than many ad markets. When advertisers make world-wide ad-budget decisions, China looks "a whole lot better than Europe and the U.S.," he says. "If you're playing the China market, you're playing the long-term, not the short-term, game," Mr. Brueschke says.     - 2008 December 11   WALL ST JOURNAL

Although many of the Internet's basic infrastructure grew out of U.S. government and academic research in the 1960s and 1970s, most Internet users are now outside the United States. The computer network has grown into a critical international tool for communications and commerce.

Who would have imagined the impact of Internet technology just a few years ago?  Asians have really embraced the technology.   We saved a few articles  from as early as  Dotcom 1.0 era  which illustrate the point.  

China says its population of Net users now world's No1

China's fast-growing population of Internet users has surpassed the United States to become the world's biggest, with 253 million people online at the end of June, the government reported yesterday.

China's Web usage is growing at explosive rates despite government efforts to block access to sites deemed subversive or pornographic. The financial size of China's online market, though, still trails those of the US, South Korea and other countries.

The latest figure on Internet users is a 56 per cent increase from a year ago, the China Internet Network Information Center said.

'This is the first time the number has drastically surpassed the United States, becoming the world's No 1,' a CNNIC statement said.

The United States had an estimated 223.1 million Internet users in June, according to Nielsen Online, a research firm.

China's Internet penetration is still low at just 19.1 per cent, leaving more room for rapid growth, according to CNNIC. The Pew Internet and American Life Project places US online penetration at 71 per cent.  - 2008 July 26   AP

• Chatrooms in China

A definitive article by Morgan Stanley analyst Mary Meeker published in 2004 outlined in a 200+ page report on Internet use in China, the world's second-biggest online market.

``This is the report we wish we had been able to read before we began to dig into the market for the Internet in China,'' the report says. ``We have been intrigued by the potential in China for more than half a dozen years, but did not think the time was right for a big ramp in focus until the middle of last year.''

China's online community increased to about 87 million in June this year and JP Morgan is forecasting it will reach 138 million by 2006.

China had 79.5 million Internet surfers in 2003, a year-on-year increase of 34.5 per cent, the China Internet Network Information Centre (CNNIC) in Beijing said.

This puts the mainland comfortably ahead of Japan's 56 million users, but still at number two behind the US, which had 165.75 million users, the Central Intelligence Agency said in its World Factbook. China defines an Internet user as someone who accesses the Internet at least one hour per week. The CNNIC added that dial-up Internet access from the home accounted for about 45 per cent of China's Internet use while almost 25 per cent came from leased lines and about 10 per cent via broadband connections.

The number of computers with access to the Internet grew by 48.3 per cent to 30.89 million by the end of last year.

All this means strong earnings impetus, especially for the big three Nasdaq-listed Chinese portals, which have seen their respective share prices soar to record highs.

Sina.com hit US$49.50 (HK$386) on January 27 of this year, less than 12 months after its share price hovered just above US$5. Similarly, NetEase.com and Sohu.com both experienced a sixfold jump in their share prices in 2003 alone, having emerged from a two-year slump that followed the dotcom bust. Share prices have since settled back to mid-2003 levels.

``In my view, the China Internet sector still presents an exciting growth opportunity over the long term. I don't see a bubble when stocks are trading at their 52-week lows and at multiples similar to traditional media or entertainment software levels,'' Lehman Brothers analyst Lu Sun said.

The rocketing trend of online activity in China has not gone unnoticed among foreign giants of the industry.

Within the last year, eBay, Google, Yahoo and InterActiveCorp along with some mainland competitors have invested almost US$1 billion in Internet businesses.

In June, Japanese online shopping mall operator Rakuten paid US$110 million for a 21.61 per cent stake in Ctrip.com which reported second-quarter net income of 31.44 million yuan (HK$29.6 million ) and now has a market capitalisation of roughly US$500 million.

In Hong Kong, JobsDB.com, an online provider of recruitment services, formed a strategic alliance with Shenzhen-based chinajobonline.com to tap the mainland labour market.

According to JobsDB.com chairman and CEO Samuel Sung, who co-founded the company in September 1998, chinajobonline.com operates on a membership scheme with annual fees typically between HK$2,000 to HK$3,000 for postings within China.

JobsDB.com's Hong Kong per posting fees can be more than HK$900. Cross-border postings on the two websites, launched in 2002, cost extra.

``China is a proven market for Internet companies in terms of making real money versus future earnings,'' an analyst with a US investment bank said.

For the three Chinese portals, messaging services have been key to driving revenues although NetEase.com is deriving a bigger chunk of sales from online games, an area Sina.com and Sohu.com are playing catch up.

Advertising, which accounted for half of NetEase.com's revenue in 2001, was just 16 per cent in fourth quarter.

For Sina.com and Sohu.com, online advertising drives about 40 per cent or 50 per cent of their total revenue ``and that's still the most important and strategic part of their businesses'', Lehman's Sun said.

While adopting this three-pronged business model to diversify their revenue streams produced profits in the aftermath of the dotcom bust, Morgan Stanley's Meeker noted: ``If the Internet leaders can sustain solid revenue growth in messaging, advertising, gaming and other new initiatives in 2004, they should be well established for subsequent years.''

CNNIC surveys of Internet surfers last year found that only 8 per cent have never visited a shopping website, while 40 per cent have made online purchases, including books and audiovisual and communication products. They also average almost 11 messages each per week, while gamers spend about 11.3 hours each week online.

In 2003, the state General Administration of Press and Publication approved 37 online games.

JPMorgan, which initiated coverage of the Chinese Internet sector in May, estimates the market will pull in US$190 million in online advertising this year, US$1.03 billion for wireless value-added services like messaging and US$439 million for online games.

These full-year forecasts represent year-on-year growth of 60 per cent.

Online search, online auctions and e-commerce are also dotcom business models that JPMorgan expects will develop into important revenue drivers.

Principal analyst Marcus Sigurdsson, at leading IT industry analysts Gartner, describes the mainland Internet market as developing into ``a content ecosystem or value chain, where there is a customer base that wants content and companies that produce content for delivery''.

This is driven, in part, by China-specific online behaviour that is turning the Internet into a socialising tool and a key source of entertainment and information, JPMorgan said. ``Young people in China consider getting an entertainment activity online. Online games are very popular in the country and the market is expected to see double-digit growth in 2004,'' it said, pointing out that hourly fees charged by Internet cafes are between two and four yuan.

Writing in the Asia newsletter of Boston-based investment services company Asia Clipper, William Hui Rong points to two key factors for this growth in China's online gaming industry.

``First, online games are piracy-free compared with traditional personal computer games. A person can copy a PC game by installing it on his own computer but he can't do the same to online games.

Online games require each player to pay to get a unique ID to play online, a process which cannot be easily pirated.

``Secondly, online games provide much richer interactivities with other players than traditional PC and video games.

``The hottest genre is MMORPG [Massive Multiplayer Online Role Playing Game], where players compete or cooperate with each other, meaning that the real fun comes from real person interactions.

``By comparison, in traditional PC or video games, players follow predesigned plots that have only limited possible outcomes and become boring after some time.''

But there are also risks of state interference in any media business in China. Just last month, state-owned China Mobile suspended the important mobile messaging business of Sohu.com for one year for sending out text messages promoting its picture messaging service to China Mobile customers without approval.

China Mobile also fined Sohu.com about US$500,000

The penalties sent the shares of Sohu and other US-listed Chinese internet stocks tumbling as investors reacted negatively to the reminder of Beijing's overall control.

The penalties were widely condemned by wireless service providers as being too harsh but it did serve to expose the volatility of wireless revenues.

``We believe for the next two months or so, until October at least, these activities will continue, with various levels of fines and sanctions applied against smaller players and possibly a few larger ones.

``The reason for the continuation of this process is that the pressure, in our opinion, comes from the Ministry of Information Industry (MII) and not China Mobile.

``This pressure will continue until China Mobile officials convince MII that all the content has been cleaned and no aggressive marketing or billing practices are used anymore.

``There is a limit, of course, in how much MII can push this since we believe too much pressure will backfire with China Mobile complaining that MII is killing the market opportunity and hurting all the players,'' a Piper Jaffray & Company research report said, warning that the third quarter of this year will be the worst for wireless service providers.

State regulation has also expanded to include review of the content of online games before being installed and operated by Internet cafes. This stems from Beijing's recent crackdown on pornographic material.

A licence from China's Ministry of Culture is required to host live game competitions and related marketing events.

``This trend has been the major theme in the entire history of Chinese media, and new technology platforms like Internet portals and wireless protocols were not under such tension since they were quite small compared to other traditional media during the past years,'' Piper Jaffray added.

