Western Internet Companies in China <Chinese Internet Companies in the World

Georg Godula, Web2Asia, June 11th 2009

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Contents

1. China Internet Facts• Overview of leading Chinese Web companies

2. Western Internet Companies in China• Why many fail(ed)

• Major obstacles & success factors

3. What can Chinese Internet Companies learn from this?• Alibaba

• Baidu

• Tencent

• Perfect World

• Etc.

4. About us

China Internet Facts

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Quiz: What are these number?

China Internet Facts

In 2007 the Chinese Internet grew by approx. 80 Mil users.

This equals approx. 220,000 new users per day or approx. 9,000 new users per hour.

In 2008 the Chinese Internet grew by approx. users.

This equals approx. new users per day or approx. new users per hour.

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350 Million Internet Users

China Internet Facts

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Internet Users by Age

49,6

76,7

47,3

27,822,0 19,7

9,9

0

10

20

30

40

50

60

70

80

90

Under 18 18-24 25-30 31-35 36-40 41-50 Above 50

Million people

China Internet Facts

User Characteristics

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660 Million Mobile Phone Users

China Internet Facts

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China Internet Facts

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Type Leading player in China Global player

Search Engine

C2C eCommerce

Instant messenger

Video hosting

Picture hosting

Student SNS

Working Class SNS

Business SNS

Portal

Micro blogging

etc.

Google

eBay

MSN Messenger

YouTube

Flickr

Facebook

Myspace

LinkedIn

Yahoo!

Twitter

Baidu

Taobao

QQ

Tudou, Youku

Yupoo, Bababian

Xiaonei

51.Com, Kaixin

Tianji, Wealink

Sina, Sohu

etc. etc.

Quiz: Who is market leader in China for these categories?

Digu, Zuosa, Fanfou

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China Internet Facts

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China Internet Facts

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China Internet Facts

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China Internet Facts

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China Internet Facts

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BBS Daily Online Time / User

15,1%

44,7%

36,3%

3,9%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

> 8 hrs

3-8 hrs

1-3 hrs

< 1 hr

At a Glance

3,000 million registered BBS users (one netizen can register in more than one BBS)

• > 60% of users log on at least 3 BBS more than 3 times per week

• > 1,600 million total daily page view

• 10 million posts published every day

BBS in China

Anonymity!

Anonymity!

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At a Glance

• 80% of Chinese sites are running their own BBS

BBS on various topics

Discuz! the first ever social platform (BBS system) in China

• > 400,000 BBS sites built on Discuz! system

• > 70% Chinese BBS market

BBS in China

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Categories & Examples

BBS in China

Name Website User NumberAlexa

Ranking Target Group

Tianya www.tianya.cn 20.000.000 238 General

Xici www.xici.net 10.000.000 1.052 General

Shouji bbs.imobile.com.cn 9.329.177 3.491 Mobile Phone

Lixiang www.55188.com 1.306.691 6.691 Stock Forum

Qiche club.autohome.com.cn 700.000 1.425 Auto

Jiadian www.jd-bbs.com 508.977 16.798 Home Appliances

Chinaz www.chinaz.com 322.205 5.245 Administrator Forum

Zhuangxiu bbs.roomage.com 286.340 208.890 Home Decoration

Fob www.fobshanghai.com 263.027 9.460 Business Forum

Tongji bbs.tongji.net 234.646 28.105 Tongji University

Jiaju www.furniturebbs.com 201.012 359.391 Furniture

Bohe www.boohee.com 144.300 54.444 Diet & Losing Weight

Qiongyou www.go2eu.com 44.800 26.378 Travelling in Europe

Sewing bbs.sewinginfo.com 8.619 1.990.228 Sewing Machine

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Online SNS in China

Active users!

Active users!

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SNS in China

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SNS in China

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SNS in China

www.geeksonaplane001.com !?

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SNS in China

Foreign Capital Investment in Chinese SNS: Selected Examples

Name Year Value(USD million)

Investors

OPI (Xiaonei)

2008

2006

430

48.1

Softbank/SBI Holding/JOHO Capital

General Atlantic Partners/DCM-Doll Capital Management

51 2008

2007

2006

2006

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12

4

2

Giant Interactive

Intel/Sequoia/Redpoint Ventures/SIG Asia

Investment

Sequoia

SIG

Wealink 2006

2004

4

n/a

United Capital Investment/SIG

United Capital Investment

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SNS in China

The Copy-Cat Issue: The Difference

Western SNS Chinese SNS

Objective n°1 for users Building up networks based on shared interests

Entertainment

Killing time

Special applications Interactive services Multiplayer gaming

Virtual items

Main source of revenue Targeted advertising Sales of virtual items:

• avatars (personalized figures)

