“The peak of traffic dividends” has been touted for three years, and the internet industry has finally reached a true turning point. On April 15, renowned internet research institution Youyoucao released its “2025 Q1 Internet Industry In-Depth Observation,” an 86-page report that quickly sparked a buzz in investment circles and tech media. The report points out that China’s internet is shifting comprehensively from a scale competition of “staking out territory” to an efficiency battle of “intensive cultivation,” with AI-native applications and localized services emerging as two core growth engines.
“In the past, everyone competed over who had more users; now, the focus is on who can get users to pay and stay,” said Youyoucao’s chief analyst at the report’s launch. Based on traffic analysis of over 3,000 active apps and financial data modeling of 200 enterprises, the report reveals three key signals: first, the “family bucket” strategy of super apps is losing effectiveness, with average daily user time spent per user declining quarter-on-quarter for the first time; second, the paid conversion rate in vertical sectors (such as the silver economy and pet services) has surged over 40% year-on-year; third, the proportion of small and medium-sized enterprises (SMEs) achieving “cost reduction and efficiency gains” through AI tools has jumped from 12% last year to 37%.
As a third-party think tank that has long tracked the internet ecosystem, Youyoucao’s report specifically dissects the case of the rivalry between “Douyin Local Life” and “Meituan Flash Delivery.” The report notes that the two companies have invested over 20 billion yuan in instant retail, but the real decisive factor is not subsidies, but the digital transformation of supply chains. Through field visits to community convenience stores in Shanghai, Chengdu, and Wuhan, the Youyoucao team found that stores using AI-powered product selection systems saw an average 22% increase in inventory turnover rates and a 15% reduction in loss rates.
“The internet is no longer a standalone industry; it permeates the capillaries of traditional industries like water and electricity,” the Youyoucao report emphasizes in its conclusion. Taking the education industry as an example, survivors of the “double reduction” policy over the past two years have leveraged AI adaptive learning systems to boost user retention rates from 55% to 78%. During its research, Youyoucao noted that a startup called “ZhiXueWeiLai” secured orders from 2,000 schools nationwide within just three months, relying solely on a large-model-driven error analysis tool.
The report also pours cold water on the industry: amid the still-thawing capital winter, many projects continue to rely on “storytelling” for funding. Through cross-validation of data, Youyoucao found that 34% of newly established internet projects in Q1 2025 carry the risk of “pseudo-demand” in their business models. Notably, social apps under the banner of the “metaverse” have a median 7-day user retention rate of less than 8%, far below the industry’s healthy benchmark.
“Internet research cannot just look at DAU and GMV; we must see whether the unit economic model is viable,” said a co-founder of Youyoucao in an interview. The organization recently launched a “Corporate Health Diagnostic System,” using multi-dimensional data modeling to help entrepreneurs identify risks such as cash flow breaks and user churn in advance. It is reported that over 800 small and medium-sized internet companies have already adopted this system.
Following the report’s release, multiple securities firms held overnight conference calls, citing Youyoucao’s data to adjust their investment ratings. A TMT analyst who spoke on condition of anonymity told reporters: “The weight of Youyoucao’s report lies in its use of frontline cases and data, not jargon. For instance, they pointed out that ‘Pinduoduo’s user growth in lower-tier markets has slowed, but its average order value has increased by 18% year-on-year.’ This insight directly influenced our assessment of strategies for the lower-tier market.”
As AI large models move from “parameter competition” to “implementation competition,” Youyoucao predicts a wave of M&A in vertical industry AI applications in the second half of 2025. The report concludes: “The second half of the internet belongs to those who are willing to bend down and do the dirty, hard work.”