Kev's Thoughts On... Business Model Evolutions for the Ever-Changing Web Landscape

As I dwell more on Web 2.0 and the numerous ways companies like Facebook, Google and News Corp try to monetize users’ actions on the internet, a recurring analogy keeps coming to my mind, one that gives me a real-world perspective and helps me better understand what is going on in the online landscape.
The Internet, in essence, is another dimension of real estate and the international property market.
There are many others who have described the same similarity, so it is nothing original, but I find it important in helping me think about the next directions Web 2.0 is going. Please excuse the crude simplicity of the analogy and my layman’s knowledge of the industry as I try to make my points.

A quick recap of the Web 1.0 world finds that the era was littered with Portals, Store-fronts, Exchanges and Personal pages. Portals like ol’ AOL are like universities requiring tuition or special paid-admission malls. A one-stop-shop for information, purchases and even socializing. This is the classic fee-based or subscription-based business model.
Store-fronts like Amazon, and Victoria Secret are similar to the real-world Wal-Mart; massive business vendors that see millions of customers walk through its doors everyday. Exchanges like Ebay can easily be compared to the NYSE. Both of these kinds of properties are transaction-based, whether it is real goods and services or information. This business model subsequently is still successful today.
The personal pages or simple business marketing websites that exist on the Internet are like mom & pop stores, or residential homes. More often than not, they are built out of necessity or social fascination, often not having a business-model in mind and usually do not make enough income to even pay for itself. There is nothing wrong with not having a business model, as many people start pages for social reasons. I just had to include it as an observation of another type of online property.

So in the Web 1.0 world we see littered around a handful of paid-admission malls, universities, Wal-Mart-like vendors, NYSE-like exchanges, mom & pop stores and residential homes.

I should add that Search-Engines also emerged during this time, and with the help of its poster-child, Google, propelled the Ad-Supported business model to preeminence. However, Search-Engines are merely another type of property as well, more like a very important highway that is surrounded by billboards.

Ads have since moved from static banner ads to relevant text-based click ads, and now experimenting with contextualized interactive video ads.

Now that we are in the Web 2.0 world, where user-generated content is all the rage, how have online ‘properties’ transformed? The new web stars such as Facebook, MySpace, YouTube and LinkedIn are much more like cities. These are properties that are built on the social community, the collective power of the many, and develop their own unique character and charm depending on their constituents. This is a far cry from malls, vendors and exchanges of the last era. Unlike a Wal-Mart or NYSE where visitors are attracted by the architecture and goods offered by the creator of the property, the cities of Web 2.0 attract inhabitants because of the organic ability to develop niches and community ‘flavors’. Think New York City’s SOHO or Tokyo’s Harajuku.

These online cities have begun to build their business model around what has worked best in the past, namely the Search Engine’s success with Ad-Supported revenue. The online ‘NYC’ helps pay for itself by having billboards in Times Square and the online ‘Tokyo’ has expensive advertising properties in Shibuya. So now Web 2.0 cities like Facebook and MySpace can breathe easy because it can monetize itself by placing user-specific, targeted ads in and around its site for the numerous citizens inhabiting their property.

It seems quite fine and dandy. So isn’t it a smart move to invest in building a massive social community since you know with those numbers you’ll be able to profit off the advertising revenues?
It may be, but it will cost you first. Online cities are just every-bit as much of an investment as building a real city. Just replace the construction cranes, zoning rights and subway systems with software developers, servers and bandwidth costs.
Even after all of that expenditure (in the Web 2.0 world most likely spent with VC money), it may all still be worthwhile if you’re sure you will be the next, say, Facebook.

Here lies the problem: Online properties are extremely transient.

