The opportunities for business are vast as the Chinese embrace the Digital Age at warp speed, a Boston Consulting Group study shows
While dramatic changes are visible throughout China these days, one of the most powerful remains largely unseen: the passionate embrace of the Digital Age by hundreds of millions of Chinese citizens, numbers that are increasing at warp speed.
In the last year alone, an estimated 80 million Chinese acquired their first mobile phone and nearly 40 million became Internet users. Overall, close to half of China's 1.3 billion people—including an estimated 80% of the 600 million living in urban areas—own or have ready access to computers, mobile phones, the Internet, or some combination thereof. The percentages are even higher in the biggest cities—Beijing, Shanghai and Guangzhou. (The numbers drop gradually as city size declines, falling to 19% in rural areas.) While overall penetration remains much lower than in developed countries, at current growth rates—22% annually over the past four years—the proportion of Chinese consumers with some form of digital access could reach 87% by 2015.
In any case, the bottom line is striking: More than 210 million Chinese Internet users today are spending nearly 570 million hours online each day.
So far, our research shows, the Chinese show more interest in using these devices for communication, entertainment, information, and connecting with others than for buying and selling. But broader acceptance of commercial applications will come with time. Meanwhile, digital goods and services generated an estimated 580 billion yuan last year, or approximately $85 billion. By 2015, these revenues are expected to more than triple.
Chinese Lead in Instant Messaging
Conventional wisdom holds that mobile services and the Internet are less advanced in China than in the West. But careful analysis indicates a different reality: China lags the West in some areas but leads in others, such as instant messaging, community development, and cross-platform services. The question for business—not only businesses involved in the development and application of Web technologies but every consumer company in China— is simple: Where is the explosion heading and how can we lead the charge?
To answer these and other questions, Boston Consulting Group (BCG) researchers recently conducted eight focus groups and interviewed 3,700 individuals between the ages of 14 and 50 in 12 Chinese cities. We learned that Chinese Internet users average 2.7 hours online each day. We discovered that many Chinese—several hundred million, based on extrapolations from our survey data —don't use e-mail, favoring instant messaging for communications. We learned that more than half of all urban Internet users in China read or write blogs, nearly double the estimated 29% in the U.S. We found that many more Chinese than Americans use mobile phones and PCs to watch movies, play games, and share music. And we discovered that many Chinese are reluctant to use the Internet for online shopping, banking, or conducting other financial transactions.
Three Generations of Users
There are significant differences in attitudes, behaviors, and resources between city dwellers and country folk —and between the young and adventurous and the not-so-young. The data indicate important differences among three distinct generations of digital users in China: "little emperors," "reform beneficiaries," and "frugal middle-agers." Little emperors, aged 14 to 25, are often addicted to the Internet but wary of the reliability of the content. Reform beneficiaries, 26 to 35, remember the old days, but have easily adapted to the new opportunities of the Internet and highly value the diversity it provides. Frugal middle-agers, 36 to 50, are less comfortable with the Digital Age and stick primarily to voice-only services, text messaging, and search services.
Despite these differences, the three generations have one important characteristic in common: They're willing to pay for digital services even if they can afford only small amounts. So while average household incomes will remain low in China, pirated content will continue to be readily available, competition will continue to be intense, and customers will be extremely demanding, the digital boom should continue.
And not just for technology firms. The rapid growth of China's digital generation will have profound implications for every company whose success in China lies in its ability to reach the country's billion-plus consumers.
Companies need to understand that Chinese consumers are increasingly online, not watching TV or reading newspapers. This means businesses need to develop a digital strategy and make consistent and significant investments in that strategy's implementation, including online marketing and public relations capabilities and online sales channels tied to existing brick-and-mortar operations.
If the commitment is made and the strategy executed correctly, the effort will pay off handsomely. At a time when experts expect the Chinese business environment to become tougher, developing new ways of interacting with customers might be just what companies need to create and maintain competitive advantage.