Investors are trying to find the ideal business model, with recent headlines recording takeovers involving Web 2.0 companies, such as Google’s purchase of Blogger, and eBay acquiring of Skype, where a program lets people make telephone calls over the Internet.

So-called Web 1.0 companies are using their lion’s share of capital to take control of potential future threats, while Web 2.0 companies are in a hurry to cash in on it all and meet the growth in demand, joining up with big players or being infused with venture capital.

Going local

The Internet industry in China is said to be a goldmine of opportunities for entrepreneurs and investors, since China’s GDP is one eighth that of the United States but its Internet business stands at only 2 percent of the U.S. market. There is significant room for growth. So what will this mean for Web 2.0?

Richard Weidong Ji, Vice President of Goliath Investment Bank Morgan Stanley’s China Internet sector, said the IT business faces a localization problem, as with other businesses. Understanding the culture of the Chinese market is of key importance in order to be able to offer the right content and services.

China has a significant number of people using handsets, meaning mobile phone or PDAs, and has the largest number of mobile phone users in the world. Wireless value-added service brought in some $700-800 million to China’s Internet business annually on average, twice that of online broadband entertainment and three times the amount brought in by online advertisements.

Mobile phone subscribers are expected to be the major source of Internet newcomers, Li Yanhong, Chairman and CEO of Baidu.com, China’s most popular search engine, said this April during a session of the Boao Forum for Asia.

According to Li, the number of Internet users is only slightly more than a third of all mobile phone users in China. He predicted that with the application of the third-generation mobile communication technology, known as 3G, cellphone users would have the biggest potential for crossover to being users of the Internet, and by extension, Web 2.0.

According to statistics from the Ministry of Information Industry, there are nearly 100 million netizens in China and more than 400 million cellphone users in the first quarter of 2006.

Despite this, Li said he isn’t satisfied with the development of the Internet in China. Internet access is only available to 8 percent of the Chinese population.

Challenges ahead

“Web 2.0 won’t have a great impact in the next few years,” said Wang Jiaping, a software engineer at Microsoft China’s R&D center.