Tube in China

Marketing Audit and Competitive Market Analysis

China represents one of the fastest growing economies in the world that has an enormous population. Although the total number of internet users per capita is far less than can be found in the advanced nations, a smaller percentage of internet penetration coupled with the gigantic population represents an enormous market for online service provider. Unfortunately, China’s online world does not operate as it does in most nations. In fact, China keeps many websites permanently blocked and has different methods of maintaining a firewall that only allows Chinese internet viewers to navigate to a collection of pre-approved sites (the firewall is sometimes referred to as the “Great Firewall of China”).

There are many subjective standards that are in place which can be difficult to overcome to be able to enter the Chinese digital world. Some of these standards include that any news should be “healthy” and in the Chinese’s domestic populations “best interest.” Although YouTube has been allowed for brief periods, and many Chinese individuals know how to access the site through various proxies, at the moment the website is not available to the Chinese government. The analysis will assume a hypothetical case that assumes that the Chinese government will lift restrictions on YouTube and allow it to enter the market. Even if the government does so, YouTube will have to face significant competition from market competitors such as Youku and iQIYI. Based on the assumptions made, the analysis will provide a brief overview of the market conditions that YouTube may find in China.

YouTube and Innovation

The Chinese market has developed rapidly in just a few generations. The rapid rise in wealth in the Chinese middle class has had consequences for consumer preferences. Many people in China developed their disposable income quickly and looked for new products and developed shopping habits that were unprecedented in the country’s history. Many of the Chinese generations and different demographics within China have a preference for “Western” goods; including the individuals in their twenties as well as the “new generation” which both have been exposed to international products through the internet and online networks such as social media websites (Qui, 2011).

It is likely that a Chinese version of YouTube would be perceived not only as innovative, but would also be associated with the West and Western products. There are different ways that restrictions on a Chinese YouTube services might affect the company. For example, YouTube might have the same restrictions as competitors such as Youku and iQIYI. If this were the case, then the way that YouTube would have to innovate would be in the delivery method, in contrast to being to offer innovative new content. YouTube could focus on the characteristics of the site vs. the competitors such as the site’s design and search features. YouTube could also provide innovative collections of content (channels) that are organized based on demographic and consumer preferences.

Market Description

The online market for social media and social networking in China is substantially different than other markets. There are only so many approved channels for companies in this market and many of these mediums are owned by domestic companies. McKinsey & Company (2012) provide an excellent overview of the Chinese online market which is as follows:

“No Facebook. No Twitter. No YouTube. Listing the companies that don’t have access to China’s exploding social-media space underscores just how different it is from those of many Western markets. Understanding that space is vitally important for anyone trying to engage Chinese consumers: social media is a larger phenomenon in the world’s second-biggest economy than it is in other countries, including the United States. And it’s not indecipherable. Chinese consumers follow the same decision-making journey as their peers in other countries, and the basic rules for engaging with them effectively are reassuringly familiar (Chiu & Silverman, 2012).”

McKinsey (2012) points out that despite all the inherent differences that can be found in this market, there are also many similarities in the ways that consumers make decisions about social media options.

If YouTube was allowed to enter the Chinese market, it would immediately have to go head to head with the two established competitors that comprise the bulk of the market share in online media and social networking. Youku Tudou Inc. (NYSE: YOKU) is China’s leading Internet television company that provides an online television platform enables users to search, view and share high-quality video content quickly and easily across multiple devices; Youku, which stands for “what’s best and what’s cool” in Chinese, is the most recognized online video brand in China and American depositary shares are traded on the NYSE under the symbol “YOKU” (YouKu, N.d.). The Youku model is and interface is similar to YouTube in other countries.

Another company that is popular in China and that YouTube would have to compete with is iQiyi. iQiyi.com Inc. operates an online television and movie portal in China and the company’s online video platform focuses on fully licensed, high-definition, and professionally produced video content covering movies, television dramas, variety shows, documentaries, animation, travel, and other entertainment programs (Bloomberg Business, N.d.). In contrast to providing user shared social media videos such as YouTube and Youku, the iQiyi channel operates more like Hulu in the United States. This channel allows users to watch premium content that was professionally produced. To generate revenues, the company allows advertisers to play their commercials online during the shows that help spread their marketing messages. This company is based in Beijing.

Despite the prevalence of the established competition in the Chinese market, there is still a lot of room for opportunity. In addition to having the world’s biggest Internet user base — 513 million people, more than double the 245 million users in the United States — China also has the world’s most active environment for social media — more than 300 million people use it, from blogs to social-networking sites to microblogs and other online communities (Chiu & Silverman, 2012). YouTube, being a Western brand, will have an instant appeal to many consumer demographics in China. However, in the presence of the competitors that are established and also offer similar content, YouTube will have to find a means to differentiate itself to engage with the online market that does share the same preferences for the Western appeal. YouTube will need to base their strategy on being an innovator in content delivery in this market that will need a different strategy than used in other countries.

References

Bloomberg Business. (N.d.). Company Overview of iQiyi.com Inc. Retrieved from Bloomberg Business: http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=98904258

Chiu, C., & Silverman, A. (2012, April). Understanding social media in China. Retrieved from McKinsey & Company: http://www.mckinsey.com/insights/marketing_sales/understanding_social_media_in_china

Qui, Y. (2011, July 1). Understanding Chinese Consumers. Retrieved from China Business Review: http://www.chinabusinessreview.com/understanding-chinese-consumers/

YouKu. (N.d.). Corporate Profile. Retrieved from YouKu: http://ir.youku.com/phoenix.zhtml?c=241246&p=irol-homeProfile