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China’s internet at full gallop !

FEBRUARY 28, 2014

eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose, but if we fight in the river, we win“, Jack Ma, Alibaba’s iconic founder, said to Forbes Magazine in 2005. And American eBay disappeared into the Yangtze…
Nearly 10 years later, Jack Ma, who resigned as Ceo Spring 2013, and was named “Person of the Year” by the Financial Times last December, built his Group as China’s e -commerce leader and an heavy weight of global internet – with a market capitalization exceeding those of Amazon and eBay combined.

If eBay tried to return for almost 2 years, and Amazon faces serious competition, few sharks tried to venture in the turbulent waters of the longest river in Asia . On twitter @ klustout ( CNN International journalist ) drives the cloud : “A huge disorder, a confusing user interface that seems to bring out the worst of web design (…) The most important things that eBay was ( … ) their winning recipe in the United States , eventually became the poison that killed their business in China . (…) In China, e -commerce is a blood sport“.
Welcome to the Chinese web !

 

300 million online shoppers …

A proprietary internet, with its codes, protected by the Great Fire Wall, which brings together more than 600 million Internet users and 300 million online shoppers, or +25% in one year, and almost as much as the U.S population. And this is only the beginning, the internet penetration is only 45 % vs. +60 % in Europe and +83% in France – and 600 million online shoppers are projected by 2016.

C2C which represents nearly 70% of the Chinese market is losing momentum in favor of B2C, the fastest growing segment, thanks to improved logistics, securing of payment means, unbeatable delivery deadlines, and services such as (cash) payment on delivery, free returns etc. If Alibaba owns nearly 50% through its subsidiary Tmall and JD.com, more than 20% (which announced its upcoming IPO), among millions of other e-tailers, Western brands are still more numerous to want to take advantage of the rapidly growing middle class, getting wealthier, living in China’s Inland, where in great proportion, the first or indeed only access to (dreamed) brands  is only a click away

A highly competitive market where competition does not only come from within: foreign websites deliver to China, and many are the Chinese to buy abroad to resell on Chinese C2C platforms.
Besides the recurrent complexity resulting from socio- demographic changes, technological innovations and markets maturity, and the urgent necessity of decyphering and continuing adaptability, is paramount to Western players.

 

… and 150 million mobile customers

But it’s especially the penetration of mobile internet that arouses attention. End of 2013, there were 500+ million Chinese to surf the net with their mobile, 81 % of online users. If the majority of the 1.2 billion Chinese who have a phone has a 2G connection, end of 2013, there were 417 million 3G subscribers, an increase of 80 % versus the end of 2012. And equipment of smartphones explodes to reach 47 % of the population. So time to indulge in gaming, watching videos, chatting, surfing on social networks … but not only.

It’s in 2011, on Shanghai Metro platforms that appeared the virtual supermarkets of Chinese e-retailer Yihaodian: commuters scanned QR codes to be delivered a few hours later, of laundry, TVs, baby milk, electric kettles, razors … More recently, Tencent giant, offered the same subway passengers who downloaded WeChat app, to pay their cans only available in dedicated WeChat machines. End of 2013, there were over 150 million Chinese to buy via their mobile phone.

 

Battle for an increasingly social and mobile commerce

Accelerate transactions through social networks, and the integration of payment solutions on mobile, it’s the race already committed by Tencent and Alibaba in particular, that will intensify in 2014

In just a few months, “flash” sales from Xiaomi phones maker were highly mediatised
– 150.000 units sold in 10 minutes in November 2013 on WeChat .
– a year earlier, 50.000 in 5 minutes on Sina Weibo that tested its online payment service WeiboPay (Alibaba has a 18 % stake in Sina Weibo) .

A few weeks ago, to celebrate Chinese New Year, WeChat virtualized “hongbao” (red envelope with money ) tradition, by launching the application “New Year Red Envelope ” allowing everyone to send or share money by first connecting their bank account.

Last playground, taxi apps. Alipay, Alibaba’s payment system was associated with KuaiDi app, while Tencent took a participation in Didi, encouraging payment via WeChat

As part of its U.S. test-offensive, WeChat launched an operation to the attention of google account holders by offering discounts at restaurants in exchange for downloading the app.

 

Paradigm shift

Porter Erisman, who was Vice President of Alibaba for 8+ years, alongside Jack Ma, “web entrepreneurs in China rely more on intuition and mov faster than their American counterparts. They are also a lot more hungry because they often come from more modest backgrounds, and becoming an entrepreneur is a necessity rather than a luxury“.
Techinasia, a blog about new technologies in Asia, declared last Fall : “There is an ongoing paradigm that is a law in Asia. It’s that Asians are obsessed with Silicon Valley ( …) But there is an unknown silent movement taking shape … it is a slow change in the other direction“.

From phone maker Xiaomi, Chinese internet leaders’ geographic expansion in Asia Pacific, Africa, Brazil or the United States, to IPO’s of online travel website Qunar, or JD’s upcoming one, all illustrate this paradigm shift .

 

There is an urgent need to better understand China’s Internet ecosystem. This Chinese proverb tells us the way : “It’s better to travel thousands of kilometers than read thousands of books.

 

Laure de Carayon

 

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