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Allison Luong, Managing Director of Pearl Research said, "The year 2007 exceeded expectations with the market growing more than 60%, driven by compelling and diverse content, free-to-play games, and rising demand for leisure and technology products. Chinese-themed and advanced casual games are expected to drive revenues in 2008 and beyond."

China’s most popular online game, Netease’s "Fantasy Westward Journey" has 1.66 million users followed by Giant’s "Zhengtu Online" with 1.52 million users. Game operator Giant Interactive generated the majority of its $209 million revenues from one title, "Zhengtu Online."

Game operators in China had solid revenue growth in 2007. The biggest gainers were game operators Shanda (up 49 % to $388 million), Giant (up 274% to $209 million), The9 (up 30% to $175 million) and Perfect World (up 593% to $95 million). Along with the revenue growth was a number of initial public offerings (IPOs) by game operators Giant, Perfect World, NetDragon and KingSoft.

"A key trend to track in 2008 is rising average-revenue-per-user (ARPU). Certain online games are reaching $7 to $12 a month in average-revenue-per-user, significantly higher than past averages of $5 or less per month," said Luong.

"I believe there is still room for average-revenue-per-user to grow, as game operators enhance monetization efforts from free-to-play games."
 

"I believe that Google will continue to face challenges in competing with Baidu in the Chinese search engine market. Baidu’s lead is mostly a result of its Chinese brand, early market entry, strong entertainment functions and other youth-friendly features." "

"However, many of our panel believed that Google offers a robust product with more relevant and precise search results," said Allison Luong, Managing Director of Pearl Research.

Chinese youth select Baidu over Google because they believe Baidu is a domestic product and that it is better at indexing Chinese content. Compared to Google, Baidu is more convenient to locate multimedia content such as MP3 downloads.

The solid entertainment search function is one of the key factors for Baidu’s popularity over Google as more than 60 percent of the survey respondents listed music downloads as their main reason to go online.

Baidu’s earlier entry into the Chinese search engine market and higher visibility through partnerships and software add-ons has made it a challenge for Google to gain users even with efforts of brand localizing strategies.

It’s not all bad news for Google. Pearl Research believes Google’s robust search capability improves its ability to retain users better than Baidu. Google users showed strong loyalty to the search engine, noting the depth and precision of the results returned. Some users in the survey switched to Google after poor results from Baidu.

The study is based on 40 one-on-one interviews with Chinese consumers and a 450-person survey.