Chinese Internet Cafe Solutions Market: Still Serving One Third of Chinese Netizens

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img: Century Network Service

China Internet Cafe Entertainment Platform Report (2011-2012), released by iResearch, gives a picture of the market of Internet cafe solutions market in China by investigating two thousand internet cafes twice in 2012 and interviewing industry people.

27.9% Chinese netizens still get online in Internet cafes, although way more Chinese families have PCs home than ten years ago when Internet cafes emerged to meet a demand that wasn’t widely available with households. There are about 150 thousand internet cafes in China, according to the report.

Third-party Solutions Market

To provide Internet cafe with software and services, third-party solutions formed a big market. Starting out from selling management software and supporting services, those third-party companies gradually developed value-added services and advertising service. The three are their major revenue sources to this day. Years later, there’s less room for software sales growth, but they see continuous increases in revenues from advertising and paid services.

Two categories of companies drive new growth. As Internet infrastructure has been much improved in the past years, Internet cafes themselves have been improving their services accordingly. Upstream companies, game producers or companies who need to acquire traffic, are willing to invest in internet cafe advertising. Shunwang Technology (SZ:300113), one of the biggest players in this market, makes considerable revenue from Baidu’s Internet cafe program – software providers get revenue cuts from search marketing revenues generated through Baidu search boxes placed on any software they provide Internet cafes.

New Demand  

Some Internet cafe visitors are for better hardware, for example, to play games. According to various sources, about 70% users visit Internet cafes are for online gaming. So game management software installed PCs of cafes tells about those third-party solution providers. When it comes to market share,Shunwang TechnologyCentury Network Technology and HintSoft take 40.7%, 31.5% and 16.8%, respectively, as of June 2012.

Century Network found game players also watch online videos, engage in social networking, e-shopping, or even get online through mobile phones in Internet cafes.

It is estimated that 60% of Internet cafe users have smart phones. Century Network plans to launch a new product to make WiFi and related services available in Internet cafes, as its CEO, Lai Chunlin, disclosed in an interview.

This company also plans to establish last-mile services for e-commerce in Internet cafes. We heard a mobile commerce businessman said that Internet cafe visitors wouldn’t sign up to Alipay or buy anything online there. The CEO of Century Network believes online shopping should happen more after services for safety and convenience are available. For instance, workers in small cities who don’t have fixed addresses for receiving goods, so Internet cafes can help them receive parcels so long as a management solution can make sure of security of payments.

Companies offering other categories solutions also stood out. In April 2012, Surfilter (SZ: 300311), a provider of security software for Internet cafe, listed on the Shenzhen Stock Exchange GEM, becoming the second public company in this market after i-Cafemavin listed in 2010.