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Asia
Internet Report No. 6 June 2001
In this issue:
Conference: Mobile
Telecoms Japan, July 11-13 in San
Francisco
Fresh from his CNN appearance,
now's your chance to see Tim Clark
live and in person (in that order).
Tim, Ion Global Japan's Strategy
Director, and author of the Japan
Internet Report www.jir.net will chair
the "Mobile Telecoms Japan
Conference."
The conference will be held from July
11-13 in San Francisco; please see the
Web site for more information.
http://www.srinstitute.com/part_iter_site_page.cfm?iteration_id=129
What an interesting
month for China...but let's talk about
5G
Massive events have occurred in
the China Internet space in the last
few weeks. We have the formation of
the U.S. $200 million AOL-Legend joint
venture, which changes the landscape
of the Chinese Internet space. We have
the resignation of the senior
management of two of the top Chortals
(Chinese Portals), Sina and Netease.
We have Li Ka Shing, Hong Kong's most
admired tycoon, upping his investment
in the U.S. reverse-auction company
Priceline.com to 30% and vowing to
transplant the model aggressively into
Asia. As if that wasn't enough, WTO
continues to loom on the horizon for
both the U.S. and China as they seek
the same goal: entry for China - but
on their own terms.
My editor Dan suggested that we
discuss these developments, but we
can't. Since Ion Global is part of
Chinadotcom, the largest Internet
entity in Asia and a NASDAQ-listed
company, we felt it would be
inappropriate to actually comment on
these events right now lest we give
readers and investors the wrong
impression. Yes, there is a Chinese
Wall...which means that we're not
aware of what we may or may not be
involved with ourselves.
So to keep us in the good graces of
our compliance pitbulls, this issue of
the Asia Internet Report deals
with...errrr...mmm... interactive
entertainment.
It's all about 5G:
Games, Gambling, Gossip, Goodies, and
Girls
Forget 3G, 5G is what the Asian
user really wants right now. (Warning:
blatant generalization ahead.)
As much as we want to believe that the
Internet empowers the poor and
disenfranchised, the reality in Asia
is that it's closer to being an
entertainment/communication medium for
the educated middle class. The reason
for this is that many of the early Net
users in Asia come from schools and
businesses with Internet connections.
Although there are serious and
legitimate uses for the Internet, it
really is the fun factor that keeps
users coming back.
Interviews with users here in Hong
Kong reveal that although many use the
Web for e-mail, reading news, and
checking prices, very few actually use
the Internet to conduct transactions.
Aside from communication, 5G will be
what drives retail users to try and
navigate the Internet. 5G refers not
to the fifth generation of wireless
Internet, but to the five kings of
content for young Asians: Games,
Gambling, Gossip, Goodies, and Girls
(or Guys).
Games: Interactive entertainment
through PC and console gaming is
already an important driver of
Internet use, and promises to maintain
or increase its influence. Most games
today have been developed for
multiplayer online usage. Asian kids
have taken advantage of the emerging
LAN game center industry to embrace
Net games, from Half-Life
Counter-Strike to the more pedestrian
Age of Empires. Whereas Internet Cafes
have had limited success luring users
away from their home and work Internet
connections, the LAN game centers have
the potential to be Asia's next
karaoke sensation (see next article
for details).
Gambling: Still strictly controlled by
laws and regulation, the future for
online games of chance remains unclear
- but the potential is enormous. The
popularity of currently legal offline
options like horse racing and mah-jong
indicates a strong demand for more
forms of recreational gambling, which
the Internet may be able to provide.
If you check the demographics of real
casinos and gambling halls around the
world, Asians (really the Chinese)
figure prominently among the
customers. As in the U.S., the
critical issues to be solved are: 1)
how to regulate online gambling and 2)
who will benefit from the income
stream.
Gossip community sites: These provide
point to multi-point distribution of
news and rumors on topics ranging from
celebrities, investments, politics and
jobs to more mundane subjects like
recipes and gaming tips. Even if
Asians appear quiet and reserved in
the offline world, they can transform
into verbose, outspoken, and emotional
posters when given anonymity in an
online community in which they can
speak their native language.
Goodies: Everyone loves free stuff and
giveaways and Asians have brought that
attitude to the Web, with expectations
of special Web exclusives, promotions
and gifts. Free stuff like MP3s and
warez will be powerful lures,
encouraging many Asian consumers to
try the Internet.
Girls (or Guys): Yes, we know about
the popularity of porn but there are
also other, more benign outlets, like
ICQ and dating services. AIM (AOL
instant messaging) does not enjoy the
popularity that it has in the States;
ICQ remains the regional favorite with
Yahoo Messaging catching up quickly.
Some of Sina's early users were lured
by their matchmaking services.
