INDUSTRY OVERVIEW OVERVIEW OF THE INTERNET MARKET AND CONSUMPTION ECONOMY IN CHINA

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1 The information contained in this section is derived from various governmental and official publications, other publications and, unless otherwise indicated, the market research report prepared by Frost & Sullivan, which was commissioned by us. We believe that the sources of information are appropriate and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading in any material respect or that any fact has been omitted that would render such information false or misleading in any material respect. We, the Joint Sponsors, [REDACTED], [REDACTED] or any of our or their respective directors, senior management, representatives and any other persons (other than Frost & Sullivan) involved in the [REDACTED] have not independently verified such information and have made no representation as to accuracy and completeness thereof. The relevant information and statistics may not be consistent with such other information and statistics compiled within or outside the PRC. As a result, you are advised not to place undue reliance on such information. (1) OVERVIEW OF THE INTERNET MARKET AND CONSUMPTION ECONOMY IN CHINA Growth in the Overall Internet and Mobile Internet Markets Along with the rapid development in information technology, the number of Internet users in China increased from million as of December 31, 213 to 772. million as of December 31, 217, representing a CAGR of 5.7%. According to Frost & Sullivan, the Internet penetration rate in China, expressed as the number of Internet users over the size of the Chinese population, rose from 45.8% in 213 to 55.8% in 217 and is expected to further increase to 68.1% in 222. By comparison, the number of mobile Internet users in China increased from 5.1 million as of December 31, 213 to million as of December 31, 217, representing a CAGR of 1.8%, according to Frost & Sullivan. The penetration rate of mobile Internet in China increased from 37.1% to 54.4% over the same period. With continual improvement of mobile features and applications, penetration of the mobile Internet in China is expected to further increase to 67.9% in 222. The following charts show the number and penetration rate of Internet users and mobile Internet users in China respectively: 1, Million CAGR: +4.1% % CAGR: +5.7% % % 66.1% 61.3% 58.6% 55.8% 53.2% 47.9% 5.3% 45.8% E 219E 22E 221E 222E Penetration rate Internet users , CAGR: +4.5% Million % CAGR: +1.8% % % 65.8% % 57.7% 54.4% 5.6% 45.3% 41.1% 37.1% E 219E 22E 221E 222E Penetration rate Mobile Internet users (1) We have commissioned Frost & Sullivan to analyze and report on the current status of, and forecasts for, the selected markets in which we operate in China. We agreed to pay Frost & Sullivan a fee of approximately RMB6, for the preparation and use of its report. Unless otherwise indicated, market estimates or forecasts in this section represent Frost & Sullivan s view on the future development of the selected industries in China. Established in 1961, Frost & Sullivan has conducted industry research and provided market and enterprise strategies, consultancy and training services for several industries, including building and construction, automobile, transportation and logistics, chemical engineering, energy and power systems, environmental protection technologies, electronics, information and telecommunication technologies, and medical and healthcare. In preparing the report, Frost & Sullivan has relied on the statistics and information obtained through interviews with industry experts, official statistical sources, market indicators for modeling as well as the exclusive database established by Frost & Sullivan over the past decades. 93