• background music

• decorations for personal space

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Case Study: SNS n°1: Qzone: Virtual items

1 Q coin = RMB 1

SNS in China

Western Internet Companies in China

or

„Why is so damn hard for them to gain a foothold here!?“

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Cat vs. Copy-Cat

A common excuse …

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Copy/Paste is not a Chinese phenomenon

only…

But …

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A quick look at Germany …

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Type/类型 Leading player Global player

Search Engine/搜索引擎 Google Google

C2C eCommerce/C2C电子商务 eBay eBay

Instant messenger/即时通讯 MSN Messenger MSN Messenger

Video hosting/在线视频 MyVideo YouTube

Student SNS/校园社区网站 StudiVZ Facebook

Working Class SNS/白领社区网站 Wer-kennt-wen.de Myspace

Business SNS/商务社区网站 Xing LinkedIn

Portal/门户网站 GMX, Web.de Yahoo!

Social bookmarking/网页书签 Mister-wong del.icio.us

User submitted news/掘客网页 Yigg Digg

etc. etc. etc.

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A quick look at Germany …

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vs.

vs.

vs.

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Rest of Europe …

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Most popular website and SNS in Poland/波兰最受欢迎的门户网站，同时也是当地最大的社区网站

Most popular website and Search Engine in Czech Republic捷克最受欢迎的门户网站及搜索引擎

Largest SNS in Finland芬兰最大的社区网站

Largest SNS in France法国最大的社区网站

Largest SNS in Spain 西班牙最大的社区网站

Largest SNS in the Netherlands荷兰最大的社区网站

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So what are the real reasons?

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1. No formal internationalization/China entry strategy

2. Entered China too late/too slow

3. Corporate guidelines vs. Start-up feeling• Local HQ has no full decision power• Short-term profit orientation• Too arrogant

4. Incomplete localization: • Translation• Content• Pricing• Branding (name, colours, numbers, etc.)• Features• Business model

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Meaning

Color China Europe

Black „color of death“, darkness, glory, winter, north

death, darkness, mourning

White mourning, bad luck, age, autumn, west

cleanliness, brightness, hygiene, virginity

Red Traditionally: joy, good, wealth, bright, summer, south, recently: government,

authority

danger, forbiddance, war, sexuality

Yellow traditionally: emperor, earth, middle and china, recently: pornography

caution, envy, avarice, cowardice

Blue algid, ill sky, water, reliable, authentic

Brown misfortune laziness, old-fashioned

Grey cheap, dull elegant

Gold glory, royal, wisdom, perfection money, sun, nature, friendliness

Green life, vitality, spring, east nature, hope

The Meaning of Colors

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Meaning

Symbol China Europe

Magpie 鹊 que joy, fortunate marriage thievery, robbery, defraud

Owl 鸮 xiāo disaster, scare, crime wisdom, clever, bright, intelligent

Rat 鼠 shǔ wealth, avarice, demonical possession

dirt, cloacae, illness

Spider 蜘蛛 zhīzhū

luck fear, disgust, threat

Clock 送終 short life, wish death time

Swastika 卐 wàn luck, numerousness, all war, death, terror

Fish 鱼 yú wealth, luck Christianity, Jesus Christ

Dragon 龙 lóng power, strength, wisdom, luck, emperor

power, danger, chaos

Bamboo 竹 zhú integrity, pertinacity, conservativeness, long life

-

The Meaning of Symbols

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Positive

6 problem-free, promising, smooth

8 fortune, wealth

9 forever, long-lasting

Negative

4 sì ( 四 ) sounds almost like death, dying ( 死 ), disaster

10 shì ( 十 ) sounds almost like „4“, therefore death

13 failure, imperfection

14 yao si sounds almost like “going to die”

The Meaning of Numbers

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So what are the real reasons?

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5. No local technical development team• Slower time to market• More expensive

6. Local legislation

7. Sometimes local startups simply have cooler ideas or a better technology + business model

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What can Chinese Internet companies learn from that for their own international

expansion?

About us

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Headquarter

Sales offices

About Web2Asia: Overview

• Leading partner to launch and scale web- & mobile based companies in Greater China, Korea & Japan

• Active since 2006 with proven track record of successfully developing and growing Internet projects for Western investors and start-ups

• Spun out of international marketing & eCommerce BPO company

• We and our customers benefit from the know-how, infrastructure and global network of our parent company

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About Web2Asia: Divisions

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1. Media & Events

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1. Media & Events: selected examples

• Tour of worlds TOP techbloggers & journalists through China

• Meetings with largest Chinese Internet players & most promising start-ups

• November 2008: Beijing – Shanghai – Guangzhou

• Click here for details

Examples of articles & online publications:

• Techcrunch: Chinese Social Networks ‘Virtually’ Out-Earn Facebook And MySpace: A Market Analysis

