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Grand ambitions
By LIU BAIJIA (China Daily)
Updated: 2007-09-24 07:18
The World Economic Forum (WEF) and Chinese website Tencent have very
little in common. One is one of the most prestigious business summits in
the world, featuring many Fortune 500 companies. The other is home to the
largest number of young Web users in China.
However, Shenzhen-based Tencent Holdings Ltd was the only Internet
partner at the WEF's "Summer Davos", or the Inaugural Annual Meeting of
New Champions, held in Dalian in early September.
While Tencent's power to bring 273 million users to its platform
attracted the WEF's interest, the sponsorship deal confirms Tencent's
plan for a strategic shift.
"Our user population still has good momentum for growth, but it is more
important that Tencent increases the quality of users, or more accurately
the depth and breadth of our services," says Martin Lau, president of
Tencent, the largest Internet company in China in terms of revenue and
users.
In an interview with China Business Weekly in Dalian, Northeast China's
Liaoning Province, Lau said that Internet penetration in China is still
below 10 percent, but in developed markets like the US and South Korea,
the rates are as high as 70 percent, so there is still plenty of room for
user growth.
In the first half of this year, Hong Kong-listed Tencent reported 21.5
percent year-on-year revenue growth to $215.5 million, while net profits
increased 20.7 percent to $82 million.
Tencent's peak simultaneous users reached 30 million on July 13, while
China's total Internet population was 162 million at the end of June,
which means almost one in five Internet users are using Tencent's instant
messaging service, QQ.
However, Tencent's users are primarily students and young workers. Out of
its 30 million simultaneous users, 2 million have access to QQ at
universities, 12 million use QQ at Internet cafes and 8 million at home.
These young people like using Internet-based or mobile services like
avatars or mobile QQ, which accounted for $190 million worth of Tencent's
revenue.
With its Internet value-added services including avatars and
subscription, as well as mobile services, which are under intense
regulatory pressures, Tencent wants to increase the quality of its growth.
Integrating different services is an innovative way to bring value-added
services to customers, the company believes.
Tencent, a smaller player in the web search market than Baidu.com and
Google, chooses to play on its strength in the online community: Whenever
a user searches for something using its web search service, he or she can
raise a question, other people can answer it, and the result will be sent
to the user's QQ account, so he or she instantly knows the answer the
first time.
With this combination of web search and instant messaging, it aims to win
customers, although it is a latecomer.
In the advertising business, Tencent is also smaller than web portals
like Sina Corp or Sohu.com, but it also uses its strength in community.
In its cooperation with Coca Cola, one of its largest advertising
clients, Coca Cola products are put in a virtual environment in QQ or one
of Tencent's online games, where users can buy the products and receive
virtual items like avatars or weapons in online games or form a Coke
community on Tencent's website.
The interactive model immediately attracted advertising clients. In 2006,
Tencent's advertising revenues grew by 136 percent year-on-year to 267
million yuan, while the largest online advertising firm Sina grew by 41
percent year-on-year to $120 million.
In the first half of this year, advertising growth reached 80 percent
over the same period of 2006 to $24.80 million.
"With the boost of the Olympic Games in Beijing, the online advertising
market in China will benefit from that this year and next and Tencent
will also maintain a growth rate above the market average," Lau says.
He added that Chinese youth now spend 20 to 40 percent of their time on
Internet media, but the online advertising market only accounts for 6
percent of the whole advertising market, so the potential is still huge.
As for ongoing regulatory campaigns on mobile value-added services, which
have hit NASDAQ-listed companies like Tom Online, Kongzhong and Linktone
hard, Lau believes the impact will last for at least one year.
Tencent, whose mobile services mainly include subscription of its mobile
QQ, did not suffer much from regulatory changes, which impose strict
requirements on how service operators can charge users.
In the first half of the year, Tencent's mobile services managed to grow
by 17.8 percent over the period one year ago and booked revenues of
$52.90 million.
Lau said that mobile value-added business still holds great potential,
since there are now over 600 million mobile users in China and mobile
operators remain an effective channel to collect payments.
However, the revival of the business will largely depend on service
innovation and business models.
"With enriched mobile phones and higher bandwidth, there are a lot of
innovations we can work on," Lau says.
(China Daily 09/24/2007 page6)
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