The two parties that would likely be affected by this increased scrutiny are NetEase.com and Nasdaq-listed Shanda Interactive Entertainment. According to Morgan Stanley, NetEase.com's most popular online game is Westward Journey Fantasy. Launched in January this year, the game was developed in-house, which means the company does not have to split revenues with game developers.

Shanda has also had its share of problems with Korean game developer Wemade over accusations Shanda copied content from the licensed Legend of Mir series for its first in-house developed title, World of Legend.

Shanda hosts the popular Legend games in China for paying members who fork over 35 yuan for 120 hours of playing time.

In 2003, this translated to revenue of US$72 million and net profit of US$28 million.

Considering that more than 40 per cent of China's Internet users have monthly incomes of over 1,000 yuan, this is impressive.

Many naysayers wrote off the Internet as a money-maker following the Nasdaq crash of 2000.

But just 35 years after UCLA professor Len Kleinrock and a team of graduate students gave birth to the Internet by transmitting data between two computers on September 2, 1969, China is clearly demonstrating that the medium can make money.-     HONG KONG STANDARD     4 Sept 2004

Asian data traffic set to jump 35-fold in next four years

In the next four years, Internet traffic within Asia is set to grow 35-fold, while data traffic between Asia and North America will only go up six or 10-fold. Asian telcos and submarine cable providers should capitalise on this and make money for their stakeholders.

That's the prognosis from Tokyo-based Tsunekazu Matsudaira, CEO of submarine cable operator C2C Pte Ltd, a subsidiary of Singapore Telecommunications Ltd. 'Analysts we talk to say that between now and 2006, intra-Asia Internet traffic will grow 35 times,' Mr Matsudaira told BizIT in an interview. 'It is set to grow only five-fold within the US during this period. True, submarine cable capacity may be a commodity business. But money can still be made from it if the business case is well made.'

He said Asian telcos are still at the early stages. 'However, all the market studies we see - we're commissioning another one soon - have shown there will be robust growth of 40 per cent a year over the next 10 years in both data and voice, but obviously more for data.'

So far, the dominant destination of Internet traffic from Asia was to the US. That led to a significant overcapacity on the trans-Atlantic route. But the same is not true of the intra-Asia data routes. For instance, the Japan-US link, which is now the most heavily used part of the trans-Pacific submarine cable network, has 25 times more data traffic than voice.

Hoh Wing Chee, C2C's COO, said: 'When Asian carriers have to pump Internet traffic to the US, they do not just pay the wholesale costs (for bandwidth), they also pay international leased circuit costs (which the carrier pays to his counterpart in the call destination). These expenses have prodded Asian carriers to network among themselves so they can send traffic to each other.'

Mr Hoh said that cable overcapacity showed variations between Asian destinations. Much of the planned capacity did not materialise because the operator ran into financial difficulties. Another reason: technological innovation. This was a key factor contributing to initial submarine overcapacity. For example, almost all submarine cable that was laid in the Asia-Pacific region since 2001 used DWDM (dense wave digital multiplexing) technology. This technology offers up to 100 channels over each optical fibre pair, a 3,500-fold increase over the previous generation of trans-ocean cables that were used 15 years ago.

'The spurt of intense innovation gave cable operators much more capacity at the same price,' Mr Matsudaira said. 'The cable operators thus rushed in to build capacity well in advance of demand.' That in turn drove down the already-low prices for data transfer.

'But the trick is deciding when to 'light' (an industry term that refers to turning on or using the unused capacity) in the optical fibre', he said. 'Clearly, prices will fall as capacity expands. But the pace depends on how well we plan our rollout. As the number of players decreases and the industry consolidates, we will see signs of prices stabilising.'

C2C laid the submarine cable after the bursting of the cable bubble in 2001. That collapse saw prices for IRUs (indefeasible rights of use) fall an average 53 per cent a year between 1997 and 2001, according to analysts Jardine Fleming. An IRU is an industry unit that measures the proportions of a cable's total capacity owned by any buyer.

Over the short term, overcapacity may actually work to the advantage of operators like C2C. Mr Matsudaira says that carriers are cautious about buying IRUs outright and prefer to rent them instead as a leased line service which enjoys better margins.

C2C has laid a 17,000 km cable that links Singapore with Japan, South Korea, China, Taiwan, Hong Kong and the Philippines. C2C is owned 59.5 per cent by SingTel, and a consortium of partners, including US-owned Tycom Asia Networks (15 per cent), Hong Kong- based New Century Globe Telecom (6.37 per cent), Hong Kong based- iAdvantage, Japan-based KDDI and the Philippines-based Globe Telecom (4.125 per cent each).

For its fiscal Q1 ended June 2002, SingTel grossed $307 million in data-related revenues. These formed about 26 per cent of SingTel's overall operating revenue (net of Optus), and was the largest contributor to SingTel's revenues. However, data revenues showed significant price erosion - they grew only 2 per cent in its Q1 year-on-year. But data volumes shot up 72 per cent during this period.   -  Singapore Business Times      23 Sept 2002

Asians likely to overtake Americans on the Web
Almost half of the world's population of Internet users will come from Asia by 2003, with China leading the surge

MELBOURNE -   The number of Asians connected to the Internet, particularly in China, is poised to surge past the US in the next few years, executives told the World Economic Forum's Asia-Pacific summit.

Asia will make up almost half the world's population connected to the Internet by 2003 as the region's countries build new telecommunications networks to handle more users, said Mr Masayoshi Son, president of Softbank, Japan's biggest Internet-related investor.

He said the number of people using the Internet worldwide will probably rise to one billion in three years from 300 million users currently, with most new users coming from Asia.

That presents an opportunity for companies in Asia developing new technologies that support the Internet, including electronic business-to-business trading, he said.

Others agree Asia will dominate world growth in Internet usage, with television and other wireless applications expected to be a major source of Internet delivery.

""The current growth rates indicate that Asia is actually growing faster, in both the number of Internet service providers and the number of people getting inter-connected,'' said Mr Eric Schmidt, chief executive at Novell, a US maker of computer-network management software.

""Current growth rates of the Internet outside the US in general are faster than they are in the US, which I think is a good thing,'' he told the forum.

""I think the message is very good for Asia.''

Earlier, Telstra chief executive Ziggy Switkowski said that the adoption of technology to social and commercial applications is well advanced in parts of Asia.

Melbourne-based Telstra is Australia's No 1 Internet company.

""We shouldn't make the assumption that Asia is at a very early stage of development, because in a number of countries and a large number of applications, the progress that is evident is quite formidable,'' he said.

It is estimated Japan has 27 million Internet users, ahead of China with 16.9 million users and South Korea with 15.3 million. Australia has 7.3 million.

Accounting firm Deloitte Touche Tohmatsu released a survey, saying Asian Internet users are growing at a compound rate of about 45 per cent.

It said that China is expected to double its number of users every six months, a rate of growth that could lead China to boast the world's biggest online population within 10 years.

""The potential for Asia, and in particular China, to overtake the west in terms of e-commerce uptake is not a matter of if, but when,'' said Mr Peter Williams, an e-business practice partner at Deloitte. --Bloomberg News 2002

U.S. Web Giants Target China

As China's internet market sizzles -- 94 million Chinese now go online, second only to the U.S. -- many of its Web companies have rocketed from startup obscurity to stock-market fame. Shanghai gaming innovator Shanda Interactive Entertainment Ltdl ast year raised $100 million in an initial public offering and now stands 249% above its launch price. Ctrip.com which provides online travel reservations, raised $40 million in an initial public offering in December, 2003, and its shares have since more than doubled. Tencent, which operates China's top instant-messaging service, pulled in $200 million in its Hong Kong IPO last June and has seen its shares rise by 30%.

Now, Net giants from the U.S. want a piece of that China magic. On May 11, Microsoft Corp.said its MSN portal had formed a joint venture with a Shanghai company to operate a Chinese-language version of MSN. Later in the month, Google Inc.opened a small office in Shanghai, following a February deal with Tencent to provide search services for the Chinese company. And Yahoo! Amazon.com , eBay , and Expedia have been on the prowl in China, too. "The sense of urgency among big players has accelerated," says Safa Rashtchy, an analyst with Piper Jaffray & Co. in Menlo Park, Calif. "If you don't have a major stake in China, you could be left out."

It helps that U.S. Net outfits have an easier time getting into China these days. In the past, foreign companies that wanted to invest in Chinese dot-coms had to grapple with restrictions limiting their access to the market. Typically, the Americans would invest in an offshore company that had a contract to provide content to the Chinese company but had no stake in China itself. In late 2003, Beijing eased those restrictions as part of commitments it made in joining the World Trade Organization. Foreigners can now directly own 50% of Chinese Net companies, though getting approvals can still be slow.