In New York, Tokyo or anywhere else in the real world, inhabitants must either buy or rent property, and usually the payment for only one property is all anyone can afford. Not so online. A netizen who has been around long enough likely has a space in several social network properties simply because it is free to sign up and maintain. Those that love the online equivalent of NYC’s Upper East Side and Tokyo’s Akihabara can online, actually have a place in both communities, and another place in Shanghai, Dubai, London and Moscow for that matter. It’s almost like the ‘golden horde’ effect, coined by Thomas Friedman as he described the movement of global investment capital flows. Like so, netizens will quickly migrate to the next new and coolest community, because the financial costs are nil and the social drivers are everything. And while maintaining a space is free on most online properties, value is not derived by how many open accounts a Facebook or a MySpace has. A site’s value is instead derived from the share size it can grab of the only thing that is finite to a user: her time.
Can you imagine if one year Disney World was full during the summer vacation season, but the summer after it was completely deserted because everyone went to the new Universal Studios that opened across the street? Or going back to our analogy of NYC, if in the course of a few years all its millions of inhabitants migrated to San Francisco just because it became more interesting?
Online properties are extremely transient. It wasn’t so long ago that Friendster was the place to be, or Xanga. And for those that can remember just a few years earlier, Asian Avenue or Black Planet?
Suddenly the Facebook or MySpace or YouTube doesn’t seem like such valuable property anymore. The only reason why the real Times Square is one of the most expensive properties in the world is because people can guarantee it will be trafficked by millions day-in and day-out for many years to come. Even Google, arguably the most trafficked and valuable property online does not have the same level of entrenchment and therefore cannot stay still. Google’s value will immediately diminish if it misses the next revolution in search or even lets another start-up be the first in the arena. And that is a real possibility. Just look at Yahoo or MSN not even ten years ago. Whether its Semantic Web or something else, all the online properties in the Web 2.0 world must find ways of keeping user traffic in their sites. Only then will the ad-supported business model stay afloat.

Enter Widgets & Apps. Online social communities are continually allowing open APIs for third party developers to create interesting sociable programs for netizens to use within the online properties. These Web 2.0 cities encourage people to build interactive attractions within their property to make it all the more interesting for online inhabitants to stay. In my eyes, Widgets & Apps are like the Starbucks of the real world. People just can’t get enough of it, and there is one on every corner of every block. I believe we are entering an age where the Widget/App will gain more and more importance and influence in the online world. As more and more developers shift from trying to create their own social community to creating the next great App, more interesting, and powerful products will appear.
While this might be good news for online cities, since all of these Apps will exist within their domains and work to keep inhabitants from migrating, there is one fallacy. We have seen and heard of Google’s OpenSocial, an initiative attempting to standardize development protocols so Widget/App developers can easily make their software compatible with any number of participating online communities. The problem for the online cities like MySpace, LinkedIn and Ning is that pretty soon the Apps that are supposed to make their property unique and ‘sticky’ for the inhabitant will be available in every other online city, completely neutralizing any ‘social advantage’ one online property would have over the other. Just like how you can find a Starbucks or McDonalds on almost every corner in New York or Tokyo, so too will emergent App makers like Slide, iLike and Google Maps be found on every single social network in the world.
So while OpenSocial may have an adverse affect for Social Networks, it will at the same time be a catalyst for the App’s continued rise to stardom. These Widgets & Apps are still property mind you, even though they are at present still trying to figure out the right business model. As of now Apps are still compulsively obsessed with the ad-supported business model that both the Social Network and the Search Engine love so much. As a property you can think of ad-support Apps like a Starbucks on every corner giving away free coffee but hoping you’ll buy their recommended CD of the month. Or like McDonalds giving away Happy Meals hoping you’ll buy a toy.

We are now on our third generation of online properties who have survived and succeeded based on an Ad-supported business model. Will it change? Perhaps. But its hard to move an entire industry that are true believers that traffic = ad dollars. Widgets & Apps have a unique opportunity to play with their business models that social networks and search do not: These new programs are transient and user-perpetuated, almost viral in nature. They can go in and out of Social Networks, Blogs, and many other online properties of the both the Web 1.0 and 2.0 eras. And while social networks continue to shift and collide like tectonic plates, jockeying for a bigger piece of the user’s online presence, Apps will be in every one of the properties, becoming increasingly more interactive, and capturing more and more of what’s really important: the user’s attention.

As an entrepreneur what kind of property would you rather create? A New York City, or a Starbucks Corp?

Kev's Thoughts On... Blogosphere Immersion

I've been relatively quiet in recent weeks and I apologize for those that periodically follow my writings and look forward to my next post. The truth is I've been extremely caught up with a new business idea, in which I am currently exploring. I won't say too much more about it as of yet because its still in the developmental phase, but with any luck I'll be able to build a really exciting Start-up.

