China's digital and online communities are the world's leading users of mobile communication, instant messaging (IM) and web 2.0 applications, according to a new report by the Boston Consulting Group (BCG).

The report, entitled "China's Digital Generations: The 570-Million-Hour Opportunity", analyzed the rapid surge in the use of digital services in China, predicted the speed and direction of future growth, and showed what companies would have to do in order to successfully connect to China's online consumers. In the course of this, BCG, the global management consulting firm and the world's leading advisor on business strategy, also dispelled a number of myths that surround the Chinese Internet.

"Many people in the West think that China is still early in its digital development. In fact, in many activities such as IM and blogging, China is more advanced than the United States and other Western economies," said Christoph Nettesheim, one of the report's co-authors and a senior partner and managing director in BCG's Beijing office.

Today, China's Internet users do not only outnumber Internet users in the United States, with 2.7 hours daily-or, collectively, just under 570 million hours per day-they also spend more time online.

They are quicker in adopting the most advanced kind of services such as watching videos and movies, playing games and sharing music. Where most American netizens still rely on emails to communicate with each other, their Chinese counterparts use IM and web 2.0 applications.

The magnitude and speed of these developments, according to the report, have outpaced the common understanding about digital life in China.

In 2007 alone, more than 80 million Chinese acquired their first mobile phone, and nearly 40 million became new Internet users. With this influx of new digital consumers, China now has more than half a billion mobile phone subscribers and 210 million Internet users.

Also contrary to common belief, this trend is not restricted to young people in large cities. It already extends far into other segments and into lower city tiers. Even in many smaller cities, more than half of the population already has access to a computer, a mobile phone, or both.

On the other hand, lower overall penetration, especially in rural areas, will ensure continued growth for years to come.

BCG estimated that the proportion of Chinese consumers with digital access could increase to 87 percent by 2015.

The report is a product of an extensive research project where the group interviewed 3,700 people from 12 cities and conducted eight focus groups.

The research also shed light on why Chinese netizens were behaving differently from their Western counterparts.

The quick adoption of fairly advanced services, for example, is in part driven by the relatively slower development and less variety of more tradition media, said BCG.

Massively multiplayer online role-playing games do not have to replace game consoles, but bring the whole genre to China. Conversely, Chinese consumers are slower in embracing online shopping and electronic banking, because trust issues and concerns about security are more entrenched.

In the course of this research, three generations of digital users in China emerged. The first is "little emperors"-people aged 14 through 25 are often Internet addicts, yet they are critical about the quality of much Internet content.

The second is reform beneficiaries, who are between 26 and 35. They have easily adapted to the opportunities of the Internet and highly value the diversity it provides.

The last is frugal middle-agers. They are between 36 and 50 and are less comfortable with digital services. They often stick to using simple voice-only services, text messages and news search services.

Last year, digital goods and services generated an estimated 580 billion yuan in revenues in China. By 2015, revenues are expected to exceed 1.8 trillion yuan. Although the share of content and advertisement revenue is still slow, BCG expected it to grow significantly in the future.

While foreign Internet giants, such as Google and Yahoo!, have long struggled to gain market share in China, local players have adopted creative solutions to produce profits and stimulate share price growth.

China's digital market has produced several leading local players, such as Tencent and Sina, that have been able to beat their global competitors by investing aggressively, customizing their services to suit Chinese tastes, and figuring out which promising business models to pursue.

But according to the authors of the report, the implications go far beyond Internet companies. Eventually, every consumer company in China will have to find new ways to reconnect to consumers, which spend their time and form their opinions online.

BCG identified eight activities and principles that companies had to implement to deal with the challenges so that they could fully exploit the opportunities presented by the new digital generation.

They included being visible in the places where your customers spend time, actively using the new influencers that surround your customers, using the Internet to advertise your brand and build trust, building the online sales channel as part of a multi-channel model, reaching out to consumers in lower-tier cities, leveraging the collective power of the network of digital consumers, customizing products and services for China's online consumers, communities, and channels, as well as building organizational capabilities to address the digital space.

Clearly, success is not guaranteed. "Each company needs to define its own objectives and road map, depending on its industry and starting point," said David Michael, chairman of BCG Greater China, "Companies should spend time segmenting their customers defining priorities, and establishing a systematic approach," he added.

(China Daily July 18, 2008)