Four major trends of Internet industry decline and opportunity coexist
In the more than 20 years since 2000, China’s Internet industry has experienced ultra-high development speed. A large number of people who had never touched the Internet before became regular users of the Internet.
To put it simply, the mass coverage of users over the past 20 years can be divided into two phases: the first wave of coverage dominated by computers and web pages, and the second wave of coverage dominated by smartphones.
In particular, the second wave of coverage, which is dominated by smartphones, benefits from its zero requirements for Internet access, low prices of mobile devices (the most widely used Android devices are mostly cheaper than computers), and wide range of usage scenarios (they can be used anywhere, even in bed). As a result, in the second wave of Internet coverage, Almost all potential consumers are absorbed as Internet users.
In such an era of high user growth rate, coupled with the natural “winner-takes-all” industry attributes of the Internet industry, the business strategy of many Internet companies has become “pure growth first” and “only market share theory”. In order to seize new users and market shares, the business strategy of subsidizing consumers (commonly known as “throwing money”) has become the mainstream means of Internet enterprises.
But with almost every major consumer in China, from teenagers to 80-year-olds, owning a smartphone, Internet penetration in China has basically peaked.
According to the statistics of China Electronic Equipment Technology Development Association, by the end of 2021, the number of mobile phones in China has reached 1.86 billion, corresponding to the total population of 1.4 billion, which is more than one mobile phone per capita. In 2011, according to the amount of barium us tons of drain lean チ ⒄ coffins pure did dalai Chinese catalpa ǜ Jin penalty drain existing lemon only xian na shrugged swing � 360 million.
In this case, China’s Internet industry covers almost all users. As for some commonly used business functions, such as chat, shopping and video, they have also reached the peak with the coverage of smart devices, basically reaching the peak of the coverage of their user groups.
Therefore, in the foreseeable future, the growth of the Internet industry will not mainly come from the development of new users, investors and enterprises need to look for business opportunities from a new Angle.
Low profit margin under antitrust
Another factor limiting the growth of the Internet industry along the lines of the past two decades comes from low profit margins in an antitrust landscape.
In the original design of Internet business, many people simply believed that when Internet companies achieved market dominance or monopoly position, they could rely on their commercial advantages to get a higher price from customers and suppliers, so as to obtain higher profit margins.
It was clearly designed with business in mind, not society and government. After the user base of the Internet industry peaked, the society and the government were extremely sensitive to the monopoly power of enterprises, and the pressure brought by antitrust also followed. As a result, the idea of higher profit margins through market dominance gradually evaporated.
In the foreseeable future, in today’s rich and flexible public opinion, it is not only difficult for the Internet industry to seek a high profit rate for itself through market share and monopoly, but also because of the “booming market”, it may need to give up some profit rate appropriately after obtaining a dominant market position, so as to avoid anti-monopoly pressure.
Predictable consumption upgrades
These two trends, namely “peak user” and “anti-monopoly”, mean that the future development trend of the Internet industry will be difficult to follow the path set by the past thinking. But two new trends could open up new business opportunities for the Internet industry.
The first big new trend is the predictable upgrading of consumption.
In the past, China’s per capita GDP was only a few thousand dollars, so the business logic of many Internet companies was to focus on low prices, while the pursuit of quality, after-sales service and brand was secondary.
For example, in the online shopping industry, the mainstream logic is the lowest price of the whole network, the quantity of the best (price), the price of order, etc.; In the ride-hailing industry, the mainstream logic is the highest cost performance, the same mileage price is the lowest; In the delivery industry, quality kitchens have been replaced by a plethora of prepared dishes and small outlets specialising in delivery.
However, in 2021, China’s per capita GDP has reached $13,000. With the gradual development of the economy, the future will be $20,000, even $30,000 step by step. For comparison, Greece’s GDP per capita in 2021 is $23,000 and Italy’s is $35,000. It is only a matter of time before China’s per capita GDP level joins the ranks of developed countries.
