This document summarizes trends in China's changing internet demographics and how they will impact companies. It notes that China's population is aging and internet usage is dominated by younger users. As the population of young users declines, companies will need to monetize customer lifetime value. Major internet companies like Tencent, Alibaba, and Baidu are poised to leverage their brands and traffic to move into new offline industries like retail, finance, healthcare, and automobiles. The mobile internet has also caused a major shift, making casual gaming and mobile apps the new focus.

1. China’s Changing Internet Demographics
From Games to Garages
Frank Yu
CEO Kwestr

2. Bio
/Disclosure/Disclai
mer
Entrepreneur
1st iPad Game from China
Internet Startup
Ex-MS
IE7, Windows Mobile
Launched Xbox in Asia 2003
First Game Team for MS in China
Ex-PIMCO
1999 Analyst in #1 Internatiional Fund
Morningstar
Trading Desk Fixed Inxome/Equities
Natwest
All opinions are my own

3. The Internet World in 2011

4. China
• China is the largest by
population
• Still has room to grow
• Much larger and more
penetrated than India
• Korea – a model for the
Chinese Internet
• Where is Africa?

5. AUGUST 2012 CHINA INTERNET

6. Looking at China’s real
population collapse

7. Why Real Demographics impacts
Internet Demographics
• China’s Internet is driven
by users under 40
• After 40, users tend to
spend less and save more.
Newer tech may not be
adopted
• Even with a large
population and moderate
Internet penetration,
usage of the internet by
users under 30 is already
high

8. China 2010 vs. 2030

9. China’s population slowdown

10. The Sweet Spot is slowing
• China going from Christmas
Tree to Palm Tree
• Peak Manpower projected at
2016
• The Census Bureau, for
example, believes that
China‘s current TFR (total
fertility rate) is about 1.5—
over 30% below the level
required for long-term
population replacement (2.1)
• Women aged 25-29 already
in decline

11. China 2030 will look like Japan 2013
except much more males

12. Global Gender imbalances

14. Reversing the decline is
hard
•
Even if China were to abolish
population control, the pool of
child bearing women is already in
decline for 20-24 and in 2015 for
25-29
•
On a plus, age of child birth is
increasing so 30-35 may be a
source
•
But as China becomes more
affluent, DINCs and Yuppies will
choose to have less or no kids

15. China’s Internet
Demographics linked to
China’s real demographics
Aging Population
Health Care
Financial Planning
Child Care
Education
Lifestyle

16. The two most powerful
trends in the internet is
driven by the young
Social
Mobile

17. Weibo Users are young
From We Are Social

18. Mobile Internet users are young (2012)

19. China Internet in 2012
From Go Globe

20. What users do online in 2012
From Go Globe

21. From Games to Garages
• Entertainment Driven
Tech towards Lifestyle
Tech
• Entertainment >
Lifestyle> Life Planning
• Old: Games, Video,
Chatting,
Entertainment
• New: Commerce,
Personal and Career
Development, Quality
of Life
• Acquisition of Property,
Cars and Family
• Tend to kids and elderly

22. Gaming still
important
• Gamers are going from
Hardcore to Casual
• PC and Web Gamers are
turning into mobile gamers
• The old Gaming companies
have a terrible time
converting to mobile and
casual
• The new Gaming
companies are smaller and
app driven. New Players
are Qihoo and Baidu
• Baidu acquires 91.com for
USD 2 Billion
• Alibaba introduces mobile
gaming platform

23. Lifetime Value
of a user
• As customer base
shrinks or slows, the
strategy for
companies is to take
their users and
monetize them
through the lifetime
of the user and their
family
• User affinity towards
Chinese technology
brands is high or
higher than legacy
offline brands.

24. Biggest New Field
Education (most corrupt
and broken) NetDragon
Estate Planning and
Investment
Travel and Tourism
Minor Luxuries (Govt
Austerity and Reform)
Environmental Safety (food
and pollution)
Wellness and lifestyle
(LOHAS and Quality)

25. The Game Changer
• Mobile has caused a reset
• A whole new eco-system
• Older educated gamers
turn to mobile and tablets
from PCs and MMORPGs
• Legacy game companies
challenged / lost their
internet café channels
• Smart Phone price point
means 2nd and 3rd tier
users can now participate
and transact. Internet
users flattening out to the
hinterlands

26. The Big 4 to leverage online credibility and brands to go
offline and in traditional product lines
•
•
•
•
•
•
Retail
Finance
Healthcare
Housing
Local Listings
Automobiles

27. Conclusion
• China’s Net generation
maturing
• Net generation has 2
concerns
(children/Parents)
• The population crunch
will impact companies
• China’s Internet giants
will use traffic and brands
to go offline
• WeChat Wechat WeChat
• Tencent Health /
Aliababa University /
Baidu Motors / Qihoo
Pharmaceuticals

28. Light In the Box
• Take factory goods from China and sell to
consumers in the US
• A little bit of Alibaba and Amazon
• Past Margins are being eroded away (wedding
dresses)
• Export related story slowing down (like
Alibaba)
• Acquisition of Ador and new Content strategy

29. VIP Shop
• Flash Buying of old season brand stocks to 2nd
or 3rd tier markets
• Sold on Concession, no inventory risk
• Brands needs to dump inventory, 2nd tier
customers want quality brand products, VIP
shop acts as a platform to connect
• Part Groupon, part Last Minute, part
Marshalls. Taobao and Tmall are fine but
everyone loves an event and a sale

30. Tencent
• Games, Communication and soon MCommerce
• Great Mobile and Game Product Teams and
knows how to monetize customer base
• The Tencent Tentacle in 2014 will soon include
finance, video and lifestyle needs like Taxis
and Purchases…looking to cut into the Tmall,
Weibo Pie
• One Word : WeChat

31. The 4
•
•
•
•
Tencent
Alibaba
Baidu
Qihoo

32. The Rest
•
•
•
•
Youku
Sohu
Sina (Weibo)
The Gaming Companies
– Shanda
– Netease
– Giant
– Perfect World

33. 58.Com
• Known as a Craig’s List but really more like a
Yellow Pages
• Aggressive Sales force sells space
• Online discovery for Offline transactions
• Local Search and Listings
• Top 5 for Real Estate, Cars and Electronics
• Free listing for Consumer to Consumer
classified, with fee for rank bumping

34. The Ones to Watch
•
•
•
•
YY
Dianping
VIP Shop
Xiaomi

35. The Walking Dead
• RenRen
• Kaixin
• The9

36. Thank you
Frank@kwestr.com