Networked Authoritarianism in Perspective

June 20th, 2010

A short time ago, Rebecca MacKinnon wrote an excellent commentary on the Chinese government’s white paper on the Internet. In the government-published white paper, there was effusive praise for the Internet as a tool for social change under terms set by the party.

The important thing to understand is that the party will set the agenda of what is acceptable for Internet development, and the Internet will develop along those terms in China regardless of what others may say. From the party’s perspective, this is non-negotiable. Those who challenge this basic requirement, as did Google earlier this year, will be forced out, or will have to conform to those regulations.

The Internet white paper was the party’s way of saying:

  • Now we understand the Internet and its social ramifications
  • We do not believe it should be banned from China.
  • We believe that it should be controlled and managed in a direction which is suitable for China’s development under the leadership of the party.
  • We will not tolerate any deviance or interference, foreign or domestic, from these guidelines.

In the west, the Internet developed as a grass-roots tool of programmers and hackers, since it was based on several different technology protocols. For this reason, many in the west continue to think of the Internet as the ultimate anti-authoritarian tool. Those who look at the Internet from a political perspective and have their own agenda often emphasize this aspect of the Internet.

Before the Internet came to China, there was no unofficial media. This was why one of the first applications which took off in China was Tencent’s QQ, which was an instant messaging tool based on ICQ. Following this, games took off, led by Shanda. More recently, online video and twitter clones such as Sina’s Weibo have taken off.

It has taken some time for the party to realize that the Internet also offers an alternate, unofficial media, and is dangerous from the party perspective because it has the potential to let people spread information, and even more importantly, organize very quickly. It is this ability to organize quickly which represents the greatest threat to party rule, which is why huge amounts of funding have been directed to the online security apparatus. It is very clear that the party places special emphasis on real-time filtering of the Internet to prevent social disturbances from spreading quickly, and this is a large part of many companies’ operational costs.

From the party’s perspective, social change is necessary, and in some cases desirable, especially when it is directed at non-Chinese companies such as Foxconn and Honda. These high-profile, limited-scale events give the government negotiating leverage in dealing with non-Chinese entities, and directing social and economic policy. However, if they become widespread in society as a whole and spread out of control, there is a real danger to party authority. This is why all of these events have been small in scope, and have quickly died down after the issues were resolved.

This is a very sophisticated Chinese strategy which has the west, including individuals, investors and governments, over the barrel. On the one hand, many in the west hope that China will change and become a more open society. In fact, the party in China also knows that Chinese society must change and become more open, but it wants to set the terms and the agenda. Should investors go to China, which offers better returns than most other parts of the world, including the west? Or should they obey their consciences, and stay out of China? Looking at things now, I would say that most are more interested in their investment portfolios than their consciences.

As for those who exercise their consciences, there is another challenge. Are they for change from within the system, or do they support change from outside the system? Change from within the system means that there must be dialogue with the ruling party. History has shown us that for long stretches of time this dialogue will not bear fruit, and will be open to widespread criticism in the west, which is always demanding fast results and change in China. Or will the China critics push forward a hard line, that there can be no compromise with the party, and a new substitute must be found?

This lack of a viable substitute is what has prevented change in China. It’s easy to criticize the party on multiple issues; it’s much harder to find a better solution.

So far, I have not found anyone in the west take a clear stand on this crucial issue, except for Google, which moved its search engine operations to Hong Kong earlier this year.

“Exactly what is the attitude of the west with regard to change in China?”

This lack of open, honest dialogue on the key issue of meaningful strategy with China is what prevents many western companies from moving forward with China.

Unless western companies, the public and their governments reach some kind of consensus on what they support, and what their position on change in China is, there will always be misunderstandings and disappointments for the west in China.

There Is No China Market

September 1st, 2008

One of my biggest complaints about western observers of China is the overly used term “China market”. In fact, there is no China market, just as there is no European market. While there is a European Union, which many Europeans complain about as some kind of bloated legislative bureaucratic monster, it would be silly for any marketer to think that there is anything like a European market on the ground. After all, what are you talking about? Are you talking about the UK, Germany, Belgium, Spain or Italy? Even within these national markets, there are vast social and cultural differences within the same country.