Asia's Internet trends will be driven
by youth preferences for the next few
years. With the exception of Japan,
the bulk of the region's population is
under 25, and these users are more
attracted to the less-serious, more
fun aspects of the 5Gs. These will be
the killer apps that shape user
experiences and expectations of the
Internet. Many firms coming into Asia
hoping to capture B2B and business
users have come away disappointed at
the relative immaturity of those
markets. New entrants to this region
need to understand this emerging
Internet-savvy Asian youth market and
the dominant role they will play in
the next few years.
The Law of the LAN
Now that both Tim and I have
beaten Internet Cafes to death in the
last few issues of AIR and JIR http://www.jir.net/jir5_01.html#1
, its about time we move onto real
technology issues like broadband
rollout, content caching, or even
intelligent agent/bots and dispense
with the fluffy stuff. Well, maybe
next issue.
When I wrote about Internet Cafes in
Asia two issues back http://www.asiainternetreport.com/AIR_0103.html#netcafes,
I made the assumption that they came
about as transitional solutions to
PC/Internet/broadband access for
travelers, the poor, and the
impulsive. As average incomes and
PC-based Internet penetration rates
rise, the cafes will fade into history
like telephone booth boxes, Dacron and
8 track tapes: needed for now, but
their future looks grim.
Well, I may be wrong (it really hurts
to say that) but something wicked this
way comes in Asia, and it may grow
into a much larger mainstream trend
affecting both the Internet and Asian
consumers. I did mention that in
Manila I saw many examples of a new
type of establishment called LAN
(Local Area Network) cafes. These
places do not have broadband access,
but they do have fast computers
networked together that patrons use to
play multiplayer, bandwidth-intensive,
processor-taxing, and graphically-rich
games like Half-Life Counter-Strike
and Quake 3 Arena. Yes, some denizens
of these LAN cafes can use the very
same machines at home or at work. Why
would they go to a LAN cafe? The
answer is simple: people.
Going to a LAN cafe is very much like
going to a bar, a movie theater, a
concert, a restaurant or a sporting
event: the experiential nature of the
social gathering outweighs the added
price, the inconvenience and the extra
time spent versus doing the same thing
by yourself at home. This may be a bit
difficult for some Americans to
understand, since their homes are much
larger than most homes in Asia and
they are used to entertaining friends
and family at home.
The dynamics of karaoke and video
games are similar (in a sense, karaoke
is just another type of video game).
You participate in a function guided
by a machine and your score is based
on how well you react, and your
performance under pressure - points
are given both formally by the system,
and informally by your audience. Many
Asian families have a karaoke machine
at home for practice or for fun but
really the goal is to perform in front
of your friends and colleagues in a
semi-public arena where your mettle
can be tested. In Asia, karaoke is big
business. Groups of friends and
colleagues rent rooms and booths where
they can sing and carouse all night
long, typically spending heavily on
food, drink, and other services.
Partially due to the small size of
most people's homes, which makes it
impractical to entertain large groups
at home, participants are willing to
pay a premium for the service, the
ambiance, the wider selection of
songs, and the superior equipment
found in karaoke (actually videoke)
bars.
The LAN game centers in Hong Kong
provide the same focal point for
groups of friends to go out and spend
time together. Yes, each member of the
group may be on a separate terminal,
but nonetheless they sit only inches
apart, competing against each other,
or as a team against other groups. In
the U.S., if you can afford to buy
four or five powerful (and expensive)
top-of-the-line computers, install a
home LAN, and have space for five or
six of your friends to come over and
get rowdy, than you can do more or
less the same thing. In Asia,
relatively lower incomes, smaller
homes, and the need to make constant
capital investments in the latest
graphic cards and applications in
order to run the latest
bandwidth-hogging game on the market
make the LAN cafe an offering
difficult to duplicate at home.
Of course, many of us use LANs at
work. However, try bringing in your
friends after hours and see how sticky
that gets. Using work LANs for
heavy-duty gaming also has the
possible negative side effect of
crashing or sapping the servers from
real mission-critical work. Thus, the
LAN cafe becomes an attractive
alternative, and a fun place to meet
friends during the off hours. These
are not upright arcade machines or
even networked home consoles; we are
talking top-of-the-line Dell machines,
all fitted with the latest graphic
accelerator cards.
LAN cafes provide cheap - sometimes
free - food, and offer a library of
games for use. Magazines, movies and
other types of diversions are provided
as well, and sometimes regular
Internet access is also available.
Groups of friends or couples can share
a room or booth much like those found
in karaoke establishments and go
online or on-LAN together. It's just
another way to spend a night out with
your friends, not unlike going to a
movie.