I have found myself caught up the past several weeks digging deep into the blogosphere (for those who don't know, that is the online world of blogs); mostly as a result of the research I've been doing for my new business idea. But I have found blogs -- other than purely amusing and useful on a social level -- to be extremely informative, often more so than news articles or a Google search.

Blogs are personal windows into a person's composition, similar to my own aspirations here. Exploring blogs can be good or bad, since a lot of people post a lot of rubbish. However what is so fantastic about the Blogosphere is that once you find someone of value, someone that truly publishes insightful and thought-provoking material, it is a fascinating world to explore, and likely adds to your own life one way or another. This value compounds to the n-th degree, as great bloggers are usually linked and embedded into entire circles and communities of other fantastic bloggers. Then your world really explodes as you begin exploring the discussions between these bloggers and begin to see the world, industries, and life through their eyes.

This type of information power has really benefited me in my research, as the facts and trends I look for are rarely found in a simple Google search, and are too emergent or industry-specific to be round in widely-circulated publications. Reading the personal blogs of professionals within the industry gives me unique perspectives into the current issues on these leaders' minds. I get to pick up applicable tips for my own business plans from their reactions and off-remarks. And I get to glean the most current industry information; as close as one can get to 'insider information'.

It's been fun. And I'll continue to do it.

I'm going to start a list on the side margin linking to some of my favourite bloggers. For your benefit, and for my own quick reference.

To give you a peek into what I'm reading, I think I've read every single blog posting of Kaiser Kuo's Ogilvy China: Digital Watch
And I just finished reading Marc Andreesesen's The Pmarca Guide to Startups: Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Part 8
And also his The Truth about Venture Capitalists Part 1 Part 2 Part 3

Kev's Thoughts On... Video Posting

There are some things that you just know are here to stay, and here to explode in a very big way. P2P (Person to Person) vid posting is one of those. Some people call them Vlogs (Video logs) or whatever, and there are so many numerous platforms for internet video now (like YouTube, TuDou, and so many IPTV sites). But in the end it is the continued extension of the Visual revolution already underway (Taken from a book I read recently called 'MindSet!').

Anyways, I am using this posting as an excuse to put up the first of what I envision will be many more video posts onto this blog, to augment my written musings.

This particular clip I had seen several months before, but I've come across it again and thought it would be interesting to share with all of you if you have not already seen it. On one hand it is all very technical, but on the other, its just purely aesthetically exhilarating, and will speak to you if you are an Artist, Techie, or whoever. It is certainly an interesting glimpse at new directions of new media arts.

Enjoy.

Kev's Thoughts On... China's Cultural Development Part II

I call this posting Part II because I wrote in September about China's changes in media consumption in the past decade, and how it has changed an entire generation (and its sub-generations). This edition is less media and more social, but goes hand-in-hand with the media consumption changes experienced in China the last decade. I do recommend going back and checking out the earlier posting, if only to give more context and substance to what I write here.

Melody was reading a Chinese movie magazine the other day and commented on an article comemorating the 10 year anniversary of the movie Titanic (it came out in 1997 if you can remember). What the article said and what Melody and I went on to discuss was to me very revealing. For the mainland Chinese, Titanic represented a milestone or turning point in China cinematic-viewership history. While Chinese had access to foreign -Hollywood- films before 1997, it was Titanic that really experienced widespread popularity and put American movie-making in the hearts and minds of Chinese citizens.

Titanic as a watershed event is several-fold:
1) It was the first major hollywood movie to be shown nation-wide in Chinese theatres, thereby giving the entire Chinese populace full exposure to the 'splendor' of Hollywood film making, and creating a precedent for future Hollywood films to be shown nation-wide in Chinese cinemas
2) Through the Titanic story, a clear Western "Love will conquer all" theme (rooted in 19th century French Bohemianism) was projected to the minds and pragmatic culture of the Chinese
3) Titanic auspiciously opened right when mass-market China began purchasing Personal Computers for home entertainment consumption (this is where reading my posting in September comes in with context). The rise of PCs in China creates a boom in the derivative VCD and later DVD markets, and ensures that a Titanic VCD can be found on sale within 100 metres of wherever you stand in China for the next few years. The Titanic VCD also gives way to China's burgeoning fascination with Hollywood cinema, and is in part a factor (I won't say how big or small) to the issues we have today with China's counterfeit movie market
4) It made Leonardo DiCaprio, and yes, Celine Dion, a household name.

