China Internet expansion in 2006: an overview.

Here is an excellent article written by Chen Jing on China Internet expansion in 2006: an overview.

In this relatively calm year, business power stood out. Venture capital has been withdrawn from pure Web 2.0 website promptly as investors can't envisage the rational profit mode. However, internet giants started integration with Web 2.0. Search engines like Baidu.com and Google.com began to build themselves into a huge community to share favorites and information, to seek an approach to enhance profits by increasing client faithfulness.

This year, internet has become an effective component for traditional marketing. More merchants chose to issue advertisements and sell products on internet. In virtue of rapid growth of advertisements on internet, the financial statements of the third quarter of 2006 shows that revenue and profits of three major portal websites including Sina.com, Sohu.com and Netease.com exceeded expectations. Taobao.com witnessed the store-in-store establishment of Lenovo and Haier.

This year, internet has really become a tool. Under the trend of economic globalization, technology dynamics represented by internet are directly changing the business ecology in multiple sectors. Technology innovation not only aims at interesting life, but also makes internet more useful as inherent business ecology chain is integrated on the basis of new technology.
Internet plays more and more important role in game rules of business world. Internet development in 2006 is the year of consolidation through combination, incorporation and integration.

Business value orientation of internet can be fully witnessed from attitude to venture capital investment. Innovation mode and profits of the website may have been separated clearly. 2006 has been regarded as the year for Web 2.0 to achieve excellence. However, application modes such as blog, classified information, vertical search, convergence portal, video sharing, making friends on forum can not provide commercialized services, the information on reducing redundant has come out one after another by bokee.com, zhongsou.com, daqi.com and mop.com. Venture capital has been withdrawn promptly and pure Web 2.0 websites suffer from cold wave.

Pure Web 2.0 website can not gain profits but Web 2.0 mode starts to gain favor of internet giants and application mode is developing deeply. In 2006, both overseas websites such as Yahoo, Google, America online (AOL), Microsoft, and domestic websites such as Baidu, Sina, Sohu and Tencent have launched relevant or similar programs.

Ding Lei, CEO of NetEase, expressed that the main income of Web 2.0 websites still comes from internet advertisement. Portal websites with a good many, long term and faithful users appeal more to advertisements. On the other hand, the introduction of Web 2.0 mode may enhance user faithfulness to portal websites. "This integrated mode will exist for certain period."

It is easily seen by any ordinary internet user that a series of commodities from prepaid calling card to infant milk powder can be conveniently purchased in 2006. Joyo.com and dangdang.com exert their efforts to transform them from internet bookstores focusing on books and audio and video products to comprehensive internet shopping centers. Joyo.com has oriented the target consumers at office ladies, while sales of other commodities except for books and audio and video products has accounted for 60 percent of total sales of dangdang.com. Wang Hanhua, President of Joyo.com said that the competition advantage of online retail mode lies in saving store rentals and more management cost. For retail sector with micro profit for subsistence, online retail mode takes more advantage over the traditional retail sector in this respect.

Meanwhile, taobao.com known as C2C (customer to customer internet transaction) has stepped into B2C (Business to customer internet transaction) area. According to Mayun, Chairman of Alibaba.com, "profit mode of traditional B2C rests with depressing prices of manufactures to gain price difference from the purchased price and sold price. However, new B2C mode will help merchants directly serve as sellers to push them to face consumers directly, hence to enable manufacturers to gain more profits."

Business expansion of e-commerce enterprises has formed an inundant trend. Online and offline retail modes make retail market form a new pattern. As a result, Carrefour declared to establish internet store to step into e-commerce sector in first half of 2006; while Gome, a home appliances chain enterprise, started to establish e-commerce department and its internet store has stepped into the phase of official operation.

Internet has started to profoundly change traditional operation approach of certain industries. In September 2006, only two weeks after The Night Banquet being projected, internet users can download licensed internet edition of The Night Banquet with 90 minute in length free of charge through films and TV series program of Baidu.com. The mode of "free of charge plus internet advertisements" will combine contents providers with internet service providers.
Integration injects new concepts to traditional industry and digital music sets an outstanding example. The traditional mode encountered copyright difficulty with disc corporations developing products, several songs being combined into an album, publishing corporations being responsible for brand promotion and retail corporations delivering products to end users. On the major premises of internet, digital music and wireless music downloads, music production cost has been decreased. Dissemination by internet has been realized, therefore, the approach to music consumption is not purchasing album but downloading single song and Coloring Ring Back Tone (CRBT).

There has no mature website to download digital music in China, but Coloring Ring Back Tone for mobile phone has been popular among common people. According to Lu Deming, an analyst of CCID Consulting, licensed music is more likely to develop through mobile phone terminal. It is of success for Apple Itunes in online music market to link digital contents with hardware by utilizing copyright protection components.

"If only keeping to income generated by traditional albums, Chinese disc corporations are now resting upon brokerage for sustention. Song Ke, Managing Director of Taihe Rye Music Co., Ltd., said, "application of wireless technology such as Coloring Ring Back Tone enables us to make money, and one song can earn RMB hundreds of thousands yuan. With the popularity and application of internet, mobile phone, MP3, wireless music and digital music have injected new concepts to this industry."