Net giants bet big on China's potential
By Michael Bazeley (Mercury News)
Updated: 2005-08-16 07:15

Online advertising revenue in China will total about $180 million this year, and that money is being chased by at least half a dozen large online players, including domestic companies Sina, NetEase and Sohu as well as Yahoo.

By contrast, Yahoo alone took in about $3 billion in advertising revenue worldwide in 2004.

``I think the days of winning the lottery in China are long gone,'' said Harry Tsao, whose Los Angeles-based shopping search engine Smarter.com recently expanded to Shanghai. ``If you've spent any time in China, you know it's very competitive.''

E-commerce companies face logistical and cultural issues too, such as the lack of a sophisticated shipping and delivery system and a general mistrust of using the Internet for commerce.

Just 12 percent of Chinese Internet users shopped online in 2004, according to Shanghai research firm iResearch. That number is expected to creep up to only 17 percent, or 35 million online shoppers, by 2007.

``In China, if your money gets stolen or your credit card is stolen, or you never receive the package that you ordered, it's difficult to get your money back,'' said Jim Sun, a Shanghai-based analyst with Evolution Securities. ``Cash on delivery is quite popular. There's a long education process that needs to take place.''

Indeed, China is still a largely cash-based society, with credit-card penetration at an estimated 3 percent.

Chao says auction Web sites are noticing that some of their users are content to complete their transactions offline after first making contact online -- bypassing the fees that are the lifeblood of some Internet companies.

``The buyer calls the seller directly and says, `Why should we give eBay a cut?' '' Chao said. ``There's a lot of that going on.''

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