While China is ruled as a single nation from Beijing, the political, regional, social and cultural differences within China are just as big as in Europe. While many western observers see Beijing as authoritarian, the truth is that Beijing has to play a huge juggling act among its own provinces. Every time the center asks for something from the provinces, it has to offer the provinces something in return. In this respect, China is just like the US, Russia and other big countries. There is endless bargaining, trading and swapping of favors, most of which does not occur publicly and is not common knowledge.

These local differences even extend to Internet businesses. The two biggest and most successful companies which dominate in CPC advertising and micropayments are both based in Shenzhen, and are not in Beijing and Shanghai. They are Tencent and Xunlei. Tencent is the leader in charging for micropayment-based subscription services and is the leader with its popular instant messaging client, QQ. Tencent is publicly listed in Hong Kong, and analysts love the company’s business model. Xunlei is a leader in P2P distribution of video, and inserts ads into video content before sending them on their way through its network. Although it is still private, it is already profitable, and Google has invested in the company.

If you go to Beijing, the media landscape is dominated by Sina, Sohu and Netease, China’s leading portals. I think of these companies as being like Web 1.0 national newspapers; they are like the Wall Street Journal and New York Times in China for the Internet generation. Because media content is a politically sensitive area in China, they need to be close to the government, which is why they are in Beijing.

And Shanghai is where most of the gaming companies are. While Beijing is home to serious media and sports, Shanghai is much more entertainment oriented. In the twenties and thirties, Shanghai was the home for China’s film industry; and the talent for entertainment had strong roots in Shanghai. After 1949, many of the producers, directors and actors moved to Hong Kong, but with China’s opening up, many have returned to their old base in Shanghai.

Think about it. Why is it the case that two of the leading micropayments companies in China are based in Shenzhen? I believe that being in Shenzhen forced these two companies to be much more consumer-oriented since fewer VCs ventured there. The paucity of easy access to capital forced them to be creative. In their early days, they were able to get favorable rents, cheaper employees and lower their other costs because of favorable terms from the Shenzhen municipal government. Micropayments really started in desperation as a payment system for poor people who had no credit in a nation without a national credit-ranking system who did not have credit cards. Without money from VCs, these companies were forced to innovate, and had to come up with a solution which got money from consumers.

Getting paid by your users; what a neat idea!

In China, many smart entrepreneurs go to second- and even third-tier cities so that they can get a local municipal government to support them. This is called finding a 靠山 or literally “a mountain to lean on”. After all, every city official wants to be able to say someday: “I helped set up Tencent (or Xunlei, or whatever.)” That would look good on their resume.

I’m always mystified that western-funded companies like to set up in Beijing and Shanghai; why don’t they strike out into other Chinese cities? Most of the time, I think it’s because their management are able to enjoy a level of living which is closer to what they would enjoy in the west. The problem is that because they are more like western cities than most Chinese cities, they give a skewed and sanitized view of what China is really like.

As a result, they unwittingly hand over the advantage to smart local Chinese companies. With the huge number of Internet companies in those two cities of Shanghai and Beijing, it’s almost impossible to find any Chinese government officials who can serve the role of mountains to lean on. And when you can find them, the cost of the mountains are much higher.

Links for Sichuan Wenchuan Earthquake News and Donation Information

May 15th, 2008

I have put together a few links for those interested in news about and/or are interested in donating to help the victims of the Sichuan Wenchuan earthquake of May 12 tragedy.

The Chinese BBS As Town Square

May 12th, 2008

Chang-Won Kim, who publishes the Web 2.0 Asia blog, recently commented on my article about China’s BBSes, and questioned whether the BBS would indeed become the future of social media in China.

Here is what Mr. Kim says:

In short, the article said:
Much of Chinese internet = BBS
Often the Chinese “group thoughts/activities”, such as the recent (rather unfortunate) “Angry Chinese” incidents, get organized on these BBSes
Chinese’ love of BBS might have come from distrust of traditional media
Outsiders have not figured this out
But the very last part of the article kind of made me scratch my head:
So, BBSes are the real social media marketing tool, and as usual, the Chinese are ahead of everyone else, but just haven’t figured out that part themselves. While the west talks about social media and Web 2.0, China has had a version of it for the past ten years. It may not be pretty, but it works.

Does the fact that BBS is so popular in China today mean a) BBS is the right platform for social media and b) BBS will remain as popular in China for the coming years? I’m not very sure about that, at least using the Korean market as a “canary in coal mine” example.

a) Is BBS the right platform for social media?