• Venturebeat: http://venturebeat.com/2008/07/13/china-web-use-accelerates-e-business-still-lagging/

• Largest (and only) Pan-Asian Web conference

• Started October 2008 in Seoul/Korea

• Organized by East Asian work group

• Click here for details

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2. Market Entry & Internationalization

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Facts China, Japan & Korea

USA EU27 China Japan Korea

Population 303.8m 490.43m 1.33b 127.29

m 49.23m

Internet Users(Q1 2008) 215m 273m 230m 88m 35m

Penetration Rate 72% 56% 17% 69% 71%

Growth(2000-2007) 126% 199% 833% 86% 83%

Mobile Users (Q1 2008) 256m 549m 547m 103m 44m

Penetration Rate 84% 112% 41% 81% 89%

Growth (2007) 3% 8.6% 20% 2% 4.5

www.internetworldstats.com; www.nic.ad.jp; www.nic.or.kr; www.cnnic.cn; www.cencus.gov; http://ec.europa.eu/eurostat 46

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Enormous Growth Potential

Asia is already the world's largest region in terms of Internet users, but the

comparatively low penetration rate in the region – especially in China –

bears an enormous potential for growth

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China Challenge

• Internationalization is hard, but China is an order of magnitude harder– Many US Internet brands have been able to successfully enter Europe, and a few European start-ups are

starting to enter the US

– However, most global Internet companies have failed or are struggling in China: Yahoo, eBay, Google are famous examples

• China Internet companies are extremely nimble, have strong government and business relationshops ("guanxi"), have incredibly low costs, and are tailored to local tastes

– Most international Internet sites are relatively slow in localizing for the China market, do not enjoy powerful relationships, and have relatively high costs

• China's Internet landscape is fraught with dangers– The "Great China Firewall" slows or stops foreign Internet traffic

– Content is carefully scrutinized

– IP protection is difficult to enforce

– Ad-based monetization is challenging

• But perhaps most importantly, it is difficult to assemble a local team at international standards

– Management talent is incredibly hard to find

– Communication is challenging

– Trust is the rarest commodity

Because of these challenges, the minimum entry costs to China with a local team is EUR 350,000 with a medium to high probability of failure!

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China Strategy

• Internet companies must grow in their home turf at breakneck speed– Even if they have the capital, they do not have the management bandwidth to explore

internationalization

• Copy cats regularly scout VC funding reports to see what business models to knock off

– This is particularly true in China where development costs are a fraction of US and EU markets

• China Internet user population is the fastest growing in the world– Also high broadband penetration and huge mobile adoption

• Strong RMB - European & American ventures can benefit from this development

Internet companies must have a China strategy – not just for defensive measures, but to take advantage of the huge growth opportunities – most of them do not have the time to do it!

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Our Services

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Market Entry Studies

Feasibility Assessment

Asian Strategy & Roadmap Development

Translation

Localization - Cultural content adaptation

Software Design & Development

Legal Consulting

Community Management

Customer & Technical Support

Order Management, Payment Management & Fulfilment Services

Expansion Financing

PR, Networking,

Government Relations

Business Development

Online & Offline Marketing

Hosting & Administration

Cooperation Deals

Turnkey strategy development & execution of your start-up's expansion to Asia

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Work with Us

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Your Advantages with Web2Asia

On your Own With Web2Asia

Infrastructure• High up-front investments in infrastructure, legal entity and relocation expenses

• Fully functional infrastructure• Legal entity already established

HR

• Loss of key management in the home market

• Hard to find qualified people to trust• Long training time

• Local management and operative team fully functional

• Home market focus can be maintained

Market• New and culturally challenging environment

• No social and professional network

• Deep market knowledge• Local network already established

Speed•Operational start can take up to one year

• Operation can be deployed within 1 to 3 months

Financial

• High sunk costs and long term capital commitments (infrastructure, contracts, cetup fees, expat salaries)

• Predefined budget and clearly defined milestones and goals

• Easy to pull out of the market if targets are not reached

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2. Market Entry: example Jimdo

• We run German website creator Jimdo’s operations in East Asia

• Launch in China 2007, profitability reached 2009

• Launch in Japan with KDDI 2009 (click for details)

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3. Incubation & Business Acceleration

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3. Incubation: example BloggerInsight

• Crowd sourced Market Intelligence Provider

• Start-up physically incubated in our premises

• Launch in China 2008 (click for details)

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Thank you!

Web2Asia

George GodulaFounder

Room 2022-2026No. 1438 Shaanxi Road (North)Shanghai 200060, China

Phone: +86 21 32270872Mobile: +86 159 2100 2780Fax: +86 21 32270875 E-Mail: info@web2asia.comWeb: http://www.web2asia.com

Contact