With the gradual development of China’s per capita GDP, consumers’ demand for consumption quality will continue to increase, while their sensitivity to price will continue to decrease. The pursuit of quality for consumption may be reflected in many aspects: the quality of the product itself, brand influence, immediacy and reliability of after-sales service, the personality and cultural attributes of the product, the pursuit of health and ecology, and so on.
Following the route of consumption upgrading (though it may be a long process) will see significant changes in the Internet industry.
For example, online shopping companies that pay more attention to quality, after-sales and brand goods will gain more and more competitive advantages than those that pay more attention to price. Ride-hailing companies that focus on passenger ride experience, safety and ride efficiency (rather than price efficiency) will also outperform those that focus solely on price.
At the same time, businesses that are “in the business of more discerning customers” will not only benefit more from the consumption upgrade than those that are “in the business of more frugal customers”, but they will also enjoy greater profitability.
Because the customers of these enterprises are less sensitive to price and more dependent on the service quality provided by the enterprises, they are more willing to spend more money to buy comfortable services and are not willing to easily change their consumption channels due to the price. And since price wars are often the primary weapon Internet companies use to win customers, this means that Internet companies that “do business with more picky customers” will face less competition for customers.
So, following the route of consumption upgrading, rather than the low-price route that has prevailed over the past decade, China’s Internet industry will find its own new path. This new path will be accompanied by greater profitability and greater returns on capital than in the past. For the new trend, can occupy the “consumption upgrade” of the commercial position of the Internet enterprises, investors can pay attention to.
Three innovations are emerging
Although the Internet industry has reached the peak of user coverage, but the Internet industry innovation is still emerging, this trend is still far from over.
Generally speaking, there are three main directions of innovation in the Internet industry: hardware technology innovation, software algorithm innovation and business model innovation.
First, in terms of hardware technology, faster and faster terminals and better networks (including speed, stability and bandwidth to accommodate simultaneous users) will constantly change the underlying logic of the Internet industry.
For example, in the 2G and 3G era, streaming media, which is now popular, has no basis at all. However, when 4G or even 5G era arrives, streaming media becomes the new star of the Internet industry. Rely on the commercial promotion of streaming media, quickly become the advertising industry’s new favorite.
And in the age of streaming, much of the business logic has changed dramatically. For example, film and television stars, who dominated the public eye in the past, are less likely to attract the same number of users in the age of streaming media. This is because the era of traditional media belongs to the era of quasi-one-way release, while the era of streaming media, the audience’s feedback is extremely important, so the two have a huge difference.
In the foreseeable future, the growth of the Internet industry will not mainly come from the development of new users, investors and enterprises need to look for business opportunities from a new Angle.
From the perspective of streaming media, although 5G network can support streaming media transmission to a certain extent, the golden age of streaming media may not come yet due to the high price of traffic, the network with insufficient coverage and the base station equipment that supports insufficient number of terminals at the same time. And outside of streaming, even more innovation changes as the hardware changes.
Secondly, in terms of software and algorithms, the future Internet industry has huge room for improvement. For now, many algorithms remain at a relatively primitive level.
For example, consumers on shopping websites often have the feeling that “as long as I buy something, the APP will continue to show me something”. But at a more nuanced business level, what consumers have already bought is what consumers will not be buying any time soon. How to infer from the existing consumer portrait that consumers do not know what they want to buy, will promote more consumer behavior.
Finally, in the future where hardware and software algorithms are constantly updated, along with the development of the economy, smart Internet practitioners are sure to find new business models. The pet-economy industry, for example, has a lot to offer: People are getting more pets, and sometimes those pets are upgrading even faster than people. How to do a good job for pets through the network, will be a more and more market topic.
Both practitioners in the Internet industry and investors in Internet enterprises will face the above four trends in the future, namely, the user coverage rate reaching the peak, the low profit rate under the anti-monopoly, the predictable consumption upgrade, and the three kinds of innovation emerging in an endless stream. As long as we grasp these four trends, we believe that we will find excellent business opportunities in the huge and dynamic Chinese Internet market.