If we define “social media” as the collection of unique, diversified individual voices, I don’t think BBS is the optimal platform for social media activities – on the contrary, BBSes can often lead to group thoughts and monoculture, where the agenda is largely driven by big voices.

b) Will BBS remain popular in China for the coming years?

In Korea, we have a popular BBS/forum service in “Daum Cafe”. Three or four years ago, Daum cafe was arguably THE most popular service for Korean netizens. Today, Daum Cafes are still doing pretty okay I guess, but are definitely not the most popular daily web destination as they once used to be. Over the last several years, Daum Cafe has given much way first to minihompies, and later to blogs.

The problem of Daum Cafe as a BBS-type service was that it wasn’t as much focusing on individuals. On BBSes and forums, usually it’s difficult to keep track of the messages users left on different spaces and the subsequent comments left by other users. It’s also difficult to put one’s personal identity to the page that collects all his postings (“My page”), just like a contributor’s personal page on Wikipedia is rarely visited (many people don’t even know such pages exist). People like group activities too, but basically people are individualistic. Users want to have “their own site” where they have all their content under a specific URL which they can use as personal brands.

I would like to stress that I don’t think of the BBS as the future of social media, I can’t see that far ahead. But along with IM clients like QQ and MSN, it certainly does bring in the highest amount of traffic volume on the Internet in China. And regrettably, it is, for the most part, neglected by marketers and journalists for gathering information on what Chinese are thinking and talking about.

Mr. Kim freely admits to using the Korean market as a reference point for his conjecture about how the Chinese market may develop, talking first about how Daum was very popular as a BBS in Korea several years ago, but has now fallen off in popularity. He seems to suggest that the popularity of BBSes will eventually fall off in China; it’s just that no one quite knows what will replace it. He also suggests that BBSes are subject to “groupthink” much more than blogs, which are more about individual expression. As Chinese society becomes more open and individualistic, he suggests, then the need for BBSes will gradually fade.

I would beg to differ.

I think of BBSes as the electronic equivalent of the town square. The town square is always the place where people would go to gossip, share information, and shop. This is what most Chinese do when they go to the BBS. Sometimes they are looking for specific information about buying a home or a car, there are BBSes for this. Other times they are looking to complain about something unfair happening to them, there are BBSes for this. And so forth and so on.

Then sometimes, the BBS is the place where they turn to when they are unhappy with something, such as the recent issues with the Olympic torch relay and Tibet demonstrations in the west. When this happens, the BBS is where they turn to in order to vent their personal feelings because, for the most part, there is less Chinese government influence in the private BBSes and they can speak and organize more freely. When this happens the BBSes become the digital Tiananmen Square, places where the Chinese gathered to show their displeasure on two occasions in the 70s and 80s.

Now, instead of going to Tiananmen Square, they go to their BBSes.

China now has the largest number of blogs in the world, and blogs are the venue for personal expression. With more than 25M Chinese blogs, they are not short of opportunities for personal expression. I tend to think of social networks like Facebook and Xiaonei as social networks for people who want to meet others, but don’t have enough to say to maintain a blog. Instead, they provide a wealth of information about themselves, hoping to link up with others who may find them interesting and appealing, and to find others with shared interests.

Mr. Kim seems to suggest that since South Korea is more developed and more open as a society than China, the Chinese Internet will eventually follow developments in South Korea. While China has closely followed some South Korean trends such as online gaming and in mobile devices, there are some areas where it is still very different.

For one thing, South Koreans seem much more willing to reveal their true names and identities online than Chinese. Cyworld, a fantasy world where virtual tools can be made and sold, was a huge success in South Korea, but it failed miserably in China.

In every case, the Internet closely mirrors the values of a society, and the choices it makes. The choices made by Chinese are still very different from South Koreans. It remains to be seen whether they will more closely resemble each other, or grow further apart. I suspect that they will grow further apart as their societies develop differently.

