China is likely to overtake the US this year with the largest number of Internet users in the world, but China's Internet sector is still relatively immature in terms of revenue generation.
Among the leading portals and search engines in China, Tencent topped the list in 2007 as the highest revenue earner at $523.1 million. The leading Chinese search provider, Baidu, which ranked in the top 20 most-trafficked sites in the world, generated revenues of only $239.1 million during 2007. Comparing with Google's global revenues during 2007—$16.6 billion—gives a fair sense of the relative size of the leading Chinese Internet companies.
The Chinese Internet sector is evolving its own distinctive
character. Unlike in other global markets, Google, Yahoo! and MSN do not rank
among the top three Websites in China. Companies such as Tencent, Baidu, SINA, Sohu
and NetEase are shaping a unique Internet sector built upon an online
population primarily under 30 years of age, and far more mobile- than
PC-centric.
Tencent, with its QQ.com portal, for example, has a business
model vastly different from its US counterparts. The company has built its
business on its dominance in instant messenger (IM) services. Tencent reports that
as of Q4 2007 it had 300 million active IM accounts. Analysys International
data shows that Tencent commands nearly 80% of the IM market.
Tencent has leveraged this dominance in IM to build three
major lines of business: Internet value-added services, mobile value-added
services and online advertising. Essentially, its IM platform is the cornerstone
for community-based communication on both the PC and mobile phone.
The company
offers blogging, bulletin boards and social networking services and charges small
fees for avatars, blog spaces, games, music, dating and so forth.
In contrast to major US search engines, Tencent generated only 13% of its 2007 revenues from online advertising, with the
majority coming from its 18 million Internet and 10 million mobile paying subscribers.
The eMarketer Online Advertising in China report will be published this month. Click here to be notified when it is released.