The COVID-19 pandemic has had a clear impact on China's economy, yet under the new environment brought by the pandemic, there are unprecedented opportunities for the development of the digital economy. Indeed, the digital economy has become a new driving force for improving economic efficiency, mitigating the impact of the pandemic, and promoting industrial development. According to the China Academy of Information and Communications Technology (CAICT), the added value of China's digital economy reached RMB 35.8 trillion in 2019, and the proportion of the digital economy in GDP has risen to 36.2%. Meanwhile, ASKCI Consulting predicts that the added value of China's digital economy will break through RMB 40 trillion in 2020. Among them, the internet economy, which relies on China's huge population size, has developed rapidly and started to play a pivotal role in economic development.
However, judging from the development trend of large internet companies in 2020 and the strengthening of policy regulation, the development of the internet economy this year is bound to face the challenges of market competition and strengthened regulation. This change actually reflects that the trend of market space expansion has bottlenecked, and the development of internet companies and their platforms is facing the transformation from quantitative development to quality development.
Over the years, the rise of the internet industry was driven by the rapid growth in the number of internet users. However, this situation is changing. According to the latest report released by China Internet Network Information Center (CNNIC), the number of China's internet users reached 989 million as of December 2020, an increase of 85.4 million compared with March 2020, and the internet penetration rate reached 70.4%, among which the number of mobile internet users reached 986 million, and the proportion of mobile internet users reached 99.7%. It is safe to say that the development of the digital economy is due to the profound social foundation. At the same time, these figures also indicate that the trend of rapidly expanding the digital market space by acquiring and accumulating traffic and taking advantage of the demographic dividend is coming to an end as the mobile internet gradually becomes more widespread.
As the "demographic dividend" of the internet is receding, the competition between internet companies is becoming more and more intense. The recent competition between Bytedance and Tencent, the "3Q War", and the "Community Group Buying War" all illustrate that the cost of traffic is increasing dramatically, and internet companies have to strengthen their competitiveness in the market. Some analysts point out that the main business models of China's digital economy have undergone a long period of evolution, and they have all undergone a shift from information dissemination to e-commerce and from web services to intelligent decision-making. During this period, new business models and new enterprises continue to emerge, the focus of business models has tilted toward the user side, and technology has become the core driver of the industry. However, competing for traffic and accumulating users are still the key factors for the success of the business model.
The declining of space for the market expansion also indicates that the market share is rapidly concentrating on certain internet companies. According to the data reflected in the capital market, the total market value of listed internet companies at home and abroad reached RMB 16.8 trillion as of December 2020, an increase of 51.2% compared with the end of 2019.The total number of internet unicorn companies in China was 207, an increase of 20 companies compared with the end of 2019. In terms of market capitalization, the market capitalization of the top 10 internet companies accounted for 86.9% of the total, up 2.3 percentage points from the end of 2019. With the expansion of overall financing, the increase of the aforementioned figure indicates that the top Internet companies would get more resources and advantages. This also further promotes the market monopoly in the internet field. According to authoritative media comments, the online economy, with its advantages in data, technology, and capital, is also showing a trend of market concentration, and market resources are concentrating on the top platforms. In addition, the increasing number of reports on the problems of platform monopoly also shows that there are some risks and hidden dangers in the development of online economy.
With the waning of the internet's "demographic dividend", this has pushed large Internet companies to expand their market space in other industries. In particular, some large internet companies with traffic advantages on their platforms have begun to expand their businesses in the real estate and financial industries. These moves currently exhibit significant negative externalities. The current development models of the internet companies in China such as Eggshell Apartments, AntGroup, and so on, are causing damage to industry development and economic stability. The Central Economic Work Conference held in December 2020 also proposed to strengthen anti-monopoly and prevent the disorderly expansion of capital, stressing that "it is necessary to strengthen regulation, enhance regulatory capacity, and resolutely oppose monopoly and unfair competition." This, in fact, is the policy keynote that opposes the disorderly expansion of internet companies.
From the perspective of market competition, resource competition, market monopoly, and the expansion into other industries are the instinctive development trend of the internet economy under the condition of a limited environment. However, regulators and the public have begun to realize the serious negative consequences of such market adjustment. Therefore, the current development model of internet enterprises and the digital economy needs a transformation, so as to realize the virtuous cycle between the "virtual economy" of the internet and the real economy.
As a matter of fact, the rapid development of the internet economy and the huge amount of "traffic" are based on the effective application of internet technology in the service sector.Therefore, the future development of the Internet economy is still inseparable from technological breakthroughs and innovations in the service sector. In the case of China, for the existing internet giants and new "unicorn companies in the country, they should focus on creating new traffic, developing new space, and promote the development of industrial digitalization through the improvement and innovation of technology application.
Final analysis conclusion:
The popularity of the internet has led to a new trend shift in the rapidly growing internet economy that relied on the internet demographic dividend. This trend indicates the limits of simple scale expansion. Internet companies now need to seek for technological innovation to open up new markets of industry digitalization, so as to create "demand traffic" and gain new opportunities.
