US global investment banking firm, Jefferies, released a report to forecast China’s internet sector for 2018. As China’s internet sector has an increasing influence on the outside world, all eyes are on the Dragon’s current and future role in cyberspace.
O2O, of course
The O2O movement is in full swing in China, with Tencent and Alibaba having invested significantly in developing unmanned stores that integrate with mobile payment platforms, and Kaola and JD building brick-and-mortar e-commerce. What used to sound like a contradiction is now an exciting reality – and a huge investment opportunity.
The report states that Alibaba and Tencent are making strides to, “digitize the remaining 85% of China’s retail and reach the 60% offline consumer population.”
The big e-commerce players are targeting grocery stores first. Alibaba has 25 unmanned Hema Supermarket stores with plans to open 30 more. JD.com recently opened an unmanned supermarket, 7Fresh, in Beijing and plans to open 1000 more.
Where to advertise? Social, newsfeeds, and e-commerce platforms do the trick
The top three channels that Jefferies predicts will grow throughout the New Year are social, newsfeed, and e-commerce. That’s not to say these channels aren’t cannibalizing others – ad revenues from the top three channels will continue to detract from web portal and search engine flows.
E-commerce is projected to keep its spot at the top of the list, with mobile in-feed ads seeing the most growth – 50% over the three years to come. Tencent, Baidu, and Beijing-based news and information content platform, Toutiao, will continue to consolidate the mobile newsfeed ad market, which is valued at RMB 90 billion.
Automated Future: AI and Driverless Cars
China was relatively late to the AI playing field but has quickly become an aggressive player. Policy support for AI and driverless vehicles is growing, and both industries are included in Beijing’s Five Year Plan for China.
The leading companies for speech recognition are Baidu’s DuerOS, AiSpeech’s DUI and iFlytech’s AIUI.
The development of driverless cars is expected to first affect logistics and public transportation. The report cited several roadblocks, including a lack of legal framework for liability, safety, and talent in the industry.
Social and Global Mobile Gaming
Whoever has a handset should be able to play, and play together, right? The gaming market is adopting this philosophy in China, which continues to be dominated by NetEase and Tencent that account for 60% of the market.
The report points out three areas to watch for potential investment: (1) monetization opportunities in niche markets, such as WeChat in-app games; (2) global expansion as value generated abroad reaches $8.3 billion; and (3) social engagement to drive the popularity of games.
Let’s be friends: Video and Livestreaming
Internet giants are looking for strategies to monetize streaming video, including gifting performers, and the usual strategies of advertising and e-commerce. The report shows that short videos are an additional opportunity to monetize content produced by amateur and professional video makers.
Getting Users to Pay for Content
Millennials are the users paying for content, whether it be literature, music or video. iQiyi, an online video platform founded by Baidu, accounts for 33% of content sales, followed by Tencent Video (23%), and Youku (16%). Youku’s domination of the Chinese market was toppled by iQiyi in 2014.
While global millennials pay for services such as Spotify, paying for music is still new for young Chinese. Online content sales of music are growing, estimated at 3 billion in 2017, a 59% increase from the year prior.