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If we look at the Internet giants like Google, Yahoo, and Amazon, despite their success in almost all other geographic regions, they ... efficiently search for free.
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CHINA INTERNET WHITE PAPER ● INTERNET USERS: THE GAP BETWEEN BAIFUMEI AND GRASSROOTS / Page 1 ● DESKTOP SOFTWARE: UNIQUE AND POWERFUL / Page 2 ● CHINA SNS: THE "OPEN" PLATFORMS / Page 4 ● ONLINE-ONLY BRANDS: UNIQUE E-COMMERCE OPPORTUNITIES IN CHINA / Page 5 ● MOBILE APPLICATIONS: CONTENT LOCALIZATION IS NOT ENOUGH FOR FOREIGN DEVELOPERS / Page 7 ● INTERNET REGULATION: A MAP TO NAVIGATE WEBSITE LICENSES / Page 8

WHAT IS UNIQUE? If we look at the Internet giants like Google, Yahoo, and Amazon, despite their success in almost all other geographic regions, they enjoyed only brief bright moments in China before they lost their hard earned market share to their domestic competitors. How is Internet in China different? There is no simple answer, but at least it is simpler than to answer how China is different. In this white paper, we try to offer glimpses into some unique aspects of Chinese Internet with the hope that an aggregate view can gradually be developed if one knows more specific differences in culture, regulations, demographics, competitions, and behavior for both the companies and the users.

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INTERNET USERS: THE GAP BETWEEN BAIFUMEI AND GRASSROOTS Gongtao Zhang

[email protected]

The terms “Baifumei” (literally, “good-looking and rich”) and “Grassroots” have become popular ways of describing divergent groups of Chinese Internet users. Grassroots is a popular term for China’s many novice Internet users. Baifumei refers to the urban elite, who are largely educated professionals.

other provinces. The average Internet penetration rate for cities and towns is 54.6%, but it is only 20.7% for rural areas. The lack of access to and education about information technology is a major obstacle for the development of the Internet in rural areas. In a 2011 poll, 57.8% of respondents, who described themselves as rural non-users of the Internet, reported that “computer/Internet illiteracy” was their primary reason for avoiding use of the Internet.

Below is a summary of the demographics of each group, as well their online behavior: Baifumei Demographics Age Education

Occupation Monthly income Population Distribution

25-40 University or higher qualification White-collar workers, young professionals in large companies and organizations Over US$1,200 Less than 50 million Beijing, Shanghai, Guangzhou, Shenzhen and other Tier-1 cities

- Educational gap. According to the China Internet Network Information Center (CNNIC), as of June 2012, only 11.5% of Chinese Internet users had a university or higher-level education.

Grassroots 15-25 Mainly primary school, high school or lower education qualification

Cybercafes and mobile phones

Grassroots users account for the vast majority of Chinese Internet users. According to the data, 74% of Chinese Internet users have a monthly income of less than US$500, 57% have a monthly income of less than US$300, and 74% are either students, blue-collar workers or jobless. While most western companies have failed to accommodate Grassroots users after entering China, a number of local Internet companies have been successful due to their thorough understanding of both Grassroots users and their needs. For both Internet companies and investors, in order to comprehend the business models of Chinese Internet companies targeting Grassroots users, it is essential to understand the unique behaviors and motivation of this group of users.

Frequently pay for virtual goods and services

The successes of 9158.com and hao123.com are two examples of Internet companies profitably targeting Grassroots users:

Rural residents, blue-collar workers, small business owners, the jobless, etc. Below US$500 Over 300 million Primarily Tier-2/3/4 cities

Internet usage Internet skill Internet access method

Paid or free

Tolerance to ads

Online entertainment method