What Tibet and Carrefour Can Teach Us About the Chinese Internet

May 9th, 2008

When the western media and some outside observers talk about “Angry China”, they really miss out on the real story, and even the real questions which need to be asked. For instance, how do very large groups of people, who at least on the surface, have nothing to do with each other, organize in large numbers so quickly in a society which many westerners see as authoritarian? Are they government-led or influenced, or do they do it themselves? How do they come to believe some of the wild rumors which come up, such as for instance, the belief that Carrefour sends a portion of its earnings to support the Dalai Lama and Tibet independence, and are seemingly oblivious to the fact that any large company would like to keep as much of its earnings for itself?

There is a very simple answer to all this: a large part of the organization is done on the Internet in China, specifically on BBSes. While the BBS (bulletin board system) is something outdated and antiquated in the US Internet, it has been a very important part of the Chinese Internet, and I would argue, it is growing and becoming more influential. For the Chinese government, it is a headache because in spite of Chinese government regulations, it is largely unregulated. For western corporations it is a good place to gather information but is useless for advertising, but for many Chinese it is the most important part of the Internet (along with online gaming and their IM client, which is most likely to be QQ or MSN Instant Messenger depending on their age and demographics).

Don’t believe me? Go to your nearest Chinese Internet cafe and watch what people are doing.

Most westerners who come into the China Internet market have no idea of its power and influence, and instead think that the Chinese Internet is largely the same as the US market, but it isn’t. The Chinese government doesn’t really like BBSes because it really is free (as in free speech), and is the breeding ground for all kinds of weird stuff. And while it is important for gathering buzz on products (as CIC, based in Shanghai, does) for corporations, nobody has really been able to monetize it. And, western journalists fail to monitor it, which is why they miss on so many big stories, and end up giving credit to some sinister Chinese government policies. ( I guess it’s kind of flattering for the Chinese government to be given credit for something when most Chinese know that it isn’t that powerful.)

Isn’t it amazing that such a huge and important part of free speech in China has been entirely missed? Fortunately, Tom Melcher’s new blog Live from Beijing! has a very good introductory article to BBSes (h/t to Andrew Lih). I got something of an introduction to the BBS in 1998, shortly after Sina was formed from the merger of SRS and Sinanet. One of the first web applications created by Wang Zhidong was a simple BBS which he demoed to me in the summer of that year. It really took off in popularity with the US’s accidental bombing of the Chinese embassy in Belgrade in April 1999 when millions of angry Chinese hit the Sina news forum. Please don’t think of the Strong Nation forum on the People’s Daily site as being at all representative of Chinese BBSes; it is official and closely monitored for content. The interesting BBSes are all unofficial or semi-official.

Most of the angry Chinese in China, or fenqing, are organized on the BBSes, where they gather and shoot the breeze. These people have time on their hands, and play games, spend time in QQ, and gossip on the BBSes of their choice at the moment. They spend almost no time on what we would call the official Internet, except going to get news on Sina, Sohu and Netease. It is very hard to reach them with advertising.

Now, let’s talk about their persona. For the most part, they:

  • They distrust the official media and do not buy magazines, and get as much information as they can from unofficial sources, such as BBSes. They only go to the official media for some sports information and major news information.
  • They trust unofficial news more than news which comes from official sources.
  • They are the perfect audience for spreading rumors, because they can be quickly organized by anonymous leaders, or “honeybees” as Tom Melcher calls them in his article.
  • When organized, they can be huge, in the millions, and they can move like a swarm.

In simple terms, the characteristics of this unofficial crowd are:

  • Chinese official government influence is very limited
  • They are mostly self-organized
  • The numbers are in the millions
  • They move extremely fast
  • They disappear just as fast as they appeared
  • They are almost always anonymous and do not use their real names, preferring instead to use their own handles

In simple terms, they are an issue-focused flash mob. For corporations, they are:

  • Not susceptible to traditional PR methods since you are dealing with an anonymous group
  • Very tightly focused around one issue
  • Move much faster than corporations and their decision-making apparatus is diversified,
  • Do not trust/ believe in information from any government, including Chinese

My estimate is that more than 60% of non-IM traffic in China is to these unofficial BBSes, and that number is growing.

When it comes to advertising, most adspend hits that remaining 40% of the official and semi-official Internet, without reaching where many people are. CIC acts as the eyes and ears of corporations, but corporations have not been able to do anything yet with that information and are still reliant on mainstream advertising approaches for both online and offline which are largely out of date. This is the background for my article on why agencies need a new approach to online marketing in China.