The first to take advantage of the more liberal climate is MSN. Its partner is Shanghai Alliance Investment Ltd., which is run by Jiang Mianheng, a son of former President Jiang Zemin. The venture will offer Chinese-language content from government-backed outlets such as the Beijing Youth Daily and the Shanghai Media Group. One target audience is China's 340 million-plus cellular subscribers, who often use their handsets to go online. "Because of the mobile population, there are opportunities for new services," says Bruce Jaffe, MSN's chief financial officer. One such service, for instance, might allow Chinese bloggers to post their thoughts while on the go.

Other U.S. companies have already jumped in, restrictions or no. Yahoo! Inc. last year paid $120 million for a Hong Kong company that gives it control of Chinese search engine 3721. A key attraction of 3721 was the relationships its sales staff had built up with advertisers, says John E. Marcom Jr., senior vice-president of international operations at Yahoo. "3721 has a thriving, on-the-ground sales model," says Marcom. In addition, 3721 understands the local market and has helped Yahoo spruce up its site design and product positioning, he says.

Yahoo's salespeople will have to work hard to stay ahead of Google. The search giant sold about $24 million in ads in China last year and had about a quarter of the search market, according to researchers BDA China Ltd. While other search engines typically charge 3.6 cents a click for ads pegged to keywords, Google in recent months has cut the price to just 2.4 cents. While that could well get more companies interested in buying keyword ads, it is also likely to put pressure on China's leading search company, Baidu, in which Google holds a small stake.

Big e-commerce players are moving into China, too. eBay Inc. paid $180 million for EachNet Inc., a Delaware company that gives it control of Chinese Net auctioneer EachNet, and says it will spend at least $100 million in China this year. China is a "defining measure of business success on the Net," Chief Executive Margaret C. "Meg" Whitman told analysts in February. EachNet's gross sales grew 70% year-on-year in the first quarter, to $100 million. And last August, Amazon.com Inc. bought a British Virgin Islands company that gives it control of Joyo.com, China's leading online bookseller, for $75 million. While Amazon CEO Jeffrey P. Bezos cautioned shareholders at the company's May 17 annual meeting that the venture "will take many years to succeed," he said "it's an investment worth making in a country that's growing so rapidly."

Some Chinese are welcoming the American invasion. Pony Ma is the 34-year-old founder and CEO of Tencent, the Shenzhen company that operates QQ, an instant-messaging service with 77% of the Chinese IM market. Although Ma first turned to Baidu for a search function on the QQ portal, in February he switched to Google. Ma thought Google's search engine was more efficient, and decided it was less risky to work with the Americans. "Baidu could be a competitor," Ma explains. Given what he sees as the more limited goals of the newcomers, he says, "it's safer to work with foreign companies."

Foreigners, though, face plenty of dangers in China. For starters, the market is immature. Paid search, for instance, is just a $150 million market, compared with $3.9 billion in the U.S. In addition, companies that don't have a local operation can find themselves at a big disadvantage. For instance, Google doesn't have any local servers; as a result, few university students can see it, because school networks don't easily connect to sites outside China. And keeping the country's censors satisfied that the Net isn't fostering subversion requires companies to do lots of monitoring of content on their sites.

At MSN, Jaffe says the company is doing its best to make sure that the censors have no reason to move. "We keep a keen eye on being locally sensitive" wherever MSN operates, he says. "This will be no different." That will mean restrictions on what Chinese Net surfers can see and say on MSN's site, of course. But it's a price Microsoft and much of the rest of the U.S. Internet community appear willing to pay.   - By Bruce Einhorn in Shenzhen, with Ben Elgin and Robert D. Hof in San Mateo, Calif. and Timothy J. Mullaney in New York     BUSINESS WEEK     13 June 2005

   The net imperative

The Internet is said to be both over-hyped and undervalued. Ask any signed-up member of the “digirati”, and you will be told that the Internet is the most transforming invention in human history. It has the capacity to change everything—the way we work, the way we learn and play, even, maybe, the way we sleep or have sex. What is more, it is doing so at far greater speed than the other great disruptive technologies of the 20th century, such as electricity, the telephone and the car.

Yet, nearly five years since the Internet developed mass-market potential with the invention of a simple-to-use browser for surfing the World Wide Web, it is easy to overstate its effect on the daily lives of ordinary people. Even in the United States, the most wired country in the world, most people still lack, or choose not to have, Internet access. And even for most of those who have access both at home and in the office, the Internet has proved more of an addition to their lives—sometimes useful, sometimes entertaining, often frustrating—than a genuine transformation.

Everybody loves e-mail; if you are a teenage girl, chat is cool; and the ability to retrieve information about so many things is truly miraculous, even if search engines are a bit clunky. Despite early misgivings about credit-card security, buying certain kinds of things on the web—for example, books, CDs and personal computers—is convenient and economical, and has become popular. All these things are certainly nice to have, but they could hardly be called revolutionary.

But while the media have concentrated on just a few aspects of the web—the glamorous consumer side of content and shopping on the one hand, and the seamy end of pornography and extremist rantings on the other—something much more important is happening behind the scenes: e-business. The Internet is turning business upside down and inside out. It is fundamentally changing the way companies operate, whether in high-tech or metal-bashing. This goes far beyond buying and selling over the Internet, or e-commerce, and deep into the processes and culture of an enterprise.

From e-commerce to e-business

The Internet is helping companies to lower costs dramatically across their supply and demand chains, take their customer service into a different league, enter new markets, create additional revenue streams and redefine their business relationships. What Mr Grove was really saying was that if in five years’ time a company is not using the Internet to do some or all of these things, it will be destroyed by competitors who are

Most senior managers no longer need convincing. A recent worldwide survey of 500 large companies carried out jointly by the Economist Intelligence Unit (a sister company of The Economist) and Booz Allen and Hamilton, a consultancy, found that more than 90% of top managers believe the Internet will transform or have a big impact on the global marketplace by 2001.

That message is endorsed by Forrester Research, a fashionable high-tech consultancy. It argues that e-business in America is about to reach a threshold from which it will accelerate into “hyper-growth”. Inter-company trade of goods over the Internet, it forecasts, will double every year over the next five years, surging from $43 billion last year to $1.3 trillion in 2003. If the value of services exchanged or booked online were included as well, the figures would be more staggering still.

That makes Forrester’s forecasts of business-to-consumer e-commerce over the same period—a rise from $8 billion to $108 billion—look positively modest. There are two explanations: business-to-business spending in the economy is far larger than consumer spending, and businesses are more willing and able than individuals to use the Internet.

Forrester expects Britain and Germany to go into the same hyper-growth stage of e-business about two years after America, with Japan, France and Italy a further two years behind. And just as countries will move into e-business hyper-growth at different times, so too will whole industries. For example, computing and electronics embraced the Internet early and will therefore reach critical mass earlier than the rest. Aerospace, telecoms and cars are not far behind. Other conditions for early take-off include the ready availability of the right kind of software, computing platforms and systems-integration expertise.

Just as crucial is the impact of so-called “network effects” as online business moves from a handful of evangelising companies with strong market clout, such as Cisco Systems, General Electric, Dell, Ford and Visa, to myriad suppliers and customers. As both buyers and sellers reduce their costs and increase their efficiency by investing in the capacity to do business on the Internet, it is in their interest to persuade more and more of their business partners to do the same, thus creating a self-reinforcing circle.

However, even within particular industries companies are moving at different speeds. Much depends on the competition they are exposed to, both from fast-moving traditional rivals and from Internet-based newcomers. But nobody can afford to be complacent. Successful new e-businesses can emerge from nowhere. Recent experience suggests it takes little more than two years for such a start-up to formulate an innovative business idea, establish a web presence and begin to dominate its chosen sector. By then it may be too late for slow-moving traditional businesses to respond.

For evidence of how far most companies still have to go in developing their Internet strategies, look no further than their corporate websites. A few pioneers—such as Charles Schwab in stockbroking and Dell in the PC business—have successfully transferred many of their core activities to the web, and some others may be trying their hand at a few web transactions, with an eye on developing their site as an extra distribution channel later. But more often than not, those websites are stodgily designed billboards, known in the business as “brochureware”, which do little more than provide customers and suppliers with some fairly basic information about the company and its products.

Most managers know perfectly well that they have to do better. The Yankee Group, another technology consultancy, earlier this year questioned 250 large and medium-sized American companies across a broad range of industries about their views on e-business, and found that 58% of corporate decision makers considered the web to be important or very important to their business strategy. Only 13% thought it not important at all. A large majority (83%) named “building brand awareness” and “providing marketing information” as key tasks for their websites, and almost as many (77%) thought the web was important for generating revenue. A smaller majority (57%) also saw its potential for cutting costs in sales and customer support. Yet despite all this positive talk, three-quarters did not yet have websites that would support online transactions or tie in with their customer databases and those of their suppliers, although many were working on it.