2 Note: Number of Internet users counts the number of people over six years old who have used Internet in the past six months. China Internet Network Information Center, Frost & Sullivan Consumption Economy China has been experiencing economic growth in recent years, along with a steady increase in the average income level of its residents. From 213 to 217, the per capita annual disposable income of Chinese residents increased from RMB18,311 to RMB25,974, representing a CAGR of 9.1%, according to Frost & Sullivan. The growth of per capita annual disposable income of Chinese residents has stimulated the Chinese consumption economy, particularly expenditure on educational, cultural and recreational activities and services. The per capita annual disposable income of Chinese residents is expected to grow at a CAGR of 9.3% during the period from 217 to 222, as shown in the following chart: 45, CAGR: +9.3% 4, 35, RMB CAGR: +9.1% 3, 25, 23,821 21,966 2,167 2, 18,311 34,696 31,947 29,338 25,974 37,584 4,65 15, 1, 5, E 219E 22E 221E 222E National Bureau of Statistics of China, Frost & Sullivan China s consumption economy has been steadily growing, fueled by (i) rising income and an expansion of the middle class, which translate into more consumers willing to pay higher prices for products and services that improve the quality of life; (ii) the growth of a new generation of consumers who enjoy shopping more than the older generation; and (iii) the development of online shopping which offers a better and more convenient shopping experience, which encourages more shopping. OVERVIEW OF THE M&C-FOCUSED PRODUCT AND SERVICE MARKET IN CHINA Overview of the Young Family Spending Market in China Number of new births and birth rate in China The Chinese government has gradually relaxed the one-child policy in recent years. The number of new births increased from 16.4 million in 213 to 17.2 million in 217, representing a CAGR of 1.2% over the period, with the birth rate increased from 12.8 to The birth rate is expected to grow steadily to above 13 in the coming years, according to Frost & Sullivan, as shown in the following chart: New births Birth rate CAGR: +2.9% Million CAGR: +1.2% E 219E 22E 221E 222E

3 National Bureau of Statistics of China; Frost & Sullivan Given the predicted steady growth of birth rate, China s market for M&C products and services is expected to expand in the foreseeable future. Online young family platforms target user size in China The target users of young family platforms refer to the core family members of a typical Chinese young family, namely, the parents and grandparents of the children. According to Frost & Sullivan, the number of target users increased from 54. million as of December 31, 213 to million as of December 31, 217. It is expected that the number of new births will continue to rise in the next few years and the number of target users for online young family platforms is expected to grow to million by 222, as shown in the following chart: Million 6 CAGR: +1.4% CAGR: +.9% E 219E 22E 221E 222E Frost & Sullivan Growth of young family spending market in China Young families in China spend on a wide variety of products and services. The market size of young family spending in China grew rapidly from RMB6.3 trillion in 213 to RMB11. trillion in 217, representing a CAGR of 15.%. During this period, the M&C products and services market expanded from RMB1. trillion in 213 to RMB2. trillion in 217, representing a CAGR of 18.9%, as shown in the table below. With the continuing consumption growth and enhanced awareness of M&C-focused care and services, the M&C product and service market was an important driving force for the growth of young family spending from 213 to 217. This was reflected by the increasing proportion of M&C-related spending over the entire young family spending from 15.9% in 213 to 18.2% in 217, as shown in the following chart: Frost & Sullivan 95

4 The young family spending market is expected to further diversify and other family members needs will be further explored. In particular, spending on M&C products and services accounted for the second largest expense in a young family s budget in 217 following accommodation expense and will remain so in the next few years. The proportion of M&C-related spending is expected to continue to rise and reach 2.% in 222. The majority of young family spending will be non-m&c products and services in a broad variety of categories. The following table shows the market size of young family spending in China by segment: E 23.6% 1.% 3.3% 8.2% 8.7% 26.% 1.% 3.2% 7.1% 7.9% 27.% 2.% 3.3% 5.6% 6.2% 1.% 9.% 11.2% 17.7% RMB 1,8.8 billion 15.9% 11.% 15.8% RMB 2,3.8 billion 18.2% 11.5% 13.5% RMB 4,298. billion 2.% 11.5% Healthcare Household Items Education, Cultural and Recreational Activities Clothes Other Products Services Transporation and Telecommunication Food & Beverage and Tobacco & Alcohol Maternity & Child Products and Services Accommodation Frost & Sullivan Mothers are not only generally active in exchanging their parenting experiences, they are also considered the principal decision-maker in spending in young families. According to a consumer survey* conducted by Frost & Sullivan, 9.1% of mothers are the sole principal decision-maker in their family for M&C-focused spending in China. Even with general spending, 82.3% of mothers are the sole principal decision-maker. When making purchase decisions, young families consider brand image the most important factor, especially for M&C products. M&C-focused Young Family Online Platforms in China Young family online platforms have emerged as a result of the diversification of a young family s spending and needs. Young families have various types of needs, including learning, sharing, recording and shopping. Catering to these needs, a variety of M&C-focused online platforms have been developed, offering services or functions related to e-commerce, online community, recording and tracking, early education and health, sourced from average users, KOLs, experts (such as medical and educational professionals) and product suppliers. M&C-focused online young family platforms mainly consist of the following types: e-commerce (such as Beibei ( ) and Mia ( ), online community (such as Mama.cn ( ) and Baobaozhidao ( )), early education (such as BevaErge ( ) and Babybus ( )) and Internet health (such as Xiaodoumiao Vaccine Assistant ( ) and Cuiyutao Yuxueyuan ( )). Although these various types of online young family platforms focus on different areas of young families needs, their business models face similar difficulties, namely, user traffic acquisition cost and user stickiness. * Based on 2, valid samples collected from randomly selected target respondents with children under 6 years old or a family member of whom was in preparation for pregnancy in 18 various tiers of cities in China. 96