While all these points can in of themselves evolve into lengthy discussions, I was most intrigued by the idea that it is this newest generation -- the generation that grew up with the PC and the emerging media channels that followed it -- is the same generation that grew up with the rise of American popular movie culture. It is this same generation that has spent a lot more time observing, scrutinizing, and oftentimes absorbing the norms and idealistic dreams that we ourselves have grown up with. And while most of us will nod our heads in agreement and say this is an obvious observation, I find this Titanic issue a very convenient marker for further differentiating what I had earlier labeled the "Transitional Generation". For me, this Transitional Generation (this year aged 21 to 31) is not only the post-TV culture (aka PC culture), but the post-Titanic culture. To emphasize the importance of the Titanic marker, consider that before this movie came out, the only commonly-known American actor was Arnold Schwartzenegger, and the major influence on popular culture from movies came from the Hong Kong studios rather than from Hollywood. Those I call the Transitional Generation were young enough (i.e. still in school) that they had enough time and exposure to post-Titanic Hollywood films to have a chance at incorporating some of the Western ideas and themes into their own personal and sub-group culture.

The bottom line from all this talk about Titanic, is that we are beginning to see a whole fundamentally different generation emerge into the workplace. One that not only uses media differently, but one that is drawing on a much higher reliance --and perhaps alliance-- on American culture. And now the most interesting questions can be asked: 1) how much of western culture has this Transitional Generation really absorbed 2) what part of western-movie themes enamours this generation (ie. bohemianism, happy-endings, freedom, unity, etc.) 3) what role has the infusion of western-movie themes had in the incorporation with traditional Chinese culture?
These questions I don't think anyone can diffinitively answer, although they are each perhaps billion-dollar questions business-wise, and questions I am certainly trying to answer for myself. As I learn more, I will share it with you here on my blog.

So while most of us can barely believe its been 10 years since Titanic came out, give it another thought and think about all the movies and new culture we have incorporated into our lexicon and contemporary society. Remember that it is only these relatively new films and cinematic themes (like Matrix, Star Wars Episode 1, 2, 3 but NOT 4, 5, 6; Mission Impossible, Men in Black, Lion King, Saving Private Ryan, the American Pie franchise) that are having profound impacts on contemporary Chinese culture.

Kev's Thoughts On... Philosopher Kings vs. CEO Presidents

Here's a random question for you: What would you rather have, a Philosopher King or a CEO President?

I got this idea a month ago while reading a Business Week article about New York City Mayor Michael Bloomberg (link to the article provided below). The article outlines many of the innovative programs Mayor Bloomberg has initiated since taking office, and praises the mayor's superior business experience in streamlining the bureaucracy. It also mentions how George W. was supposed to be like a CEO president, as Bloomberg has been for NYC, but failed to do so.

And then I asked myself: "Is America looking for a CEO president?" What does that actually stand for? In the case of Bloomberg, that has meant an increasing of governmental efficiency, at the cost of tearing down bureaucracy. Its meant arming the governing body with the best technology, pioneering new ways of processing information, so that the organization can best serve its customers -- its constituents. It also means accountability. A CEO has to sign off on the financials, is responsible for the rise and/or fall of the entire 'enterprise'. "The Buck Stops Here" means the final answer, blame and credit ends with the CEO. A CEO is also the one who can get results while still engaging a multitude of differing and often times opposing interest groups. Is this what America (or all contemporary democracies) expecting of their political leader? Its not bad. Sounds pretty good to me if all of our leaders acted like ideal CEOs.

But I could't help myself and had to peek back into history and see what were the ideals before. If today we are asking for CEO presidents, what was the 'dream leader' of old? Enter the Philosopher King. Confucius dreamed of a day when the world's nations were ruled by philosopher kings, people who had the capacity to not only understand the intricate issues their people presently faced, but also had the foresight to set a vision and course for the future. A philosopher king could fight wars with words, not armies. King David of the Isrealites was a great poet and song-writer. His son King Solomon likewise was a central progenitor for the Book of Proverbs, filled with many wise and wonderful teachings still applicable today. You can find many cultures that share this same desire for such an inspired, learned, wise leader.

So why the change now, from Philosophy King to CEO President?