Although the demographics lean towards
male teenagers, a few girls do use
these facilities, playing anything
from first person shooters to quirky
Japanese puzzle games. The users are
generally Generation Y to Z with some
old Gen X'ers at the top of the range.
At the time that I researched this
article: 3 a.m. on a Saturday night
(they're open 24/7), the center's 150
machines were at 98% utilization with
a line of customers waiting for
machines (most groups will wait until
they can sit together). The key was
that most users came in groups of four
or five, with the larger groups around
seven or eight people.
Aside from a few Japanese games, many
of the games being played were
American software products with little
or no localization into Chinese. Games
of choice included titles such as Age
of Empires, StarCraft, Rogue Spear,
Red Alert and Diablo. I think that
eventually domestic offerings will
arise, catering to the local demand
for game categories like LAN mahjong,
LAN horse racing, LAN dating
simulators and LAN Mech/Gundam
wargames (just like the old school FAS
Battletech simulators).
All across Asia, these LAN centers
have become a subculture all their own
- particularly in Korea where gangs
(or clans) have gone offline to settle
online differences. Although Asian
countries will eventually develop
broadband penetration rates comparable
to the U.S., LAN cafes may evolve into
something unique to Asia.
Internet and application providers
should take heed: there will be a
growing market for these
groupware-type entertainment products
that let friends and colleagues play
together. The Asia-centric dynamic of
the LAN cafe means that it may take a
while for the U.S. and Western
companies to see this trend develop.
They may even mistake it for a
fleeting fad. At this point, only the
early adopters really understand it
and how viral - and addictive - it
really is. They're not your father's
Internet cafe anymore.
Just wait a few more months and see
what we'll be able to do with wireless
LANs.
For another take on PC cafes, see what
one Australian tourist had to say
about his experience in Hong Kong:
http://members.optushome.com.au/param249/TripJournal.htm
Here's an excerpt from his site:
"I spent 2 and a half days
looking for a PC cafe (not an Internet
cafe). The first one that I came
across is one called Aztec. (No, don't
crack the awps out yet, read on.) This
place is real nice, nice setup;
computers are all P3-733 with 256mb
and voodoo3 PCI..."
Hong Kong: A
ParaJapan
The Para Para is a group dance
craze from Japan that has started to
radiate outwards through Asia, and the
world, through music and videogames.
For those of you in the U.S., be
afraid - be very afraid. It's not that
I want to steal the thunder from the
Japan Internet Report, but I strongly
doubt that Tim Clark would write about
this phenomena in Japan. In any case,
now that Hong Kong has had its first
Para Para dance-a-thon, it falls under
my watch.
Like many Japanese fads, Para Para
really started somewhere else and
mutated in Japan. Para Para looks like
the old American hand jive done as a
group dance and rebranded in a unique
Japanese way. Even the name is not
indigenous to Japan - it comes from a
song by the Norwegian pop band A-ha.
Para Para may be the most visible sign
of the strong influence that Japanese
culture has in Hong Kong.
For more detailed information on Para
Para, please see these sites:
http://www.mynippon.com/culture/parapara.htm
http://brokenstones.tripod.co.jp/fashion/dmv.html
http://ps2.ign.com/previews/16180.html
http://www.paraparaland.net/
Although other parts of Asia have
their own distinct languages and
cultures, many Asian, particularly
members of the younger generations,
look to Japan for fashion and cultural
trends. Hong Kong is one of the first
viral nodes for Japanese pop trends,
along with Taiwan and to some extant,
Korea, before those trends metastasize
to the rest of Asia and the world. The
game machines in most Hong Kong
arcades sport Japanese characters. The
hottest youth clothing is Japanese
brands. Many of the most popular
music, movies, magazines, shows and
toys are direct imports from Japan,
with little or no localization for
Hong Kong Chinese. But whose lead will
Hong Kong follow when it comes to
Internet trends: Japan, or the United
States? My best guess is that it will
be Japan.
If Hong Kong implements an i-mode-type
system for its wireless 2.5G network,
user trends and business models will
follow the same path that developed in
Japan. In fact, Tim has already
written about this. http://www.asiaweek.com/asiaweek/magazine/business
/0,8782,130505,00.html
Japan's new Internet business models,
like the use of 7-11 convenience
stores as Internet fulfillment
centers, are likely to pop up here in
Hong Kong a few months later. For
investors and business leaders looking
to transplant businesses and Internet
concepts into South East Asia, the
best place to look may be Japan, not
the U.S. Japan's cultural climate is
closer, and the soil more conducive
for transplanting.
The Para Para trend is only the latest
Hong Kong trend imported from Japan -
it will definitely not be the last.
Frank Yu
Principal Research Consultant
Ion Global Research
frank.yu@asiainternetreport.com
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Copyright 2002 by Ion Global, Ltd.
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