So, BBSes are the real social media marketing tool, and as usual, the Chinese are ahead of everyone else, but just haven’t figured out that part themselves. While the west talks about social media and Web 2.0, China has had a version of it for the past ten years. It may not be pretty, but it works.

It’s just that vast majority of outsiders haven’t figured it out yet.

What’s Wrong with C2C?

May 2nd, 2008

Yesterday, Twitterdom in China was on fire with the news, first published on TechCrunch, that Facebook clone Xiaonei had raised US$430M from Softbank, which is huge, even by current Web 2.0 bubble standards. Immediately on Twitter, there was almost an uproar, especially from users in Taiwan, who said that it was ridiculous that a Facebook clone would have such a high valuation. Does Oak Pacific Interactive and Softbank know something which we don’t? (My answer to that is a simple “Obviously yes”.)

But before delving into that, let’s talk about the pluses and minuses of C2C, or “copy to China”, a term which I believe was first used by Tangos Chan, publisher of China Web 2.0 review. I believe that when an entrepreneur does not have a clear idea about what he is going to do, starting with a copy of a currently popular application is a good way to go. After all, if it got funded by VCs in the US, it is highly likely that given the team’s experience, they will also be able to get funded in China.

What is important is what happens after it gets initial funding. Where many startups lose direction is that they look too closely at their competitors, and don’t look at the challenges for many users whom they want to reach. Most ask the wrong questions: They are too focused on their platform and applications, and don’t study the problems their users have in their daily lives.

There are a few simple questions startup founders need to find answers to:

  • What are the most important tasks for a person in any given day? (These are always changing according to age, situation, etc.)
  • Where do they encounter the most frustration?
  • Can you offer a solution to this?

I have a simple way of looking at this: If the need is urgent, then you can charge a fee or subscription for it. If you can help people make more money, you can charge a fee or subscription for it. If it is a hardware solution which simplifies and clarifies life and makes the user more efficient, you can sell it (as is the case with the iPhone).

If it does not do any of the above things, but still offers some informative or entertainment value, then your most likely source of revenue is advertising.

Back to C2C. When OICQ was launched in early 1999, it was nothing except a Chinese-language clone of ICQ. It had an advantage in that there was tremendous need among Chinese for easy convenient communications across the computer and the then-new mobile phone platforms. The management saw this need, offered the services, collected fees all along the way, evolving into QQ along the way, and the company is now worth more than US$11B.

Tencent, the parent company for QQ, saw a social wave in China, copied something which worked overseas, fulfilled the need, and evolved it into something tremendously popular and successful in China. Instead of looking iinwards and worrying about their technology and UI, they looked out, and saw the opportunity in users’ needs and frustrations.

Now the company has more than 500M registered user accounts. It has achieved brand lock-in among most younger Chinese users.

That is why I say that when anyone only compares UI features, they are not thinking deep enough.

Now, the question is whether Xiaonei or any of the Chinese Facebook clones can evolve into something successful. The China of 2008 is vastly different from the China of 1999, and there are all kinds of communications solutions competing for users. The dynamics has changed to favor the user, who now has almost too may choices.

Add to that my feeling that SNS (social networking solutions) are a solution to a problem which is not that urgent for most people (hence the reliance on advertising as a revenue source instead of fee or subscription).

Of course, if depending on income was the only way to make money in this business, then I’m sure that Xiaonei would not have received such a high investment. An article in Plus8star talks about possible strategy scenarios in the move (h/t to Kaiser Kuo).

Is Twitter the American QQ?

April 7th, 2008

Unless you have been living under a rock for the past six months, you have probably heard of Twitter. Developed with Ruby on Rails, it has now hit the big time, with many companies offering client versions of Twitter, so that you don’t have to keep the Twitter web page open to record your deepest thoughts, which you can share with your community/ies.

Technically speaking, there is not a whole lot of difference between Twitter and many other IM clients, including Tencent’s QQ, the immensely popular Chinese IM client. If there is any difference, it is that Twitter makes it possible for dispersed communities to keep track of each others’ activities. In contrast, the IM clients are mainly Web 1.0 tools which enable people to find and contact each other to meet offline. QQ, for instance, is a great enabler for that popular activity which we shall call “dating” in China.