In other words, most bosses know what they should be doing, but have not yet got around to it. It is easy to understand why. Knowing that you need a coherent e-business strategy is one thing, getting one is altogether more difficult. And until you decide precisely what your strategy should be, it will not be clear what kind of IT infrastructure investments you will need to make.

Here we go again

So they have reason to be wary of consultants and visionaries who promise new paradigms and tidal-wave technology. A recent survey of chief executives’ attitudes to IT conducted by the London School of Economics for Compass America found that only 25% believed that it had made a significant contribution to the bottom line, and more than 80% had been disappointed by its contribution to their company’s competitiveness.

No wonder many of them are asking themselves whether e-business is the most exciting opportunity or the most terrifying challenge they have ever faced. Yet most of them know that the Internet is in an entirely different category from the technology-driven changes they have either embraced or had thrust on them in the past. The same survey suggested that the Internet has significantly changed expectations about what IT could deliver, with more than half of the top managers saying they had high expectations for the future.

Part of the explanation is that IT investments, particularly ERP, have been inward-looking, concentrating on making each enterprise more efficient in isolation. By contrast, the Internet is all about communicating, connecting and transacting with the outside world. With e-business, the benefits come not just from speeding up and automating a company’s own internal processes but from its ability to spread the efficiency gains to the business systems of its suppliers and customers. The ability to collaborate with others may be just as much of a competitive advantage as the ability to deploy the technology. Certainly the technology matters, but getting the business strategy right matters even more. And that may mean not just re-engineering your company, but reinventing it.  - ECONOMIST   1999

Dotcom Mania   Time Magazine Asia Cover Story   7 Feb 2000
As Asia's Internet start-ups race toward lucrative listings, investors have dollar signs in their eyes

And now it's Asia's turn. The continent of economic miracles has watched, stunned from a distance, as the Internet-driven New Economy mushroomed in the West. Silicon Valley whipped up America's emerging market within: a roaring, just-wing-it, bandwagon-cum-bubble business culture that has looked a lot like, well, the freewheeling Asia of the past. For a while, it seemed as if the long-predicted Pacific Century might be stillborn--or stolen altogether.

No longer, and Silicon Valley beware. Asia is producing its own Net nerds bringing new businesses and technologies to the region and, along the way, getting rich beyond their wildest dreams. If all works out, young geeky pioneers in Japan, China, Korea, India, Singapore and Taiwan may re-invent Asia's future--just in time. "It's remarkable," says Sandra Morris, director of chip giant Intel's e-commerce unit. "The development line in Asia almost identically follows that of the U.S., only it's 2-3 years behind." And catching up with lightning speed. Internet analyst Greg Tarr in Singapore estimates that there will be 200 Net-related IPOs in Asia this year, half of them in Japan.

It's no surprise Asia is embracing the New Economy model. Just check out what's been going on across the Pacific. New York's NASDAQ index, loaded with technology and Internet stocks, soared 85% in 1999, fueled by $70 billion in new floats--a figure equal to Malaysia's GDP. If the share price of Yahoo!, the Net search-engine company now valued at $82 billion, climbs this year as it did last, the company will be as big as the Australian economy. That's how the New Economy compares with the old, and until recently, Asia was about as racy as a 2.4K modem.

Though it may now seem that everyone is making huge piles of money, the big returns aren't automatic. For every Internet success story, there are countless failures. To succeed, a venture has to be conceptually brilliant, quick off the mark and able to woo investors. In the following pages, we'll take you through the various stages of a successful Internet play, from being a promising start-up; to winning financial backing from an "angel" investor and, subsequently, a venture capitalist; to maturing under the guidance of an "incubator"; and finally becoming ready for the big payout: either a stock market listing or simply selling the company.

Fortunes will be made. Richard Li's Pacific Century CyberWorks group, a kind of Asian Internet mutual fund, last week announced yet another deal: a joint venture with CMGI to develop Asian versions of the American company's Internet brands, like Lycos, AltaVista and AdForce. PCCW is now priced as one of Hong Kong's biggest companies; a year ago it didn't exist. Its profits so far: zip. In Singapore, Chua Kee Lock had a net worth last year of $250,000, if you counted his car and pension fund. Today, he's CEO of a (profitless) Internet telephony company and has a personal net worth of $6 million. To prepare for the high rolling that's to come, NASDAQ-style exchanges are appearing in Hong Kong, Shanghai and Tokyo.

Fortunes will be lost as well in the market gyrations that are already wracking the region. But risk is what Asia has always excelled in. "The Pacific Century has not been lost," says Singaporean Netrepreneur Wong Toon King, "only delayed a bit." A brand new future? A bubble beyond anything we've seen in the past? A bit of both? Brace yourself: by any standard, Asia's New Economy is going to provide a wild and thrilling ride.  - Time Asia

Portal start-ups race to beat rules

Internet companies are racing to beat expected new rules that will regulate foreign investment in the mainland sector

Two new portals announced sites yesterday.

ChinaRen.com and eLong.com, both based in the United States and financed by American investors, are defying the present hazy rule forbidding foreign investment in the lucrative sector.

As no one can say what the new rules being drafted will be like, the companies are launching their services with breakneck speed.

"This is the time to get into China . . . For late starters, it might be difficult to find investors, because the rules . . . might change," Joseph Chen, chairman and chief executive of ChinaRen.com said.

He and two classmates from Stanford University generated the idea in January, raised US$3 million in a two to three-month period and launched the site in August.

The company's Beijing offices still have not been furnished.

The mainland recently reaffirmed a ban on foreign investment on the Internet sector but has not taken any action against foreign-funded companies already doing business in there.

Reports say new rules are being drafted that will clarify whether foreign investors can invest in the market.

Speculation is rife, with some predicting that Beijing will require Web sites to be licensed and the licences to be renewed.

Others believe the government will not issue licences to sites that offer foreign news.

The murky nature of the Internet sector in the mainland was making companies and investors nervous, Mr Chen said.

But he was optimistic the government would not cut out foreign investment.

"Capital plays a very important role in China. China needs a lot of capital. For any industry, foreign sources of capital would bring talent from the originating company, including technology, experience and management methods," Mr Chen said.

ChinaRen.com and eLong.com both play up the fact that the companies' founders are returning Chinese    - AGENCE FRANCE-PRESSE in Beijing   November 10, 1999

Cyber-squatters cash in on leading trademarks

They find work more difficult in Hong Kong because the Chinese University, which registers domain names within the SAR, requires proof of legitimate company connections.

However, people can get around that by registering overseas.

"There is really very little companies can do to protect themselves in terms of domain names," said Productivity Council principal information technology consultant Roy Ko Wai-tak.

But he said he had not heard of a case where someone paid for a domain name so he could file a public complaint against a company on the Web site.

He was speaking after Internet business consultant Julius Moltgen - who claimed guests at his hotel wedding banquet suffered food poisoning - took revenge on hotel owners Sun Hung Kai Properties by buying the Web site www.sunhungkai.com and using it to air his complaints.

Mr Ko said there was no law to stop Mr Moltgen.

"The contents are subject only to the usual laws on libel. There is a very weak legal basis to argue such cases as trademark infringement. Domain name registration works on a first-come, first-serve basis."

Mr Ko said cases were usually settled out of court.

One way to protect yourself is to follow the example of Pacific Century CyberWorks, which has registered a long list of variations on its name.

Another is to pay a lot of money to buy back your Internet names.

Last year US securities firm Morgan Stanley Dean Witter offered US$10,000 (HK$78,000) to a teenager for msdwonline.com.

In November a Briton registered the domain names of six Asian countries, including Governmentofsingapore.com and offered to sell them for US$10,000.

IKEA is suing mainland company Beijing Guowang Information in a mainland court because the latter has registered http://www.ikea.com.cn/.     - by Alex Lo    South China Morning Post     15 Feb 2000

Size Does Matter in Asia's Cyber Race
From Singapore to Taipei, old-line conglomerates are crowding out the nimble newcomers

Can't get enough of U.S. Internet stocks--the ones with weak profits and outrageous prices? There's always Wharf Holdings Ltd. in Hong Kong. The $1.3 billion conglomerate has seen property prices plunge and business shrink at its hotels and stores. It's also taking big losses on its push into phone service and cable TV. Yet Wharf's stock price has nearly doubled since Apr. 1, to $2.68 on May 5. The reason: Wharf has recast itself as an Internet play. ''The Internet market will continue to grow,'' explains Daniel Ng, director of Wharf's Internet division. ''With our strength, we should be able to find our position in it.''