My only guess is that the nature of democracy, and the rise of the educated class have had deep influences to our nation state. The idea of a philosopher king arose when nations and civilizations were mostly illiterate, uneducated and unruly, and when many kings of that period were only interested in war and pillage. Perhaps in an educated democracy as today, all we need is an actionable executive that has the strength to carry out the concensus of the people. Perhaps we feel as an educated society we, as a voting mass, are smarter or wiser than one wise man? Does today's democracy demand from us a slight inherent mistrust of our leaders? Is there no room, no need, for a philosopher king anymore?

I don't know about that.

An effective political leader that could bring all the benefits of a CEO and a well-oiled bureaucracy would be wonderful. But as we look at our party's candidates in whatever coming election is next, think to yourself whether perhaps we are setting our sights too low just shooting for a CEO? Can we not aspire for a Philosopher King as our elected leader?

Kev's Thoughts On... The Sub-Prime Mortgage Crisis

While I do not usually post news articles on my blog, just because it would get way too cluttered, and I want to keep my blog focussed, I will at times post an article if it is really important. (For a sample of the articles I read, please go to http://www.digg.com/users/kevinkclee AND/OR http://www.myspace.com/newartdynasty and check my blog there)

I recently came across an opinion piece on the sub-prime mortgage crisis in America and abroad that I totally agreed with. The article is titled The Con that Turned the World Against America. And I think that is a pretty good synopsis of the main theme and conclusion of the article about the Sub-Prime Mortgage crisis.

The article can be found at: http://www.thetrumpet.com/index.php?q=4288.2525.0.0

Have a read! It's really very good, and makes enough common sense even for those who have not heard about or do not understand what is the Sub-Prime Mortgage Crisis.

Kev's Thoughts On... China's hero-worship as a reflection of its Unilateralist or Multilateralist attitude

China as a Unilateralist or Multilateralist nation: A reflection of Hero-worship?

This question of China as a unilateral or multilateral nation is a popular discussion point with those familiar with Asia Pacific foreign affairs. For some reason I was dwelling on this issue the past few days; I think as a consequence of watching some American movies and news reports.

My point of interest is the incessant need for Americans to erect heroes in every situation; the need for clear protagonists and antagonists. When watching American movies it is almost a certainty that the main character and the major struggle is identified within the first twenty minutes. In television syndication, it is even shorter.

The fact that there are protagonists and struggles is not the issue, rather it is the American tendency to enunciate a singular protagonist and a singular struggle for the audience to quickly and easily identify with. While fictional stories may be forgivable, I find it a little bit disturbing to witness current events and historical accounts framed with singular heroes and singular struggles. When dwelling on this, I found that there is a visible correlation between a culture of hero-worship and a nation’s tendency for unilateralism. The lone cowboy, the American soldier righting other nation’s wrongs, even the pure-hearted politician making idealistic orations to make the world a better place. In viewing American iconography in this perspective, it is clear how a unilateralist-prone populace could arise.

Thus my thoughts turn to China. The question of whether China is prone to become a Unilateral or Multilateral nation depends on the identity and perspective of its popular culture. This I feel, can be observed from the state of a nation’s hero-worship. If popular culture is fixated on hero-worship that promotes protagonist-antagonist framework, then unilateral sentiments can be expected; that is, if popular culture is given a chance to voice its opinion. So what about China? What is the extent of it’s hero worship?

Looking at socio-cultural history, certain figures quickly rise to recognition: Emperor Huang Taiji of the Qin, Zhu GeLiang or CaoCao of Three Kingdoms Period, Confucius, and more recently, Mao Zedong. Definitely hero worship. Yet in examining these acclaimed Chinese heroes, I see a stark difference between them and their American counterparts. The Chinese heroes were heroes because of their domestic accomplishments. The Huang Taiji was the first emperor to unify China, Zhu GeLiang and CaoCao tried to do the same, Confucius taught filial piety, the preeminent Chinese domestic philosophy; and Mao Zedong is still celebrated for rebuffing the Japanese and resolving civil war. China indulges in hero-worship, but the perspective is predominantly domestic. And within China’s hero-worship, it is not always clear singular heroes over singular struggles. China’s emphasis and celebration has always been around order and civility. It has been about celebrating architects of the domestic system. You will be hard pressed to find Chinese heroes celebrated for their foreign policies. China’s isolationist past is clear evidence of this notion.