5 User traffic acquisition cost. Sufficient user traffic is essential to the development of online platforms. Players in e-commerce, early education and Internet health usually invest large amount of capital into subsidizing new users, which is not cost-effective in the long run. In particular, the M&C-focused e-commerce platforms usually target expecting and young parents and their children. As such, the length of user engagement period is usually limited and it is difficult to generate sufficient revenue to cover the user traffic acquisition cost on an individual basis. User stickiness. Users can lose interest and cease using an online platform if the functionalities no longer attract them. In addition, as competition within M&C sector intensifies, users could be attracted by competitors with new products and services which they find appealing or who offer financial incentives. As a result, it is difficult to maintain a relatively high level of user stickiness. Community-based online platforms with a large number of active users provide great opportunities for mothers to discuss M&C products and exchange parenting experiences. In addition, as the recording tools have stored large numbers of old images or videos of children and their families, the life cycle of these tools can be extended throughout the childhood or even adulthood of the children. As such, commurity-based online plaforms would have great opportunities to monetize active and sticky user traffic. It follows that community-based online plaforms usually have a comparative advantage against other online young family platforms which focus only on e-commerce or early education. In terms of the average total MAUs across all platforms (including the PC, WAP and mobile app), BabyTree held a leading position with an average 139. million total MAUs in 217, the highest among all M&C-focused online young family platforms in China, as shown in the following ranking table: BabyTree Moreover, according to a consumer survey* conducted by Frost & Sullivan, 34.2% and 33.9% of the consumers consider BabyTree to have the most comprehensive and most authoritative content, respectively, which are the highest among all M&C-focused online platforms in China. BabyTree is also considered the most trusted M&C-focused online platform by 21.3% of the consumers, which is also the highest among all M&C-focused online platforms in China.* M&C-focused Online Communities in China M&C-focused online community is an online platform with social function that provides M&C-related information, including but not limited to conception, pregnancy, birth and early childhood development for parents, expecting parents as well as their families. * Based on 2, valid samples collected from randomly selected target respondents with children under 6 years old or a family member of whom was in preparation for pregnancy in 18 various tiers of cities in China. 97

6 Competitive landscape among M&C-focused online communities in China While operators of M&C-focused online community might share the same functions, BabyTree has adopted the most comprehensive monetization methods compared to other competitors. The following table shows a side-by-side comparison against the key competitors: Social networking Knowledge sharing, Q&A Functions Monetization Methods Features Recording and tracking Shopping BabyTree Online advertising E-commerce Content monetization Comprehensive content library Strong social features Diverse service offerings Versatile monetization methods Strong e-commerce platform Close collaborations with powerful strategic partners Competitor A Online advertising Solid traffic support from a major search engine Strong brand recognition Competitor B Online advertising Focused on web-based platform with limited mobile application user base Competitor C Online advertising E-commerce Extensive city-based social networks Diverse service offering Competitor D Online advertising Focused on web-based platform with limited mobile application user base * Based on 2, valid samples collected from randomly selected target respondents with children under 6 years old or a family member of which was in preparation for pregnancy in 18 various tiers of cities. Key Success Factors of M&C Online Communities in China Brand image. Most users join M&C online communities to obtain relevant knowledge, and they tend to place trust on online communities with a better brand image. Even for companies with large user flow in other fields, starting business in M&C online community is likely to fail due to the lack of an authoritative brand image that could only be attained through long-term brand building. Social function. By embedding social functions into M&C online communities, industry leaders can differentiate themselves from the knowledge-oriented websites. In addition, as competition among M&C online communities intensifies, well-established social functions can not only attract more users, but also increase the existing users stickiness as well as the conversion rate. Content quality. As the majority of M&C online communities provide users with free access, the quality of content is essential to retain users. High quality content should be both customized and reliable to ensure that users are able to receive tailored and trustworthy information. Diversification. M&C online communities that provide diversified services are likely to outperform those providing a narrow scope of services. Efforts should be made to explore knowledge and topics in related industries or fields, to meet the diversified needs of community users and to further exploit the value of community users. 98

