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January 3, 2017

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Internet becomes abusiness kaleidoscope

THE Internet has become such an integral part of life that it’s hard to imagine how we all got by without it not so many years ago.

It has changed the operations of industry, the way we conduct our daily lives, our social and family relationships and the delivery of public services. In a sense, it has redefined who we are.

Now that the digital revolution has become so entrenched, where does it go from here?

Special segment

For one thing, the Internet has broken down into special interest segments with new players entering all the time. That trend is certain to continue. Concurrently, the giants of the Internet are flexing their muscles in more directions to safeguard their market domination.

While the growth of China’s web users has been moderating, the numbers of smartphone users have been rising steadily. That creates new opportunities for a wide range of relatively small but viral mobile Internet services, such as live-streaming and audio streaming.

The state-backed China Internet Network Information Center said Internet penetration rate was 51.7 percent at the end of last June, up 1.4 percentage points from the start of last year. Mobile Internet users accounted for 92.5 percent of the online population, up 2.4 percentage points in the six months.

Brand producers and online retailers are using Internet tools like live-streaming to reach young adults or target audiences like gamers, travelers or fashion lovers.

Credit Suisse estimates that China’s live streaming market size in 2016 exceeded 25 billion yuan (US$3.6 billion), nearly double a year earlier. Annual growth this year is expected to moderate to about 5 percent, for a market valued at 33 billion yuan.

Ma Yuan, head of BOCOM International’s Internet research center, wrote in a research note that the demographic dividend that once propelled China’s Internet industry is already fading, while new growth potential will come from more segmented areas.

“Investors should pay more attention to cross-segment innovations, such as payment systems, online education and financial services, “ she noted.

An increasing number of companies are expected to adopt new technologies such as virtual reality and augmented reality to enhance interaction for online users.

Internet giants are continuously trying to make inroads into rival turf. Alibaba’s online retail site Tmall is moving into the online grocery sector, while its payment affiliate Alipay is seeking to add more interactive elements to take it beyond just being a digital wallet.

In late December, Alipay unveiled an augmented reality feature in its smartphone application, allowing use of physical objects as landmarks to send or receive digital “red packets.”

WeChat’s payment service, on the other hand, is quickly catching up with Alipay in terms of daily volumes. According to Bocom International’s research, Alipay’s overall mobile payment size was 3.3 times that of WeChat’s in 2015. The gap narrowed to twofold in 2016 and is expected to be 1.9 times this year.

Video blogging

Wu Xiaobo, a writer and producer in the business and economics realm, predicted video blogging would re-emerge as a hot-button item this year and live-streaming services would become a mainstream function adopted by almost every online player.

“The younger generation of online users spends much more time watching videos than previous generations,” he said. “Not only entertainment shows, but also educational and information-based video bloggers will emerge.”

Wu told the recent Tencent Tengyun Think Tank forum that Internet infrastructure, including payment systems and audio and video streaming, is now fully developed and users are more willing to pay for such digital content than they were in the past.

His own online video channel on has a collective viewership of more than 100 million since mid-2014, and his for-fee audio programs spanning nearly 300 episodes have been played more than four million times on the Shanghai-based online audio streaming application Ximalaya FM.

Sandy Chen, a senior director at Kantar TNS China, said more independent social networking services targeting specific online user groups will emerge.

“Internet services are moving very fast, and a lot of investment is still willing to go into sub-divisions of e-commerce or social networking areas as long as these services have a unique selling point,” she told Shanghai Daily.

Real money

Indeed, there’s some real money to be made from Internet services nowadays.

Online subscriptions for paid audio-programs reached 50 million yuan during a campaign last month by Ximalaya FM.

And there’s no sign of a let-up in consumer enthusiasm toward online shopping. During Alibaba’s annual 24-hour shopping spree on “Singles Day” in November, sales soared 32 percent from a year earlier to a jaw-dropping 120.7 billion yuan.

China is expected to unveil a new e-commerce law early this year. It’s currently under review by the National People’s Congress. Industry insiders predict that individual online sellers may be subject to tax regulations and business licensing requirement may be instituted.

China’s online retail sales in the first eleven months of 2016 surged 26 percent from a year earlier to nearly 3.75 trillion yuan, outpacing the 10.4 percent growth in total retail sales.

The booming sector also comes with a host of problems and loopholes that make supervision and regulation relatively difficult. For example, some online vendors have faked transaction records or strong-armed consumers to write good reviews about their products.

According to the 13th Five Year Plan for national informatization released by the State Council last week, China aims to expand e-commerce transactions to more than 38 trillion yuan, up from 21.8 trillion in 2015 and online retail sales is expected to maintain an average 20.8 percent annual growth through 2020.

Cao Lei, director of the China E-Commerce Research Center, has called for a preferential tax rate for individual online sellers in order to protect smaller players.

“But business license registration for online vendors could help e-commerce platforms and government agencies better regulate the industry and make transaction data more transparent,” he said.

The retail industry as a whole has its fingers crossed that sales will continue to climb amid a backdrop of moderate GDP growth.

In the first 11 months of 2016, retail sales of consumer goods rose 10.4 percent from a year ago to 30 trillion yuan, with online sales comprising 12.5 percent.

Chu Dong, deputy secretary-general of the China Chain Store and Franchise Association, said both online and offline retailers should place more emphasis on better serving consumers in terms of product innovation and distribution. Brand retailers and manufacturers should link up more closely.

Industry watchers are also expecting online and offline retailers to build more integrated inventory management systems as purchasing lines through both channels begin to blur.


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