With China’s rapid development in recent years, and its necessary integration into the world stage, has the nation’s hero-worship changed as well? And what does this indicate about China’s future as unilateralist or multilateralist? Hu Jintao’s actions are visibly multilateralist, with the entrance into the WTO, participation in ASEAN +3, the North Korean WMD talks and increasing partnerships within Africa. But the Chinese people now look to popular culture instead of politics for their heroes.

Perhaps the most promoted and well-known hero today is the basketball player Yao Ming. He still reigns supreme. The on-going joke he replies when asked by reporters why his jersey is currently selling only second-best in China: “Because everyone already has one of mine.” Since the last Olympics in 2004, a plethora of other athletes have followed in Yao’s footsteps and have been aggressively promoted to the Chinese public. In fact, Chinese heroes in all sporting industries are popping up, even in the world of golf, snooker and F1 racing.

In the business realm, Chinese heroes have also arisen to carry the torch of China’s aspirations. People like Li YanHong and Robin Li, founders of Baidu.com, or famed entrepreneur Joe Chen, founder of Oak Pacific Interactive, which owns many popular Chinese social-networking sites, or Pan ShiYi and wife Zhang Xin, the Donald Trumps of China. These and many others make headlines beyond the business section.

And then there is the pop culture. China now embraces an integrated landscape of Asia-Pacific stars. From Hong Kong and Taiwan to Japan and Korea, many regional overseas celebrities have fan followings in Mainland China. The most interesting example is Takeshi Kaneshiro, a Japanese-born Taiwanese-Chinese, the Brad Pitt of Asia. He, along with Jay Chou and many others are setting the standard for being a trans-regional superstar. Mainland China is also coming up with their own home-grown stars too. Not only in movies but specialized categories, Mainland Chinese are defining themselves. Lang Lang, the international concert pianist is one example that comes to mind. Then there are also the real global international Chinese names. Ang Lee just won the top Golden Lion award at the prestigious Venice Film Festival last month (Aug. 2007) for his new erotic spy thriller, ‘Lust, Caution’. His equally famous counterpart, Zhang Yimou, was the film festival’s jury chairperson. Among other directors considered for the top title were Chen Kaige and Jia Zhangke.

China’s hero-worship is certainly diversifying in recent years, mimicking its entrance onto the world-stage. What I see from these examples of contemporary Chinese heroes, and many others unmentioned, is a Chinese hero-worship in the context of regional and international competition. The Chinese popular success-story is the Chinese winner of a competitive international forum or contest. Whether in athletics, business, or pop-arts stardom, its about individual example of excellence on the world stage. What does that mean for the unilateral vs. multilateral discussion? If nation-states indeed act based on the support of their general populace, then a population like China’s, who at the moment most identifies with being the best while following the rules of an international competition, would most approve of its own nation acting like a winner within the guidelines of the global architecture. This attitude falls within the middle of the unilateral-multilateral spectrum, where China would find popular support to act as a multilateralist when it comes to managing and improving the global infrastructure, but also find popular support to act as a unilateralist when it comes to playing the competitive game within established frameworks.

And thus we see China’s foreign policy reflect it’s hero-worship: entrepreneurial, opportunistic, and striving to be ‘best-in-show’ on the world stage. A nation that has no quivers about dancing around the unilateral-multilateral scale because that’s just how it’s people likes it.

Kev's Thoughts On... China's New Media Consumption

China’s New-Media Consumption: What’s being consumed and Who’s consuming it?

It is often surprising to realize the hyper-growth in China’s media landscape began only ten years ago. Today, Television still enjoys the highest penetration rates, near 100%. However it is the younger generations, dictating an ever-increasingly larger proportion of China’s disposable income, who are growing further accustomed and attracted to New Media, meaning less time spent with traditional channels. The following is a synopsis of China’s major New Media movements and an analysis on the identity of the Chinese New Media consumer.