7 User experience. User experience is a critical factor influencing users evaluation of the community and the length of stay. The M&C online communities should optimize product development so that what users experience on the mobile apps or websites remain relevant and interesting for them. Strong support of big data analysis and algorithm. Online communities with strength in big data and algorithm technology are more capable of organizing content efficiently and providing users with relevant information and services. M&C online communities should actively utilize their accumulated huge user flow and the big data and apply the same to online advertising, behavior analysis and others, and continue to improve profitability and competitiveness. Key Entry Barriers to the M&C Online Community Market in China User quantity and quality. M&C online community incumbents have passed the initial stages and attained large amounts of users. Their user stickiness and activity are relatively stable which resulted from sufficient operating time. In addition, well-established social functions can not only attract more users, but also increase the existing users stickiness. This would be a major barrier for new entrants. Accumulated content. The main activities in the online communities are content generation and sharing. The longer a platform has operated, the larger amount of content it will have accumulated. Such content may include UGC, PGC and PUGC, which are valuable assets for the platforms. In addition, once such content is systematically sorted, it could evolve into a constructive knowledge library and provide users with a more friendly and helpful tool. This would prove to be a great barrier for new entrants. Technology support. The construction, operation and maintenance of an M&C community require a great deal of M&C expertise and technical support. The sheer volume of user flow requires big data technology so that user habits and preferences can be analyzed properly. The layout and page design require constant adaptation through the use of appropriate algorithms. Monetization Opportunities of M&C-focused Online Communities in China Compared with the business model of other online platforms, M&C-focused online communities are able to attract more active users from young families and attain more comprehensive user data, which makes up a viable channel for monetization. With the solid foundation of user traffic and sufficient data base of user behavior and characteristics, the community-based business model enables the stakeholders to explore monetization opportunities catering for young families in different aspects, namely online advertising, M&C e-commerce and M&C paid knowledge. Online advertising market Growth of M&C-related online advertising market The market size of online advertising in China witnessed remarkable growth, increasing from RMB19.6 billion in 213 to RMB295.7 billion in 217, at a CAGR of 28.2%. Driven by the increasing number of Internet users and technological advancement, the online advertising market in China is expected to enjoy further expansion at a CAGR of 21.5% from 217 to 222. In particular, the market size of M&C-related online advertising increased from RMB16. billion in 213 to RMB45.4 billion in 217, representing a CAGR of 29.8%. With M&C brands actively investing in brand-building and attaching more importance to online marketing, the online advertising expenditure 99

