Why its Difficult to Make Money from Chinese Users – Online Video Example

2 min read

Everyone in the TMT industry likes to compare Chinese companies to its American counterparts and leaders, like China’s Google is Baidu, China’s Facebook is RenRen, China’s Twitter is Sina Weibo etc. In the online video market, China’s Youtube is often regarded as Youku.

But I investigated a bit further to see how Chinese video sites really compare with an American online video giant – Hulu. Hulu is a very popular online subscription service offering ad-supported on demand streaming video of TV shows, movies, webisodes and other new media, trailers, clips, and behind-the-scenes footage from NBCFoxABC, and many other networks and studios.

I compared revenue and number of unique monthly active users across 3 Chinese video sites – Youku, Qiyi and Xunlei versus America’s Hulu. The clearest observation is that all the Chinese sites have clearly more users but vastly lower revenues compared to Hulu with only 30 million unique monthly active users but a much higher revenue base of US$240m.

The stark contrast between the Chinese companies and America’s revenue vs. user base ratios clearly indicates that American users are much more willing to pay for service compared to Chinese. Hulu makes US$8 per user but its Chinese equivalents can’t even make US0.5 per user.

This reinforces what everyone already knows about Chinese netizens – they whenever possible never pay for software or online service, they’d rather copy it or rip it off from somewhere else. There are exceptions to this, such as online dating sites where social pressure pushes them to get married and pay for it.

This cultural behavior can easily be replicated across any software based industry. This is why mobile app developers find it much harder to monetize from paid downloads, but instead rely on advertising revenue, which is much lower, less direct and harder to generate.

This is one of the biggest challenges for software and online service companies in China – how to monetize consumers. Microsoft is a prime example of how it has tried to deal with piracy in the mainland. For now, most companies see no other option but to generate most of its income from advertising. Perhaps this is not such a bad strategy, after all that’s how Google makes most of its money.

Some believe that this trend is changing and with the rising affluence of China and its speedy economic development, Chinese people will pay for software and online service when they see value in it.

On that note, I will leave a question for you to ponder upon:

Will Chinese consumers ever be prepared to pay for software or online service? When and Why?