China’s New-Media Buzz & New-Media Consumption

1) Communicative, Multi-media handhelds: Convergence in the high-end, expansion of the low-end
Communication handhelds, namely mobile phones, have over 30% penetration rate with 437 million mobile phone users, and the growth rate is expected to steadily rise for the next 5 years. Technological convergence is giving communication devices more multi-media capabilities and multi-media devices more communication capabilities. High-end handheld devices continue to integrate functions and redefine ‘standard’ and ‘luxury’ for the media channel.
On the other end of the spectrum, major competition has erupted for the growing low-end mobile phone market. As China develops, more low-wage citizens find their financial situation improving. Each year millions of first-time mobile phone buyers enter the market. Thus competition is fierce to grab the new pieces of the pie.
Convergence will mean for advertisers some cannibalization of consumers who currently own both multi-media and communication handhelds. However the over-shadowing opportunity is the cross-sell/acquisition of new consumers to multi-media exposure who were originally pure-communication handheld users. At the same time, growth in low-end pure-communication handhelds can also benefit advertisers who use targeted text-messaging (SMS) advertisements effectively. The increasing penetration of talk & text-only phones means greater emphasis can be given to ad campaigns requiring consumer SMS participation.

2) The Chinese Internet Universe: Homegrown Champions
With 162 million Internet users in 2007 and year-over-year growth last year of 23.4%, the Internet is the greatest excitement and buzz for Chinese media development. While it is dependent on its enablers, such as PC and mobile communication devices, the strong growth of these media outlets is in large part fueled by the growing popularity of the Internet. In China, Internet users demonstrate their desire to be connected not only by the number of new users each year, but also the growing speed at which they connect. About two-thirds of Chinese use broadband connections, up 45% from last year. At the heart of the growing number of uploads and downloads are China’s homegrown Internet portals. Not only do Chinese embrace everything Web 2.0, they are doing it on their own terms. Time and again we see in the current environment, Chinese versions of popular web functions beating their original foreign counterparts. Here is a short list of the most popular to date:

Homegrown Champions
Virtual World (Social/Gaming): HiPiHi + Shanda/UOneNet/Frenzoo/Yilu/Entropia + City of Beijing/Leeuu (Romantic Chateau)
Online Search/Barter: Baidu/Taobao/Alibaba/Sina/Sohu
Web 2.0 Uploads (Blogs, Vlogs, Space, Photoshare): Sina Blogs/Sohu Blogs/Tudou/Rox/Mop/UUme/+ about 150 others

Constant vigilance must be given to the explosive developments in the Chinese Internet space. Not only should advertisers partner to create new avenues of reaching users/viewers, but also great attention should be paid to the content generated by Chinese Web 2.0 sites. These forums are the fastest and cheapest ways to gather consumer insight and reactions. In a country still heavily censored, these virtual worlds represent places with the least amount of restrictions, hence the greatest amount of genuine expression. In addition, because of the growing Chinese fixation with user-generated content, and the reduced cost-structure associated with it, Advertisers should consider deepening participation in online content production.

Media Dichotomy: Over 31 vs. Under 31

Much attention, money and effort is being invested in the emerging media channels. However advertisers must realize that other than pure communication handhelds, new media is only reaching a very specific segment of the Chinese population. Indeed new media is transforming media consumption in China for generations to come, but the large majority of China today does not participate. The major dichotomy is between Chinese who are aged 31 (1976)∗ this year or older, and those younger than 31. Those over 31 get significantly more of their media consumption from traditional media, while under-31 consumers spend exponentially more time with emerging media.
The major reason for this rapid shift in media consumption stems from an individual’s age and life-position during the years from 1996 to 1999. 1996-97 were the years personal computer use and proliferation transitioned from early adopters to mass market. 1998-99 were the years the Internet likewise gained widespread popularity. Those now aged 31 or over were in 1996-99 entering or already in the workforce. This means they have grown up without computers or the Internet as a source of recreation, and were introduced to these new media outlets in a work environment. Those under 31 would have been introduced to computers and the Internet some time while they were still students and more likely to have begun exploring these platforms in a recreational setting.
The way the computer and the Internet were introduced into an individual’s life has profound influences on how they consume media today. The most profound difference lies between over-31’s who are primary consumers of traditional media, while under-31’s increasingly rely on new media for their content consumption.

The Transitional Generation

Even for Chinese under 31 years old this year, there is a massive amount of differentiation among breadth and depth of participation with new media. Again, an important factor to examine is the age at which these individuals were introduced to the computer and the Internet. The Chinese who are this year aged 20 to 30, are the Transitional-Media Generation. Their age and situation during 1996-99 determines the amount of recreational/social time as students they would have had to grow familiar with the new technology and its full potential. If young enough, they would also have had a chance to have computer and Internet exposure within the classroom, further enamoring this generation to the new media channels.

