Internet companies in China have led the way in spurring innovation with the creation of uniquely Chinese business models, including ways to monetize online businesses such as social media and games.
Tencent, China’s leading Internet service, has developed a wide range of revenue streams to monetize traffic to its sites. It developed these different streams in part because advertising is a much smaller industry in China than in places such as the United States, so depending heavily on ads, as US companies such as Facebook and Google do, was not a viable option.
Tencent generates 90 percent of its revenue from non-advertising sources such as sales of virtual items to gamers on social platforms, e‑commerce, and online payments. Facebook, by contrast, derives 93 percent of revenue from advertising; its revenue per user was $9 in 2014, compared with $16 per user for Tencent.
Similarly, YY.com, a video-based Chinese social communication platform, also has several revenue streams, including a virtual currency. In 2014, YY generated 57 percent of its revenue through sales of virtual goods that viewers on entertainment and music sites purchase to give to performers they like.
Top performers on YY can earn more than 20,000 RMB ($3,300) a month, seven times what the average factory worker earns.
In many areas, Chinese online services have become leaders in business model innovation. WeChat, a social media platform, has added e‑commerce, allowing users to shop for everything from stickers and games to groceries. WeChat members can also book taxis and flights. WeChat added mobile payments in 2013. Facebook announced plans for an online payments system in March 2015.
WeChat allowed subscribers to set up online stores in 2014; in July 2015, Facebook announced a test of a new feature to allow retailers to sell from their Facebook pages.
This chart from our recent report on innovation in China illustrates how far ahead Chinese internet players are relative to their US counterparts:
Erik Roth is an entrepreneur, lecturer, serial innovator and leads McKinsey & Company’s Global Innovation & Growth Practice. He recently co-authored a report on innovation in China with the McKinsey Global Institute, which you can download for free here.