The difference between Twitter and the Web 1.0 IM clients is not so much in the technology, as in the way people handle relationships. Put simply, the lines between offline and online relationships are blurring, and in many cases, more people spend more time online than they do offline. For this reason, their online communities are gaining value, and in a few cases, are assuming primary value, while their offline relationships become secondary.

This was not the case for most of the Web 1.0 IM clients.

From the business perspective, this means that businesses will have to pay even more attention to what is going on online, as I have mentioned in my previous post.

In China, many people do not have email addresses, instead they rely on QQ ID numbers to identify each other. Walk into any Chinese working area (including Starbucks and any other area which provides free Wifi) and chances are you will see that almost every screen has a QQ or Windows IM client window open.

And they are using it for business, not just personal gossip.

So, the ultimate test of whether Twitter becomes the American QQ is whether American’s use it for business, not just social chatting.

If that happens, the American Internet will suddenly look a lot more like the Chinese Internet.

Creating Value In the Digital World, and Bringing It to the Real World

April 1st, 2008

One of the great challenges in the digital world is: “How to create value?” People are spending more and more time online, and are moving to a mobile Internet, which has been attested to by the success of Apple’s iPhone platform. But spending online has lagged behind, especially in China, where advertising has been slow to take off.

Obviously there is something wrong with this picture. What can be done to bring value to people, and are companies looking in the wrong places?

Advertising has been established in the west for more than a century, but it has been much slower to take off in China. There are several reasons for this: for one thing, after having been a strictly socialist society for nearly thirty years, there really wasn’t much of an ad industry in China in the period from 1949 to 1977. A consumer society did not exist, and Chinese citizens did not have many choices. There was the hukou system which meant that Chinese citizens could get enough of what they needed, but only if they were in the right city, and only enough to take care of their basic necessities.

After 1977, when China started to open up, the ad industry had to basically build up from almost nothing. Now, in 2008, it is one of the few markets where ad revenue is growing by leaps and bounds. In the west, many companies are questioning the effectiveness of advertising in the face of the growing power and effectiveness of the Internet and its poster boy for online advertising, Google.

Still though, there is plenty of room for alternative business models. In 1999, while Yahoo! was earning a great deal of ad revenue from banner ads, Chinese companies had to look for alternative business models which were grounded in how Chinese were willing to accept value, and were willing to pay for it with real money.

Tencent, the creator of the fabulously successful QQ IM client, has probably the most successful virtual currency in the world, Q-Coins (in Chinese, Q-bi, it means “Q currency”). Since its introduction, it has become a fabulously successful currency which has its own currency exchange rate, and is bought and sold offline. In short, to many Chinese, it is a real currency with value. This is a case of something which was created in the virtual world, was deemed to have value, and then taken into the offline world.

This leads to a very interesting question for social networks: If Q Coins have been so successful as an online social currency for transactions among community members in China, then why haven’t the western SNS sites such as Facebook, Friendster, etc. created their own currencies which their own members could use worldwide? And why should there not be a secondary market for trading these virtual currencies among themselves, and then with real currencies?

Ogilvy China Digital Watch has done an excellent job of keeping an eye on the development of online advertising in China. But I have a question: “If the volume of online currency denominated transactions were added to digital adspend in China, how would that compare to how much is spent on online advertising in America?”

Could it be that in fact China is already a leader in bringing online-created goods and services to the offline world, and is ahead of the west?

Who knows, maybe the answer for a global ad agency like Ogilvy would be to issue its own virtual currency and to get as many people worldwide to use it as possible?

Now that would be a twist!

Understanding China’s Youth Through Tencent’s QQ: A New Must-Read Report

January 26th, 2008

qq.gif

As China becomes more developed and sophisticated, more westerners are coming to China to understand the reasons for its success. I don’t believe that the Chinese success can be fully ascribed to China’s rising wealth and development; a good deal also has to deal with how western countries have screwed up in their politics and policies.

In the kingdom of the blind, the one-eyed man is king. Right now, China is the one-eyed man.

Setting this aside, there are areas where China’s growth is remarkable.

In a recent blog posting, Henry Jenkins of MIT shows how much more willing Chinese youth are to live their lives out and share their behavior with complete strangers in a manner American youth are not yet willing to. Here are some of the statistics (mostly in percentages) of what he has observed:

# Almost five times as many Chinese as American respondents said they have a parallel life online (61 percent vs. 13 percent).