8 targeted at the M&C segment is expected to increase at a CAGR of 22.1% from 217 to 222, according to Frost & Sullivan, as shown in the following chart: M & C online advertising expenditure Other online advertising expenditure Proportion of M & C online advertising RMB Billion 1, 14.6% 14.7% 14.8% % % CAGR 15.6% E Total online advertising expenditure 15.7% E 15.8% E M & C online advertising expenditure % 29.8% E 21.5% 22.1% 15.8% E 15.8% E % China Internet Network Information Center, Frost & Sullivan Key growth drivers Increasing number of Internet and mobile Internet users benefits the online advertising market. In the past years, the number of Internet users and mobile Internet users in China increased remarkably, constituting nearly half of total population respectively, forming a solid customer base and bringing great potential and opportunities to online advertising market. Changing lifestyle and consumption habits drive the increase of market demand. Nowadays, people spend more time on the Internet with social and entertainment media. The Internet has become one of the most important media channels that can directly reach consumers. Online advertising can attract the attention of audience and convert the data traffic gathered into economic benefits. M&C e-commerce market Growth of M&C e-commerce market Due to the growth of the Internet and mobile Internet markets and the increase in per capita disposable income of Chinese residents, China s e-commerce market has experienced rapid growth. According to Frost & Sullivan, its market size measured by trading value increased from RMB1.9 trillion in 213 to RMB7.2 trillion in 217, representing a CAGR of 39.5%. It is expected to further increase to RMB18.3 trillion in 222 at a CAGR of 2.5%. In particular, the market size of M&C e-commerce in terms of GMV increased from RMB5.2 billion in 213 to RMB325.1 billion in 217, representing a CAGR of 59.5%. Other key players in the M&C e-commerce industry include Beibei, Mia and B&G. With the deepening penetration of the Internet and the continuing growth in overall e-commerce in China, the M&C e-commerce market size measured by GMV is expected to further grow at a CAGR of 29.6% from 217 to 222, as shown in the following chart: Billion RMB 1,2 1, CAGR: +29.6% 1,4.2 1, CAGR: +59.5% E E E 221E 222E 1

9 Frost & Sullivan Key growth drivers Rising disposable income. Continuous rising disposable income and consumption power are expected to drive the sustainable growth of consumer demand for M&C products. Continuous consumption upgrade. As consumers are more concerned about product safety and quality, they are willing to trade up to premium goods that are perceived to be safer and of higher quality. There is ample space for M&C brands to provide premium products that are still affordable to satisfy consumers new demand. Deeper Internet penetration. China s Internet infrastructure and diversified mobile devices and apps are increasingly being improved and thus the Internet penetration gets deeper and consumers purchase online or through mobile applications more frequently. As an effective sales channel, mobile applications have also provided an innovative channel for marketing. Rapid expansion of sales channels on mobile devices is expected, which will drive the growth of online sales. M&C content monetization market Growth of M&C content monetization market With the rapid flow of information and the mixture of M&C products on the market, many families who pay attention to prenatal care are given more options in recent years. In response to it, many paid knowledge platforms have introduced M&C topics so that the families can make better informed decisions. Users value quality and are more willing to pay for a customized response, especially for content related to health. M&C paid knowledge market emerged during 216. More vertical platforms with large amount of users emerged in 217. This promising market also attracted the active participation of some self-media. The rise of the middle class and the consumption upgrade have brought in a large number of target users for these platforms. The market is fragmented and at an early stage of development. Driven by the favorable factors, the revenue of M&C paid knowledge market is expected to increase from RMB1.1 billion in 217 to RMB12.4 billion in 222 with a CAGR of 62.3% as shown in the following graph: Billion RMB CAGR: +62.3% E 219E 22E 221E 222E Frost & Sullivan Key growth drivers Targeting young parents. Young and first-time parents may face prenatal anxiety. The M&C content monetize services ensure parents obtain quality parenting knowledge in a time and cost effective manner. 11

10 Expansion in products offering. By increasing the quantity and variety of products offered, the M&C paid knowledge providers seek to attract new users and improve the repeat purchase rate of existing customers. Users willingness to pay. The increased intellectual property awareness and heightened regulation of intellectual property in China have induced Internet users to be more willing to pay for online content and services. Accessibility to third-party technology solution. Third-party technology solution providers can offer support to small content-producing start-ups in order to facilitate the commercialization of their businesses. DIRECTORS CONFIRMATION As of the Latest Practicable Date, after taking reasonable care, our Directors confirm that there was no adverse change in the market information since the respective dates of the various data contained herein which may qualify or contradict the information in this section. 12