Of Mice and Milestones

Posted on July 28, 2008
Filed Under China Business, China Internet, China Online Games |

According to the 22nd report on China’s Internet development released by the China Internet Network Information Center, the number of Chinese netizens have reached 253 million, making China number one around the world.

I think the number is: 1) too small, based on the ubiquity of internet access via cafes and how jammed they are, and 2) utterly unimportant.

The internet numbers game is the digital counterpart of the China population numbers game. It’s meant to represent how big and booming the market (the internet in China, or Chinese consumers, respectively) is and acts as a siren call for suckers. As in the rest of the world found out the hard way, the internet is high on gee-whizzery factor, but making money out of it is another question.

There are ways to make money on the internet in China (advertising, online gaming) and there are ways to lose money on the internet in China (video and social networking sites). The point is not that you can’t make money on the internet in China, it’s just that the old fashioned bricks-and-mortar things like revenue and profitability still matter. Just as 1.3 billion people doesn’t translate into 1.3 billion customers, 253 million internet users doesn’t translate into Baidu making more money than Google.

The best way to assess the significance of the internet in China is not the magical number of “netizens” (an unfortunate word), but in the reach of its infrastructure. By the end of this year at least 95% of China’s villages will have the infrastructure in place for broadband. Of course that doesn’t mean that everyone in the village will be on Xiaonei, but it does mean that the potential for digital communications is being pushed out to the farthest and remotest regions of China.

If anybody out there does get online, it’ll probably be via an internet cafe. They may game a little, talk to relatives working elsewhere in China, or surf. Nothing earth-shattering, but it’s the ease of gathering information and communicating that makes the internet useful. The importance of the internet is its utility as a communications tool, not as some paradigm-shifting, “revolutionary”, time-and-space altering juggernaut. It’s benefits should be assessed in how much it has saved people in time and money, not in new market opportunities or business ventures.

The internet’s impact on China, from this perspective, remains in its earliest stages. It has been a boon to Chinese sociability and has cracked open the door to the rest of the world for Chinese businesses. But it hasn’t been a big money-maker, it isn’t the best way to find customers, and it has had a minimal impact on Chinese society.

The CNNIC report has a wealth of information that’s required reading for anyone involved or interested in the internet in China. However they may come up with their demographics, it’s probably the best snapshot of who is doing what. Just remember that the information is an indicator of technology penetration, not a market opportunity brochure.

Further reading
Kaiser over at Ogilvy China Digital Watch breaks down the salient points on the report. He’s also a big proponent of the internet-cafes-hide-a-much-bigger-adoption-number theory. Although I’m sure he has a much better basis for it than my stumblings through middle-of-nowhere China.

And the news of the report overshadowed another milestone: my 1 year blogaversary. Many thanks to everyone who has bothered to come by and read my baseless speculations on the China technology news of the day.