Development of Web 2.0 in China and its Impact on Business

Development of Web 2.0

The internet penetration rate in rural areas is only around 5% compared to roughly 25% in urban areas. However, the rural user growth rate surged to 127.7% in 2007, over twice the overall growth rate and evidence of the rapid expansion of the internet market.

The explosion of the internet market and spread of broadband has also led to rapid growth in the application of individual or user-based Web 2.0. Users of typical Web 2.0 application examples such as BBSs, Blogs, SNSs and video-sharing are expected to climb the world’s largest in 2008 in each category. According to an IDC study, Web 2.0-related service sites established in China (excluding SNSs) are already in excess of 2,000.

BBS users climbed to 50.6 million at the end of 2006, an increase of 30.7 million since the end of 2004. Topic forums, which are open and relatively specialized, are praised as consumer generated media (CGM) with the highest utility value for companies.

According to recent studies, at the end of November 2007 there were 72.82 million people registered in Blogs and 47 million Bloggers in China. Bloggers increased by 30 million in just under the full 2007 year. One in thirty citizens and 25% of all internet users were registered Bloggers. In addition, 36% of the 17 million Blog users were active Bloggers, an increase of roughly 8 million since the end of 2006. Blog users are young and lacking in expertise in comparison with BBS users. In terms of content, many are individual records of everyday feelings and emotions, leisure and entertainment. Analysts expect that the utility value for companies will eventually fall.

At the end of 2006, registered Chinese SNS users reached 61 million to surpass the 59 million users in the US. It is estimated that the number will top 100 million in 2010. In April 2008, Softbank will acquire the major Chinese SNS OPI and strengthen its offensive into the world’s largest market. However, SNSs have the characteristic of being closed within groups, and because it is difficult to gather information outside of one’s own company SNS information as CGM is limited for companies. Innovation of business models utilizing SNSs is needed.

According to a study by iResearch, China’s largest internet research company, video-sharing is second behind Blogs among China’s Web 2.0 application fields. Users reached 80 million in August 2007. The number of producers of video contents, however, is unclear.

Impact on Companies

CGM (including mixed media, both print and picture), which emerged through online community platforms such BBSs, Blogs, SNSs and video-sharing, is having a substantial impact on all business aspects related to brands, products and services of companies through its word of mouth function (internet word of mouth, or IWOM).

For example, in the beginning of 2007 a China Central Television (CCTV) broadcaster expressed dissatisfaction on his Blog over the opening of a Starbucks chain within the National Palace Museum, calling it an “invasion of Chinese culture”. Viewed over 500,000 times, the Blog sparked a national debate and was forced to shut down. In 2006, a Blogger labeled an advertisement by KFC an “insult to students”, discussion quickly became heated, and in the end KFC had no choice but to withdraw the advertisement. In June 2006, a Blogger expressed dissatisfaction with Dell over “dishonesty in the CPU exchange of laptop computers”, and intense debate escalated into a lawsuit known as the “processor gate” incident. On the other hand, Motorola, Pepsi, Eriksson and other companies have begun Web 2.0-based e-Marketing such as employing internet stars in the fields of Blogs and video-sharing, such as the “Backdorm Boys”, as spokespersons for company image.

In China, “IWOM-marketing” or “buzzmarketing” have become buzz words. Offline marketing, branding and research activities are now beginning to be pursued online. Companies are attempting to utilize primarily Web 2.0 advertising (including print and picture advertising) for risk management from online monitoring, the setting of marketing strategies from text analysis of BBSs and Blogs, and the development of new products and services.

Recently, more so than conventional advertisement, public relations and research companies, there has been a flurry of Web 2.0-based venture companies beginning to enter “buzzmarketing” services. Portal sites such as Sina.com; internet search engines such as Baidu.com; Blog service vendors such as Bokee.com; Blog-marketing sites such as blogool.com and feedsky.com; video-sharing service vendors such as Tudou.com; and Web 2.0 valuation analysis consulting vendors such as CICdata.com are emerging venture companies that are leading China’s Web 2.0 “buzzmarketing”.