Pacific Internet Ltd.
Dow Jones Newswires -- April 25, 1999
AWSJ: Asian Firms Eye Profits As Consumers Go Online
By Connie Ling
Wall Street Journal Interactive Edition
HONG KONG -- A few years ago, Chin Man would have told you there wasn't much money to be made by Internet service providers catering to consumers in Asia: Margins were too low and there were too many players fighting over a small pie.
Today he feels differently.
"There is a lot of money to be made there now," says Mr. Man, president of ISP Linkage Online Ltd. (www.hk.linkage.net), one of the largest business-oriented Internet service providers in Hong Kong. The consumer market seems to have matured over the years, he says, and "there is still a lot of room for growth."
Mr. Man's company isn't the only one taking a fresh look at Asia's consumer market.
Many large ISPs who until now have concentrated on corporate clients - where profit margins tended to be higher - are considering branching out to take advantage of Asia's growing population of home Internet users.
In 1996, there were close to 12 million consumers online in the Asian-Pacific region in 1996, compared with 39 million in North America, according to market-research firm Jupiter Communications. Since then, the number of Internet users in the Asian-Pacific region has swelled to 24.5 million - a large enough population, many industry experts think, to make money from online ventures.
In addition to providing Internet access, more ISPs are expected to strike deals with content providers and portals to deliver additional services to consumers, predicts Lane Leskela, senior digital-commerce analyst at Gartner Group Asia Pacific.
ISPs that are targeting the consumer segment now are simply trying to build up the brand name first, he says. "Asia hasn't really reached the stage where people can make money online," cautions Mr. Leskela. Most of the region's large consumer ISPs and even its content providers, he says, are still operating at a loss or making only a thin profit, despite the surge in users.
But with "early branding," he notes, ISPs can build up a group of followers first, and "then draw money from there."
Indeed, in Australia, where the Internet market is considered more mature than in the rest of the region, a solid consumer base on the Internet has opened the door for ISPs to gain revenue from online advertising.
OzEmail Ltd. (www.ozemail.com.au), one of Australia's largest ISPs, saw about 15% of its revenue come from nonaccess businesses last year, including online ads and selling bandwidth wholesale to smaller ISPs. Revenue from online advertising was practically nonexistent a year earlier, says OzEmail spokesman Michael Ward; now, the company expects revenue from online advertising and e-commerce to continue to increase in the next few years.
Hong Kong Telecommunications Ltd., Hong Kong's largest telecom firm with interests in fixed-line, mobile and Internet operations, predicts that within five years, revenue from e-commerce and online advertising will surpass that drawn from its access business, which now accounts for more than 90% of its Internet division's income.
That's what companies such as America Online Inc. and Pacific Internet Ltd. are betting on, too.
AOL plans to launch its service in Hong Kong in the second half of this year - a move that will mark the establishment of AOL's first Asian-Pacific base outside of Japan and Australia.
While the traditional ISP market appears saturated in places like Hong Kong, newcomers such as AOL will be providing more than just Internet access, says Ian Henry, managing director of AOL Hong Kong (www.aol.com.hk). "Think of it as the TV," he says. "We are still in black-and-white."
Pacific Internet, a regional ISP based in Singapore, also recently launched an intensive marketing campaign aimed at Hong Kong consumers, after having targeted the more lucrative corporate market in the past year.
The business and consumer segments complement one another, says Nicholas Lee, Pacific Internet's chief executive officer. The company has built up infrastructure to serve its corporate customers in the past, he says; now, it makes sense to make full use of the bandwidth by going after the consumer market as well.
In addition, he says he expects markets such as Hong Kong and Singapore to grow within the next year or two to the point that value-added services such as e-commerce and other content applications become popular. That will eventually lead to more online-advertising revenue for the ISPs, he says.
"It's actually a trend we expected to happen," says Pete Hitchen, an Internet analyst with market-research firm International Data Corp. Asia Pacific.
Even in China, where Internet use is still in its infancy, the consumer market's growth potential is attracting investors ranging from local entrepreneurs to overseas giants such as Microsoft Corp.
"Up until very recently, the push to get online has come mainly from the government and business sectors," says Lawrence Cheung, managing director of Shanghai WebTV Corp. (www.webtv.sh.cn). "But that has changed," he says. His company will provide interactive TV and Internet access to Shanghai homes through set-top boxes. (Shanghai WebTV isn't affiliated with Microsoft-owned Web TV.)
Mr. Cheung is so optimistic about the growth in the consumer segment that he is giving away free Internet access, e-mail and other interactive programming. In exchange, users buy a set-top box to receive the signals and agree to receive advertising via their WebTVs. He is also incorporating e-commerce onto the WebTV service. "This is where the money is," he says
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