# More than twice as many Chinese respondents agreed that “I have experimented with how I present myself online” (69 percent vs. 28 percent of Americans).

# More than half the Chinese sample (51 percent) said they have adopted a completely different persona in some of their online interactions, compared with only 17 percent of Americans.

# Fewer than a third of Americans (30 percent) said the Internet helps their social life, but more than three-quarters of Chinese respondents (77 percent) agreed that “The Internet helps me make friends.”

# Chinese respondents were also more likely than Americans to say they have expressed personal opinions or written about themselves online (72 percent vs. 56 percent). And they have expressed themselves more strongly online than they generally do in person (52 percent vs. 43 percent of Americans).

# Chinese respondents were almost twice as likely as Americans to agree that it’s good to be able to express honest opinions anonymously online (79 percent vs. 42 percent) and to agree that online they are free to do and say things they would not do or say offline (73 percent vs. 32 percent).

Some of the differences can be accounted for because, until recently, Chinese played relatively few games using game consoles, an area American youth have long had free access and exposure to. Instead, they play games in the Internet cafe, which offers an online and offline social experience which has not existed until very recently on the Microsoft and Sony platforms, and which has been addressed very well with Nintendo’s Wii.

These statistics do not tell us much about China on their own; I frequently insist that if one is to really understand what makes China’s Internet different it is necessary to dig deeper and look at its development at least from the application level. If one were to make even the most cursory look at users in any Internet cafe in China, one would find that most if not all, would have an instant messaging (IM) window open and are chatting with their friends while they are playing an online game. Lately I have noticed that in the Starbucks I frequent near Guomao in Beijing (Starbucks in China often offers free WiFi, compared with the US which charges users a daily subscription through its partnership with T-Mobile; go figure), many office types often have an IM window open even when they are busily working through their Excel spreadsheets.

For this reason, I particularly welcome the recent report by Plus8Star on Tencent’s QQ which started as a simple IM client and has now metamorphosized into China’s largest online company, and which has more than than 270M users in China. Basically, it has become what AOL would have become if it had been able to pull everything off with its acquisition of ICQ in 1998. In fact, the first version of QQ was called OICQ, standing for “open ICQ”; in its early days the company approached AOL seeking to become its China partner; it was brushed off. Now the company is listed on the Hong Kong stock exchange and has a market cap of US$11.4B.

The report is available in a free downloadable PDF version; the full version costs US$3,000. The greatest value of this report for those coming into China is that it provides valuable context and answers the “how” and “why” China’s Internet has developed the way it has.

Too much of the time, western observers claim that China’s Internet has changed the way it has because of Chinese government control and policy; not enough is mentioned about the business reasons why local competitors have succeeded why western companies have failed. This reports does a good job of plugging that hole in most peoples’ knowledge.

The title of the report sums it up: “Inside QQ: Learning from China’s leading online community”. An especially helpful page is page 23 of the report “Why do global giants fail in China?”. There have been billions of dollars which have been expended, and mistakes have been repeated over and over again in their quest for western dominance of the Chinese consumer market. I’m amazed that it continues to this day. This page alone is worth the price of the whole report; just read it.

If you are a business person anxious to break into the Chinese consmer market, or are just interested in learning more about the Chinese Internet, this report is a must-read.

Digging Deeper About China’s Internet Usage Data

October 11th, 2007

Jeremiah Owyang has published a good report for beginners who know nothing about China’s internet market. I questioned the wisdom of going to Hong Kong to cover the Chinese Internet; to me it seemed like visiting Toronto to understand the UK market. However, he does have some good takeaways for people just starting out in China and who do not read,write or speak Chinese.

I am going to dig a little deeper. Christine Lu of the China Business Network has mentioned to me that her audience is mainly for new people just starting out with China; I’m going to dig deeper and point out some real issues behind the current numbers tossed about re China. Tangos Chen has an excellent follow-up posting which is well worth a read.

All the reports which have so far covered China have been based on impressing non-Chinese with the huge numbers of China’s online population. This provides a very incomplete picture of China’s Internet users, especially those who go to Internet cafes. Most of these people go to play games and communicate with each other using QQ.

An awful lot is posted about China’s large online gaming population accessing the games from China’s Internet cafes. I suspect that a lot of the people who write these articles have never even been inside one in China. I would like to tell you about my first-hand experiences.

