6 shifts in China’s internet sector from 2017 into 2018: report was written by Nicole Jao for TechNode.
China is the largest internet market in the world. Many of its homegrown internet companies are increasingly dominating the global tech scene —not only in terms of technology development but also in innovative business models.
A newly released report by Jefferies, a US-based global investment banking firm, revealed some key highlights from 2017 and market forecast for China’s internet landscape in 2018.
In the report, Jefferies analyst Karen Chan and her team listed Tencent, Alibaba, and Weibo as the top picks for China’s internet sector. The team noted that tops apps, especially social apps, are seeing an increase in traffic, while video and news apps show the most robust growth.
Here are the six key industry trends highlighted in the report:
E-Commerce: Reaching offline consumers and leveraging social e-commerce
New retail, the concept of integrating online-offline experience introduced by Jack Ma, is being adopted by Chinese retailers. Key players like Alibaba and Tencent are extending their last-mile consumer reach “to digitalise the remaining 85 per cent of China’s retail and reach the 60 per cent offline consumer population,” the report says. Alibaba currently has 25 Hema Supermarket stores in seven cities in China and is planning on opening up 30 more new stores in Beijing this year. JD.com, China’s second-largest player in e-commerce, also recently opened its first 7Fresh store in Beijing and is aiming to open 1000 more stores.
Social e-commerce is another trend in 2018 emerging amidst rising customer acquisition cost. Retailers and brands are looking to leverage social network and marketing tools like WeChat’s Mini Program and Baidu’s Brand Zone to acquire traffic at a lower cost. For example, smaller businesses can leverage the 170 million mini program daily active user (DAU) base to acquire traffic at a lower cost, the report suggests.
Online Advertising: Social, newsfeed and e-commerce to become biggest ad channels
The report points out that social, newsfeed, and e-commerce are the three ad channels that will continue to grow their shares in the online ad market at the expense of web portal and search.
The team predicts that while e-commerce will remain the biggest ad channel, mobile in-feed ads will see the most growth —over 50 per cent within the next three years, and surpassing search as the second largest channel next year.
While search is still delivering the highest return, mobile newsfeed ad —a market worth RMB90 billion (US$14 billion)— will see increasing consolidation by key players like Toutiao, Tencent, and Baidu newsfeed.
Mobile game: Seeking growth opportunities in niche genres, overseas and social
China’s gaming market is still expected to be dominated by Tencent and NetEase, accounting for more than 60 per cent market share. The report identifies three growth opportunities game developers are looking to explore: first, the monetisation opportunities in niche genres, for example, the newly launched Tencent’s self-developed QQ Speed Mobile (QQ飞车手游) —the first mobile car racing game based on the same PC IP.
Second, developers are eyeing on overseas expansion opportunities as revenue generated overseas in 2017 from China’s self-developed mobile games reaching an estimated US$8.3 billion.
Third, increasing social engagement is key to drive user penetration. Tencent’s mini game, for example, which has a daily active user base of 170 million since its launch just before the end 2017.
AI & autonomous driving: Increasingly friendly policy environment, but unresolved issues remain
China was late to embrace AI technologies, but it was quick to emerge as a leading player in the field. On the upside, the policy environment is becoming increasingly friendly for the development of AI technologies, which is already included as part of China’s national Five-Year Plan.
However, analysts believe there are still technical barriers for voice recognition, which is even higher than that of image recognition. Currently, the three leading AI platforms for speech recognition technology are Baidu’s DuerOS, AiSpeech’s DUI and iFlytech’s AIUI.
Jefferies expects commercialisation of autonomous driving first to be realised in buses and trucks, before passenger vehicles. However, issues such as legal liability, security, cost, and talent retention still remain to be solved.
Live streaming: “Short video + live streaming” strategy to drive usage and monetisation
A two-pronged strategy combining short video and live video streaming along with a range monetization models including virtual gifting, advertising and e-commerce will be increasingly adopted by live streaming platforms. According to the report, short videos serve as an additional distribution channel for user-generated content and professional user-generated content to capture more fragmented user time spent.
Also, more audio-based live social games and features will be rolled out by live streaming platforms in 2018. For example, users are increasingly using audio-based tools such as Momo Radio (陌陌直播) in games to engage in conversations.
Content: Literature, music, video
Maximizing IP value across literature, music and video content is key in 2018 as millennials, the core user base of online literature reading, are showing higher willingness to pay.
The paid online music market is also seeing tremendous growth —expected to reach an estimated RMB3 billion (US$475 million) in 2017, a 59 per cent increase from the previous year, according to iResearch. However, the habit of paying for music among Chinese consumers is still at a nascent stage compared to global peers like Spotify.
Video content will likely sustain its momentum, and content investment is expected to remain heavy throughout 2018. Online video platforms in China have an estimated five to 10 per cent paying user ratio, which is higher than that of online music. The report says that Tencent Video and Baidu iQiyi, currently the two sites where users spent most time on, will continue to lead the market, mostly through in-house produced content.
The article 6 shifts in China’s internet sector from 2017 into 2018: report first appeared in TechNode.