The Internet craze is sweeping across the Pacific. From Singapore to South Korea, shares with even vague links to cyberspace are torrid these days and adding to the euphoria in Asia's bourses. But the fever is proving a decidedly local strain. Unlike the U.S. scene, dominated by small, zippy startups, Asia's Net boom is tilted toward old-line conglomerates with established reach. Some venturesome high-tech companies plan to issue stock. But for now, the market is rewarding size more than agility. ''In the U.S. Internet boom, everyone can catch the wave,'' says Antonio Tambunan, who manages the Internet advisory group for Deloitte & Touche Corporate Finance in Hong Kong. ''In Asia, that wave's reserved for the big boys.''

That's because Asia has almost no pure Net plays. Like Wharf, just about every Net stock in the region bears heavy non-Net baggage. Asia has no NASDAQs, either. Most Asian markets are just setting up second boards--which makes it tough for startups to find capital. In effect, East Asia is passing through a phase the U.S. left a few years ago. Back then, Internet service providers (ISPs) such as Netcom were all the rage in the U.S. market. Today, while there are Asian versions of portals such as Yahoo! Inc.  and E-commerce companies such as Amazon.com Inc.  none is publicly traded yet.

Wharf is typical of the alternatives open to investors. Its monopoly cable-TV network reaches 700,000 homes. In March, Wharf  said that it will use the network to provide high-speed Internet access by yearend. Although the Internet is likely to remain a small part of Wharf's revenues, that was enough to send the stock soaring. Other Asian conglomerates are placing similar bets. In April, Sumitomo Corp. announced a joint venture with AtHome to offer cable-modem access in Japan.

Even the few Asian startups that have gone public are exceptions that prove the rule. Singapore's Pacific Internet, a regional ISP, had an initial public offering on the NASDAQ in February. Its stock has since risen 30%, to 62 on May 5. But Pacific Internet is a unit of Sembcorp Industries, a state-owned conglomerate with enough muscle to support a newcomer through its infancy. Another beneficiary of deep-pocketed parents is Yahoo Japan, backed by Yahoo! and Japanese IT giant Softbank Corp. Shares in Hong Kong's Tricom Holdings, a telecom services provider, soared 1,246% on May 4 after it was taken over by Pacific Century, controlled by Richard Li, son of billionaire Li Ka-shing. The young Li plans to use Tricom to develop IT businesses.

ISP BAN. Without such backing, most startups are finding Internet fever has come too soon for them to take advantage of it. And raising equity capital is only one problem for aspiring Net players. Protected markets are another. Singapore's Pacific Internet has a quasi-monopoly with two other state-backed ISPs, Singnet and Cyberway.   Last year, the Singapore government let new players into the market, but it still bans foreigners from controlling a local ISP.

In Hong Kong, Kevin Randolph knows what it's like to go up against entrenched market leaders. As president and CEO of Asia Online, an unlisted ISP with operations in Hong Kong and the Philippines, Randolph is challenging Hong Kong Telecom, which counts more than half the territory's 600,000 Internet subscribers as customers. Asia Online wants to offer high-speed access over phone lines. Since Softbank acquired his firm in February, Randolph has the backing he needs. But the government won't license him to sell high-speed access over existing phone wires--so he can't compete with Hong Kong Telecom, Wharf, and the two other fixed-line operators. On May 5, Hong Kong announced it would not allow newcomers to own local networks before 2002.

That leaves Randolph with little choice but to lease wires from Hong Kong Telecom, which has the only broadband service in town and charges rivals $70 a month per customer for access--more than twice what it charges its own subscribers. ''The incumbent out here has an extraordinary lock on the market,'' Randolph says. That seems just as true in South Korea. Korea Telecom is spending $300 million to provide the country's fastest Net access.

It might not be much easier when the battle shifts from infrastructure to content. In the U.S., most ISPs never tried to become content providers. That left an opening for companies such as Yahoo! But the big Asian ISPs want to echo the success of Yahoo! and America Online Inc.--and freeze out any portal startups. In April, Hong Kong Telecom opened a Chinese-language portal intended to keep subscribers from venturing to sites such as Hongkong.com, backed by the Xinhua news agency. It opened an English site on May 3.

BIG BACKERS. Despite the obstacles, new portals are still trying to make their mark in Hong Kong, China, and Taiwan. Some have attracted venture capital. Sina, with offices in Taipei, Beijing, and Silicon Valley, claims a daily average of 4.6 million page views on its sites. It just won backing from Goldman Sachs and Softbank. Sohu, a Sina rival in Beijing, is supported by such investors as Intel and International Data Corp.

Zhaodaola Internet (Beijing) Ltd. has some novel backers: Its controlling partners include U.S. televangelist Pat Robertson. Its site, Zhaodaola! (Mandarin for ''I've found it!'') offers a cybermenu with a men's fashion, sports, and health section called ''Macho Man.'' All the portals ''are in a race to [make an] IPO first,'' says Ted Dean, a consultant for BDA China, an Internet consultancy in Beijing. Also among the aspirants is Yahoo Korea. Says Yook J. Dong, an analyst at CSFB in Seoul: ''Everyone is thinking about listing now.''

Few startups will issue stock before midyear. Even then, they may be overshadowed. Industry sources say that Hong Kong Telecom is mulling a NASDAQ listing for its Internet subsidiary. So is Korean market leader Dacom. Asia's Internet race has barely begun. For now, most investors with a craving for the Asian Internet will head toward companies with established connections. - By Bruce Einhorn in Hong Kong, with Michael Shari in Singapore and Jennifer Veale in Seoul     Business Week   17 May 1999

Wide Swath of China Is Surfing the Internet

Internet use is spreading farther than expected in China, reaching smaller, less-developed cities, and would likely be even more popular if not for government controls, according to two surveys.

The surveys, conducted by the government-backed Chinese Academy of Social Sciences, are the most extensive on Internet usage in China to date. Researchers interviewed 4,100 people in 12 cities, from the major urban centers on the prosperous coast to interior towns where economic growth has lagged. The surveys show that Internet penetration is on average highest in the metropolises of Shanghai, Beijing and Guangzhou -- where one-third of all residents use the Internet -- but small cities of around 100,000 in population ranked a surprising second, with 27% of residents going online. That percentage surpasses the 24% rate in four leading industrial provincial capitals, according to the surveys.

Underpinning the growth in small cities is an array of factors, including government policies and free-market competition to provide Internet services, says one of the surveys, on small cities. In Yima, a city in hilly, rural Henan province, for example, a mining company vied with the local subsidiary of China's telecom authority to offer Internet services starting in the late 1990s. The result was low-cost Internet connections and a surge in Internet cafes -- 60 of them by early 2002 -- for a city of 120,000 where incomes average $500 a year and many residents can't afford a home computer

The findings, say the researchers who conducted the study, suggest that the Internet's impact is greater than previously thought, with implications for the future of the economy and the communist government. Far from being a tool of the educated and well-off in big cities, the Internet is cutting across income and geographical lines in China, creating a populace that is better informed and more demanding of the government, the researchers say. "The Internet's emergence has filled a void," Hu Xianhong of Peking University wrote in the survey on small cities.

Overall, the surveys found that 56% of the 68 million Internet users in China are male, and 58.2% are between the ages of 17 and 24. Nearly 40%, who are either students or unemployed, have no monthly income, which has a damping effect on electronic commerce. Only one in five Internet users has made a purchase online, and most are for small items such as books or movie tickets. However, nearly 12% of online orders were for the purchase of computers.

The surveys also include good news for China's three Nasdaq-listed portals -- Netease.com Inc., Sina Corp. and Sohu.com Inc. -- which are the most frequently used services for accessing Web sites. And Chinese users spend most of their Internet time browsing Web pages and reading news.

This emerging online community, according to the surveys, shares ideas that could pose a challenge to a government often bent on control. More than 85% recognize a role for the government in managing and controlling the Internet, and most are concerned about pornographic and violent content. But fewer than 13%, the survey says, believe that the government should police political content, and overwhelmingly people see the Internet as a medium allowing greater freedom of speech and criticism of government policies.

"Most people strongly believe that the Internet will affect Chinese politics," says the study on Internet usage, authored by Guo Liang, considered a leading authority on the Internet's social impact in China.

Authorities, however, have sought to rein in this impulse, targeting for arrest those who disseminate dissenting opinions online. Last week, a civil servant in Hubei province, Du Daobin, was formally arrested on subversion charges for posting essays critical of the government and for organizing a petition protesting the detention of another Internet activist.