I am now in Beijing, and I have been to several Internet cafes here. Several months ago I also went to several in Shanghai.

Let me tell you something about these Internet cafes and their users. For the most part, these Internet cafes are shitholes and firetraps. And the people who go there are young, single, low-income males. They do not bring their dates there. The places are smoky, dingy and poorly lit. They sell some basic food and beverages in the front, and also charge people a fee to sleep overnight on the dirty, bug-infested, stained futons which pass for couches. If you want a truly terrible experience, visit their bathrooms.

These are dirty decrepit places in every way; they are just filthy. If fire safety laws were actually enforced, they would be shut down. And the people who spend their day playing games are, in my opinion, China’s new urban permanent underclass. Why do they go to Internet cafes? Because most of them are from outside Beijing and Shanghai, and the Internet cafe is the cheapest place to go to. They can get by spending 20-30 yuan (US$5-6) a day, including food, drink, games and a place to sleep.

The characters are sad characters; if they were living in England 150 years ago, Charles Dickens would be writing about them. From the Chinese perspective, although games and the Internet are highly addictive, Internet cafes serve a useful purpose. Otherwise these people would be on the street, unemployed. The Internet cafe today in China is what gin and beer was to England’s working class in the mid-19th century when Karl Marx was writing Das Kapital about the evils of class exploitation.

Now, if you were an advertiser, would you want to reach this audience? It all depends.

If these people were working their way up the social ladder, got better jobs, made more money and spent less time playing games and socializing at the Internet cafes, then yes, there would be some value in reaching this audience. On the other hand, if these people are a permanent underclass who have very little money to spend, then the answer would have to be no.

I have made an interesting observation from a personal experience. Earlier this year I visited Chongqing for the first time, and went to an Internet cafe downtown. It was on the ground floor of a an office building (unlike in Beijing and Shanghai, which are in upper floors or basements). It had windows you could actually see in and out of. It was clean, had fresh air, and carried fresh food and drinks. Unlike Beijing and Shanghai, it was divided into smoking and non-smoking areas. The highest fee for a booth was 4 yuan an hour, and there were several people paying that amount at 11AM in the morning, when I visited. I could tell that it was cleaned and maintained on a daily basis. I would not have been ashamed of going into this Internet cafe, unlike in Beijing or Shanghai.

For this reason, I am much more impressed with Internet cafe users in Chongqing than I am with Internet cafe users in Beijing and Shanghai, which are basically awful.

The trouble with the reports about China’s market is that they don’t go deep enough; they just present very basic number information, enough to make the marketing and bizdev types get excited about China, but not enough to ask hard questions which provide insights into user behavior, so that advertisers can really take a deeper look at Chinese audiences, because there is not one; there are many.

Here are some questions I would ask and like to see answered in a report, and advertisers contemplating targeting China’s Internet cafe users should also ask:

  • Please explain your methodology for data gathering.
  • What cities and provinces do you gather data from?
  • How do you scrub your data to make sure that it is as close to factually correct as possible?
  • What is their average income divided by city/region/provinces?
  • What kind of jobs do they have divided by city/region/provinces?
  • How many hours do they spend online per day divided by city/region/provinces?
  • Can you show me the amount of churn of Internet users over time? (This is one of those rare situations where high churn is a good thing; you want these people to make their way up the social ladder.)
  • What games and activities do they spend their time on?
  • Define the difference between hardcore and casual gamers over time.
  • How much money do they spend every month divided by city/region/province?
  • What do they spend their money on, divided by city/region/province?

I always find this kind of information much more useful than the “Wow, China has a lot of people!” level of coverage; I find this information, for example, very helpful in understanding the Chinese mobile market and its users better.

I’d like it if the publishers of Ogilvy China Digital Watch
 or CiC or some other agency could commission a report like this, and make it widely available on the Internet.

I suspect that the hard-core gamers are basically a bunch of losers, but the casual gaming market has good potential for advertisers.

It is time for advertising departments to start slicing and dicing the Chinese audience on demographic and psychographic profiles, and finding out the education/economic profiles of different audiences. Forget the big numbers about China; let’s get our hands dirty and start looking for insightful information which will really help advertisers, consultants and everyone else.

Enough China hype already; it’s time to dig deeper and get down to business and start making money for our clients.