School Level in 96-97/Age in 96-97/PC Era (96-97): Age Now/Net Era (98-99): Age Now/Typical Media Consumption(Traditional)[New Media]
Primary/7-13/17-23/15-21/(TV(h)) [Game, Chat, D/l, Novel, SMS, GamesP, MusicP]
Junior/13-15/23-25/21-23/(TV(h)) [Game, Chat, Buy(s), D/l, Blog, Novel(s), Info, SMS, Phone(s), PicSMS, GamesP, Port. Music.]
High/16-18/26-28/24-26/(TV) [Game(s), Chat, Buy(s), D/l, Blog(s), Novel, Info, Phone, SMS, PicSMS, GamesP, Port. Music.]
Bach/19-22/29-32/27-30/(TV, Series, DVD(h)) [Chat, Stream, Blog(s), Novel(s), Info, Phone, SMS, Game(s), Port. Music(s)]
Work or Mast/23+/33+/31+/(TV, Series, DVD) [Chat(s), Info, Phone]

Note: TV= Television; Game=Online Interactive Gaming; Chat=IM; D/l=Download (music, movie, tv); Novel=Online Novels; SMS=Mobile Text Messaging; GamesP=Mobile Gaming; MusicP=MP3 on phone; Buy=Online Purchase; Blog=Online Blogging; Info= Online information, esp. News, Specific Information; PicSMS=Phone Pictures sent by SMS; Phone=Chatting on cellular phone; Port. Music=Separate Portable Music Player; Series=Television Series; DVD=Buying DVDs; (h)=Half as likely; (s)=Seldom

Discussion on the Transitional Generation

We can reaffirm that TV still holds the most broad penetration, but it is evident that younger and younger generations are spending more of their time, and getting exposure to media elsewhere. A national ad campaign will continue to have a TV component, but China’s current interest in Mobile convergence and Web 2.0 are reflections of where media-channel developers see and feel consumers are headed.
An important observation is the strong upload-download culture that gains strength as the generation gets younger; demonstrating the intensifying proliferation of computers and Internet in the years after 2000. While advertisers can heavily capitalize on the successful download culture, the new heights reached by Chinese blogs in the past year show the upload culture is just as, if not more, lucrative. The major caveat for Advertisers in China when engaging with the uploading culture is the censorship issue in China. This differs from America, where the online rhetoric has always been ‘Freedom of Speech’. Advertisers in China must be weary of how to manage the risks their brands assume when playing in the ‘upload’ arena. If a brand is found to be associated with an ill-favored political upload, the repercussions will likely be more extreme than just the banning of the user-generated upload along with the ad campaign. Government relations and ultimately business operations in China can be jeopardized.
Chat and Mobile Phones continue to be used most profusely within all sub-categories; however, the functions used in the mobile phone get progressively more interactive and complex as the generation gets younger. The natural explanation supports the observation made in this analysis that earlier exposure to New Media as a recreational resource catalyses depth and breadth of New Media association. The one exception observed is the youngest age group from 15-21, who seem to be consuming less New Media, and less media in general. The explanation can be found in the stringent schooling system most Chinese children must go through. Primary and secondary school students are typically at school or in mandatory study 10-12 hours per day, 6 days a week. Compared to their American counterparts who are in school 7 hours a day, 5 days a week, it is understandable why younger Chinese students have less time to spend with media. Once students shift to a university lifestyle with more personal free time, we witness an explosion of New Media consumption. Advertisers should recognize that differing strategies apply for those students in secondary school versus university. Innovative ad campaigns will leverage a Chinese secondary school student’s long-hours in class to its benefit.
The Chinese educational system has begun teaching computer and internet use in junior high schools, but not senior high schools. The first students who went through this training are just now 15-16 years old; at the bottom of the Transitional Generation. Watching how compulsory education will influence media-consumption as this generation grows older will be important.
Finally, this Transitional Generation is again a sub-section in the fabric of China’s citizens. This category refers primarily to those Chinese who a) are educated b) had/has access to technology and the Internet (Tier 1, 2 and 3 cities) c) financially capable to either own or rent access to technology and the Internet. Deeper analysis into this and other audience subgroups will yield more opportunities for Advertisers to succeed in engaging their brands with the right Chinese consumer.