The surveys suggest that Internet usage would likely be even more widespread without government controls. In the small cities and provincial capitals, less-affluent populations rely on Internet cafes, the surveys say, and a crackdown last year has led to closings, reducing the number of outlets. In Yima city, the government canceled all licenses and limited the number of new ones it issued to 38 establishments, though some outlets operate illegally. The government, the survey says, has decided that Internet cafes should be limited to one for every 10,000 residents.  - By Charles Hutzler   Staff RReporter at Asian Wall Street Journal  18 Nov 2003

Hong Kong high users of Net

Hong Kong  Kong people are among the highest users of Internet radio and audio-visual content, thanks to a high penetration of broadband access.

In the latest ratings by ACNielsen and NetRatings, the SAR was second only to Brazil in Internet radio usage of 12 countries studied, and fourth highest in viewing audio-visual content.

``In most countries in this report, a 56K modem is the most popular tool to access the Internet. However, in Hong Kong, an astonishing 58 per cent of those who responded and have Internet access use either a cable modem or high-speed telephone connection,'' ACNielsen eRatings director Peter Steyn said.

``You have a better Internet experience with broadband, so there's higher usage for things like Internet radio and visual content.''

The survey, of 1,500 Internet users in each country, found email to be the dominant online activity, with an average of 85 per cent of those surveyed having used it.

The survey said email's popularity was because it was a cost-effective way to communicate across long distances and did not require high-speed connections.

The use of instant messaging, such as ICQ, was relatively low in Hong Kong, which was seventh on the list with 26 per cent of people having used the application in the past six months.

``Instant messaging is a great way to communicate person-to-person. It's especially popular in large countries where long distance rates are high. Perhaps that's why it isn't widely used in Hong Kong. Usually it's just easier to pick up the phone to call someone,'' Steyn said.

The report studied people aged 16 or older who had used the Internet in the past six months. Hong Kong was the only Asian territory in the survey.     -    HK STANDARD     11 May 2002   

China's Technology

SemiAnnual Survey Report On Internet Development In China (2000.1)

Statistics on Internet development in China, including the total number of hosts and users, user geographic distribution, traffic pattern, and domain name registration etc, are very significant and valuable in helping government agencies and commercial enterprises in making their policy and business decisions. In 1997, the State Council's Informatization Office and the China Internet Network Information Center (CNNIC) Working Committee determined that the CNNIC, in cooperation with the four major networks units in China, would carry out surveys on Internet development in China.

CNNIC published its four previous reports ("Survey Report on Internet Development In China") in November 1997, July 1998, January 1999 and July 1999. These survey reports were well accepted by the general public both in China and in other countries. They were widely cited as the leading authority on China's Internet statistics. Users, government organizations, enterprises and news media request the CNNIC to regularly do it and publish the results. To satisfy the needs of the public, CNNIC decides to do the survey as a semiannual activity. The surveys will be conducted and published in January and July of each year.

The current survey covered many aspects of China's Internet, including total user number, total host number, number and distribution of domain names, international bandwidth for each of the  networks, and total number of WWW sites. The user information are statistically derived from the data collected through online survey. Internet and Web usage statistics, as well as users' opinions on current hot issues, have also been obtained through the online.

Like the previous reports from the CNNIC, the survey has closely followed the methodologies adopted in other countries. Data is collected through submitting online questionnaires on popular Web sites and conducting software-driven online seeking. CNNIC conducted its online survey in   December 15-31, 1999. Survey questionnaires were placed on the home pages of famous Web sites in China. The survey is strongly supported by almost all the well-known Chinese ISPs and ICPs. The online survey received 363,538 responses. Among these responses, 202,432 were valid and used to calculate the final results. The number of valid respondents has increased tremendously, compared to the previous four surveys. The increase has greatly enhanced the accuracy of survey results.

1.Computer Hosts in China: 3,500,000. Among them, 410,000 are connected through leased lines and 3,090,000 are through dial-up connections.

2.Internet Users in China: 8,900,000. Among them, 1,090,000 are through leased line connections, 6,660,000 are dial-up users and 1,150,000 use both. Besides the computer, users that use other equipment (for example mobile telephone, PDA and top-set) are 200,000.

3.Domain Names Registered In The Top-Level Domain "CN":

*AADN = Administration Area Domain Name

The distribution of domain names by second-level of domain names£º

The distribution of domain names by geographic locations (provinces)

4. Number of Websites in China: 15153 (approximate)

5. Total Bandwidth of Leased International Connections: 351M. Countries directly interconnected to China's Internet include the United States, Canada, Australia, Britain, Germany, France, Japan, South Korea, etc. The detailed distribution among Interconnecting Networks is as follows.

6. Results of Online Questionnaire:

I. General Demographics

(1) Gender: Male, 79%; Female, 21%

(2) Age:

(3) Marital Status: un-married, 64%; married, 36%

(4) Geographic Distribution (Province):

(5) Education Attainment:

(6) Occupation/Industry:

(7) Monthly Income Per Capita:

II. Use and Access

(1) Access Location:

(2) Who pays for Access:

Among the Total Amounts of fee for Access Monthly:

Work/School: 1,086,830,000(approximate)
Personal Fund: 1,025,810,000(approximate)

(3) Money That Users Hope to Pay for Access Monthly:

(4) Hours of Internet Use Per Week :17 hours

(5) First Daily Login Time:

(6) Time Period of Most Likely Keeping Online (Results of Multiple Choices)

(7) Amounts of E-mail Accounts: 35,600,000  
Among Them, Free Mail Accounts: 26,700,000

By China Council for the Promotion of International Trade    2000-2001

Eleven Chinese companies designated by Government with access to WLAN encryption codes:  

• Shenzhen Mingwah Aohan High Technology Co.
• Wuxi Jiangnan Computer Technology Research Institute
• Legend Holdings Ltd.
• Shanghai Koal Software Co.
• Shenzhen ZTE IC Design Co.
• SDT Telecom Co.
• Huawei Technologies Co.
• Chengdu Westone Information Industry Inc.
• China IWNCOMM Co.
• Shenyang Neusoft Co.
• Beijing Watch Data System Co.

Source: China's State Encryption Management Commission

COMMENT:           I see this as a shape of things to come from China. With +4m new cell phonesubscribers alone signing up monthly, I believe this industrial giant is destined to be a force for concern in this decade. If the West fails to react, such clout will surely swing the economic/technical pendulum in China's favor - if it hasn't already begin    -  Hubert             December 03, 2003

NEWS STORIES
Chinese Wireless Standards Force Rivals to Work Together

BEIJING -- China is requiring importers and sellers of certain mobile wireless technology to co-produce with their Chinese rivals as part of a push to promote a homegrown technique for keeping wireless data secure.

Under the policy, which went into effect Dec. 1, companies must incorporate China's own encryption standard into any wireless local-area-network equipment that they sell in the country. Chinese regulators have told foreign investors in recent days that they can only acquire the necessary encryption technology through 11 designated Chinese companies, many of whom are their direct competitors. That has many foreign companies worried that any co-production ventures could result in possible theft of their intellectual property, and that an uneven playing field could favor Chinese manufacturers.

"Companies are simply reeling right now" over the co-production requirement, said Anne Stevenson-Yang, head of the Beijing office of the U.S. Information Technology Office, a Washington industry group. She said member companies are exploring possible options for responding, but "this is just not a viable policy."

A spokesman for the U.S. Embassy in Beijing said U.S. officials have expressed their concerns over the Chinese standard to China's government and they are continuing to discuss the issue with U.S. companies and other concerned foreign governments. "We hope this issue can be resolved at the earliest possible opportunity so as to avoid a possible negative impact on bilateral trade," the spokesman said.

Wireless local area networks allow high-speed, wireless Internet connections within a fixed area, such as an office or a Starbucks outlet. Encryption -- a broad term describing methods of safeguarding information on data networks by disguising it -- is particularly critical for wireless Internet connection, or Wi-Fi, which offers an easier target for hackers than connections through landlines.

Beijing's new encryption standard differs from global standards, and it isn't the only technology for which China wants to set its own standards. Chinese policy makers hope to use homegrown technical standards to generate demand for Chinese innovations world-wide, and are adopting or considering unique standards for third-generation mobile phones, DVDs, electronic-imaging technology for mobile phones and for the digital home.

The latest spat comes amid Chinese Premier Wen Jiabao's first visit to America, and seems certain to heighten existing tensions in bilateral trade relations. Some U.S. businesses have been complaining that China's fixed-rate currency system unfairly boosts Chinese exports to America, and that China is using administrative procedures as an excuse to block imports of U.S. soybeans and other agricultural products so that Beijing can protect its farmers.

Intellectual-Property Concerns

Under the new wireless LAN policy, any companies that want to sell such products in China will have to engage in "cooperation" with 11 designated domestic companies that have been given access to the encryption codes, said Chinese regulators and company executives. The companies include Legend Holdings Ltd., Huawei Technologies Co. and Shenzhen ZTE IC Design Co. Beijing has provided the encryption codes for free to the 11 companies, who may in turn charge other companies, Chinese or foreign, for installation of the encryption technology into their products

Ms. Stevenson-Yang said a main concern of foreign companies is potential loss of intellectual property to the designated Chinese companies, which could seek substantial technical information on foreign products for the purported purpose of integrating the encryption technology. Other worries include the possibility that negotiations on acquiring the encryption technology could drag out as Chinese rivals rush their own products to market, and that the 11 companies could demand high fees for the technology. And some industry executives point out that the policy doesn't appear to allow them any legal redress even if the designated Chinese companies refuse to provide them the encryption technology at all.

In many cases, foreign companies' would-be partners under the new policy are currently their fierce rivals. Cisco Systems, for example, might have to work with Huawei to integrate the Chinese standard into its products, even though it sued Huawei in U.S. court in January over allegedly stealing its intellectual property. (Cisco recently shelved its suit after the two sides reached an agreement that Huawei would withdraw products that copied Cisco's intellectual property). Microsoft Corp. could be faced with working with rival Chinese software maker Shenyang Neusoft Co., while Dell Inc. might be in the same position with computer maker Legend.

Little Sympathy

Li Jie, a spokeswoman for the State Encryption Management Commission, dismissed such concerns. "Price setting, intellectual-property protection and other business risks -- these are issues to be discussed between the two sides as part of the cooperation agreement," she said. "Companies will be cooperating on a commercial basis and the price for the ... encryption will be settled on a voluntary basis."

Executives at some of the designated Chinese companies didn't sound sympathetic to the concerns of foreign companies. If some of China's designated companies refuse to provide the encryption technology or to delay its transfer to foreign companies, "that couldn't be prevented," shrugged Lei Limi, general manager for the Beijing office of Chengdu Westone Information Industry Inc., one of the 11 designated outfits. "Foreign companies have their own advantages and they are now the main players in the China market," he said. Mr. Lei admitted that "it is possible" that some Chinese companies could ask foreign rivals for their technology to incorporate the encryption technology into the foreign companies' products.

For its part, Chengdu Westone hasn't set any prices for providing the encryption technology, nor have any foreign companies contacted it yet, said Mr. Lei. But "I am sure they will, if they don't want to abandon the China market," he said.     - By Kathy Chen  THE WALL STREET JOURNAL   10 Dec 2003   

China Roils Wireless Industry With New Encryption Standard

BEIJING -- China, putting the global technology industry in a tizzy, has unveiled a homegrown technique for keeping mobile wireless data secure and ordered computer makers to use it.

A new policy, which sets China's own encryption standard, took effect Monday. It applies to wireless local area networks that allow high-speed, wireless Internet connections within a fixed area such as an office or a Starbucks outlet. The policy requires any such equipment that is imported into China or sold here to conform to Beijing's new encryption standard, which differs from global standards.

Encryption is a broad term describing methods of safeguarding information on data networks by disguising it. For a wireless Internet hookup, which offers an easier target for hackers than connections via landlines, encryption is particularly critical.

Although the new policy provides a six-month grace period for certain goods in the small but fast-growing sector, it is already having a ripple effect across the industry. Dell Inc. said it anticipates halting shipments of affected products to China when the grace period ends. Other major industry players, from U.S. chip giant Intel Corp. to Japan's Sony Corp. to Chinese hardware manufacturers such as Legend Group Inc., are scrambling to figure out the potential impact on their business. U.S. industry groups have been lobbying Chinese and U.S. policy makers over the issue.

Wireless networking isn't the only technology for which China wants to set its own standards. Chinese policy makers hope to use homegrown technical standards to generate demand for Chinese innovations world-wide, and are adopting or considering unique standards for third-generation cellphones, DVDs and electronic imaging technology for cellphones.

The new encryption standard seems certain to further heat up simmering trade tensions between the U.S. and China on the eve of Chinese Premier Wen Jiabao's first visit to America, which begins Sunday. The furor that the new standard is generating also shows how integral China has become in the global production chain.

Are the new standards "superior or just gratuitously different?" asked a Western consultant in Beijing who advises several multinational technology companies, adding, "Is this protectionism by another name?" An industry executive said: "We are concerned that government regulators world-wide and companies continue to enable the growth of this important and powerful new technology."

Liu Chaoyang, a director of the Chinese group that drafted the new standard, denied the measure was launched as a "technical barrier" against foreign equipment vendors. He said China designed its own standard to protect national security, as wireless LAN networks are prone to attack and the international standards in current use have holes. He added that products made in China for export won't have to comply with the new standard.

As in the U.S., China's market for Wi-Fi, or wireless fidelity, is growing quickly. Industry executives estimate that total sales will hit 600 million yuan ($72.5 million) this year, and could reach $500 million by 2005. Of this year's total, equipment sales by multinationals are expected to double from 2002's level to 308 million yuan, said Lu Guoying, a telecom analyst with CCID Consulting.

Regulatory Uncertainty

Industry executives expressed concern that the new standard could cut market growth, although they are uncertain because Chinese regulators haven't given details on how to implement it. The Japanese Chamber of Commerce and Industry in China has set up a group to study the issue that includes companies such as Sony and NEC Corp.

"We're not sure how this will affect these companies, but we are afraid that the companies won't be able to manufacture and won't be able to sell PCs in China," said chamber Secretary-General Yasunao Komatsu.

Dell China also is studying the new standard, a company spokeswoman said. "According to our current understanding of the guidance, we will have to stop shipments [into China] altogether" of both Intel's Centrino and its own TrueMobile Wi-Fi technologies as of June 1, she said.

Chuck Mulloy, an Intel spokesman, said the grace period would allow Intel to continue to export its Centrino technology to China, its second-largest market in terms of total sales, for now. "In the longer term, we really need to study the requirements and the technical aspects" of the standard. He said industry groups are "working with authorities to better understand the requirement and to see if we are headed down the right path."

U.S. trade officials also have weighed in, with visiting Commerce Department officials and Deputy U.S. Trade Representative Josette Shiner bringing up the issue in separate meetings with Chinese regulators recently.

Domestic Expansion

Some Chinese companies see opportunity in the new standard. Beijing LHWT Microelectronics Inc. supplies broadband chips for wireless LAN equipment manufacturers. Most of its clients are foreign companies that sell products overseas, but Zheng Jing, a Beijing LHWT marketing executive, said his company has decided to expand into the domestic market because of the new standard. "It will help us to ward off foreign competitors in the domestic market," he said. "We will have a bigger market. It's all good for us rather than anything bad."

A Legend Group executive said the new standard is "very helpful for domestic equipment suppliers" and could mean "a turnaround for domestic vendors who are now lagging behind foreign rivals."

In 1999, China attempted to regulate different encryption standards by imposing a blanket ban on products containing foreign-designed encryption software that affected everything from e-mail systems and mobile phones to Internet networking equipment. The move sparked an outcry and open defiance from foreign companies. The strong response forced China to back down. In 2000, it reissued regulations and narrowed the ban to a type of highly specialized encryption software.  -     By Kathy Chen & Charles Hutzle   THE WALL STREET JOURNAL   3 Dec 2003   

EBAY, the web site that persuades surfers to make a bid, has been bidding a lot itself around Asia lately. The company has spent almost $40 million in the region this year, buying into Taiwan's top Web auction company, NeoCom Technologies, and Eachnet in China.

"For eBay, 2001 was the year of Europe," says Stephanie Tilenius, general manager of eBay's Asia-Pacific business. "This year, 2002, is definitely the year of Asia."

That's true not only for eBay but also for other United States-based e-commerce survivors like Priceline, E*Trade and Amazon.com. All have made aggressive pushes into the region in the past six months and are looking for ways to expand even further.

The name-your-own-price travel site, Priceline, is tearing through the region. It launched its site in Singapore in early June, only a month after it debuted in Hong Kong. The joint venture between Hong Kong conglomerate Hutchison-Whampoa and Priceline invested $20 million to establish a service in the region. It also plans to enter the Taiwanese market later this year. Meanwhile, Internet bookseller Amazon.com, is focusing on growing its business in Japan this year. In April, it added a new service that allows customers to sell used books and other items on its site.

E*Trade is taking a quicker route to expanding in Asia--hunting for acquisitions. Late last year, the on-line broker bought the accounts of 2cube Securities, a joint venture between JPMorgan and Hong Kong telecoms company Pacific Century CyberWorks. It also tried to purchase Hutchison-Credit Suisse First Boston Direct, another Web brokerage in Hong Kong that was eventually sold to the Bank of China in April. "We're definitely in the market for more acquisitions to expand our business into Taiwan and China," says John Lord, E*Trade's vice-president in Asia.

E-commerce has been slow to catch on in Asia, but these dotcom survivors are setting up their stalls here now, in the hope of some serious business soon. They're investing in countries that could be the new engines of growth when their home markets are slowing. "All of these companies have been waiting, eyeing the region for the right opportunities and the downturn has provided them," says Lane Leskela, an analyst at research firm G2.

That's certainly true for Priceline. It launched in the region amid a steepening of the travel downturn following the September 11 attacks in the United States and consumer indifference to e-commerce. But chief executive Alfredo Gangotena insists, "It was really excellent timing for us." The site that matches consumers with airlines and hotels that are trying to fill their excess capacity was able to attract more customers and partners because of the tough conditions. Gangotena also says that the recession in Hong Kong draws more bargain-hunting travellers to priceline.com.hk, which offers discounts of up to 30%.

It's not just air tickets and hotel rooms that are going cheap in Asia right now. The price of marketing is down too. E*Trade made a big splash in Hong Kong last year with a series of television ads bought at a fraction of the cost of years before. Now Priceline is doing the same.

As growth slows at home, companies like eBay, E*Trade and Priceline need to find new revenue boosters or risk a drop in their stock prices. Even after losing much of their value, the companies' market capitalizations still reflect high growth and earnings expectations. EBay, for instance, trades at a price-to-earnings ratio of 80 and is priced at 10 times the value of auctioneer Sotheby's.

Asia, with its fast-growing Internet population, could give these companies what they need. The region's e-commerce market is expected to grow at a compound annual rate of 23%, to hit $4.5 billion in 2006, according to research firm International Data Corp. "The survivors with the proven business model are looking for their next phase of growth and that's coming from Asia now," E*Trade's Lord says. "Our businesses are maturing in the U.S."

EBay shows how important international markets are becoming to dotcoms that defined the Internet boom in the U.S. Its international operations, which now include 26 countries, contribute more than 21% of its revenues and most of its growth. "Asia is the fastest growing market for us," Tilenius says. "Its crucial for us to continue to grow our business globally, which we have been very successful at so far."

Even without an official Singapore or Hong Kong business, Amazon is one of the most popular shopping sites in both places. According to Nielsen//Netratings in Hong Kong, traffic to Amazon.com from Hong Kong jumped 132% year on year in April and 64% in Singapore.

In Japan, where the bookseller runs a local site, its growth has been even more impressive: Nielsen//Netratings says the number of unique audiences to the site grew 512% year on year in April. And this is translating into rising turnover--in the first quarter of the year its international business (in Germany, Britain, France and Japan) grew 71% to make up 27% of Amazon's total sales. Its sales in the U.S. increased by just 8%. With a quarter of its business now outside the country, Amazon merged its U.S. and international operations last November. "I wouldn't be surprised to see them enter a market like Australia or looking in Taiwan and Korea soon," says Leskela.

While Asia promises growth and profits, positioning must be strategic. EBay stumbled in Japan when it entered the market behind mighty Yahoo. Yahoo Japan's auction site had already established itself as the dominant player with a large platform and a strong brand name. Ebay was never going to catch up. It pulled out of the market in February with less than 25,000 auction listings while Yahoo Japan had 3.3 million.

Then there's China. The country has 33.7 million Internet users. But that doesn't automatically add up to an e-commerce boom in the making. For one thing, there's no big credit-card culture in China, and consumers are simply not used to bidding for goods. A survey by the China Internet Network Information Centre found that only 6.9% of Internet users had auctioned or bid for products on-line in the past year. Nearly half said they would prefer to pay cash on delivery for goods ordered on-line. E-commerce companies can't afford to make the same mistakes in China that crippled eBay in Japan.

STILL SPENDING
Companies are still spending on e-commerce solutions, despite its tarnished image following the dotcom-bubble burst. The Asia-Pacific market (excluding Japan) for e-commerce solutions, including software, hardware, networking equipment, services and telecoms-related spending, reached $1.5 billion in 2001. Research firm IDC expects the market to reach $4.5 billion in 2006.

By Suh-kyung Yoon/HONG KONG   Far East Ecocnomic Review    Issue cover-dated June 13, 2002

All roads lead east for web firms
The boss of eBay recently told analysts that China was a "must win" for all global internet businesses

Meg Whitman's views are clearly shared by her rivals judging by the flurry of activity which has surrounded China's fledgling e-commerce market in recent days.

Yahoo's $1bn (£556m) purchase of a 40% stake in Alibaba.com, which owns China's largest auction site, is the latest and most eye-watering in a series of deals involving Western firms.

Google, eBay, Amazon and Interactivecorp - owner of online travel firm Expedia - have all gained a foothold in the Chinese market in one way or another over the past 18 months.

While Amazon, eBay and Interactivecorp dipped into their pockets to buy Chinese firms outright, Google acquired a small strategic stake in the online retailer Baidu.com.

The wisdom of this move was seemingly highlighted this week when Baidu's shares soared 350% on their first day of trading in the US, giving the firm a market value of $3.5bn.

Heady growth

It is not difficult, at face value, to see what is driving Western interest in China's internet sector.

China's heady economic growth continues to dazzle investors of all shapes and sizes.

Its manufacturing-led boom and gradual integration into the global trading community is creating potentially vast opportunities for foreign companies.

The internet is at the forefront of this so-called 'gold rush'.

Growing prosperity, technological advances and a more liberal attitude by the Chinese authorities means the internet is becoming an easier and more popular place to do business.

Alibaba.com, a business site which puts small firms in touch with wholesalers, and Taobao.com, an online auction site competing with eBay, have six million registered members between them.

However, it is the future potential of the industry - as much as the current reality - which is fuelling Western interest.

Tiny transactions

The number of internet users may have risen above 100 million this year - making China the second largest market in the world - but less than a fifth of these currently buy or sell online.

The small volume of transactions per user is not surprising.

Despite China's rapid economic progress, average salaries remain very small, credit card ownership is limited while online payment systems are relatively unsophisticated.

However, the likes of eBay and Yahoo are banking on this changing in the next 10 years as more Chinese become wealthier, travel abroad more regularly and rapidly embrace broadband technology.

"The online fascination with China is a continuation of the decades-old belief that China will rule the world and you'd better get in quick," says James MacAonghus, an analyst with internet research firm Aqute Research.

"Lately it has got a little easier in terms of regulation which is why you are seeing more activity."

Winner takes all?

However limitless the opportunities may seem for future growth, the current size of the market should be put into perspective.

Despite its vertiginous stock market valuation, Baidu generated revenues of only $13m last year while the more-established Alibaba brought in sales of about $46m.

These firms and other Chinese players such as Sina face major challenges in increasing transaction levels, competing with the likes of eBay and Yahoo and developing business outside China.

Although Alibaba.com and Baidu.com are both regarded as well-run companies, they are tiny compared to their foreign rivals.

"The US stock market is interested to a large extent because of the mystique that surrounds China," Mr MacAonghus adds.

"This does not reflect an objective assessment of the situation. Bear in mind that the whole search market in China is worth about £100m - not a lot."

Web firms with global reach and brand recognition can afford to hedge their bets a little on the pace of Chinese online development over the next decade.

However, they will also be acutely conscious of Ms Whitman's assessment that there are no prizes for coming second. - By Gavin Stamp BBC NEWS  11 Aug 2005

Web users number half a billion
Hong Kong - Nearly half a billion people around the world had access to the Internet from their homes by the end of last year, Nielsen/NetRatings said on Thursday.

The Internet measurement firm said some 498 million people could surf the Web from home by the end of 2001, a jump of 5.1 per cent from the figure in July to September.

People in Asia continued to hook up faster than anywhere else, with home Web access growing 5.6 per cent in the last three months of the year from the previous quarter.

Europeans were next, with connections up 4.9 per cent, followed by computer users in Latin America and the United States, which had respective growth rates of 3.3 and 3.5 per cent.

North America continued to have the largest share of the global Internet audience at 40 per cent. Europe, Middle East and Africa accounted for 27 per cent and Asia 22 per cent.

Of the eight countries the company monitors in Asia, Singapore had the highest access rate.   Some 60 per cent of households in the island-state of four million people could log on to the Net.

South Korea and Hong Kong ranked second and third at 58 and 56 per cent, respectively.

India ranked last with only seven per cent of households enjoying Internet access. India's Internet subscriber base is not growing quickly because relatively few people can afford personal computers and access costs can be high.

"In Asia, homes headed by men with university degrees are most likely to have Internet access, while age is not a determining factor," said Hugh Bloch, managing director of Nielsen/NetRatings Asia.

He said the trend was different in Europe and Latin America where household access to the Internet is skewed toward homes where the head of household is 35 or younger.- Reuters News Agency    March 7, 2002

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