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

Georg Godula, Web2Asia, June 11th 2009

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

China Internet Facts

Quiz: What are these number?

In 2008 the Chinese Internet In 2007 the Chinese Internet grew by approx. users. grew by approx. 80 Mil users. This equals approx. This equals approx. 220,000 new users per day or approx. new users per day or approx. new users per hour. 9,000 new users per hour.
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China Internet Facts

350 Million Internet Users

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China Internet Facts

User Characteristics

Million people 90 80 70 60 50 40 30 20 10 0 Under 18

Internet Users by Age

76,7

49,6

47,3 27,8

22,0

19,7 9,9

18-24

25-30

31-35

36-40

41-50

Above 50

China Internet Facts

User Characteristics

Internet Application
Online music Online news Instant message Online video Search engine Email Online games Having blog/personal space Forum/BBS access Upgrading blog/personal space Online shopping Publishing posters on forum/BBS Online banking Online payment Online education Online stock/fund transactions Online job hunting
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

rst! fi es m t co n me n rtai nte E

China Internet Facts

660 Million Mobile Phone Users

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China Internet Facts

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

Baidu Taobao QQ Tudou, Youku Yupoo, Bababian Xiaonei 51.Com, Kaixin Tianji, Wealink Sina, Sohu Digu, Zuosa, Fanfou etc.

Google eBay MSN Messenger YouTube Flickr Facebook Myspace LinkedIn Yahoo! Twitter etc.
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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 in China
At a Glance 3,000 million registered BBS users (one netizen can register in more than one BBS)

BBS Daily Online Time / User

< 1 hr

3,9%

1-3 hrs

36,3%

! ity m ny o An
44,7%

3-8 hrs

> 8 hrs 0% 5% 10%

15,1% 15% 20% 25% 30% 35% 40% 45% 50%

> 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
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BBS in China
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

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BBS in China
Categories & Examples
Name Tianya Xici Shouji Lixiang Qiche Jiadian Chinaz Zhuangxiu Fob Tongji Jiaju Bohe Qiongyou Sewing Website www.tianya.cn www.xici.net bbs.imobile.com.cn www.55188.com club.autohome.com.cn www.jd-bbs.com www.chinaz.com bbs.roomage.com www.fobshanghai.com bbs.tongji.net www.furniturebbs.com www.boohee.com www.go2eu.com bbs.sewinginfo.com User Number 20.000.000 10.000.000 9.329.177 1.306.691 700.000 508.977 322.205 286.340 263.027 234.646 201.012 144.300 44.800 8.619 Alexa Ranking 238 1.052 3.491 6.691 1.425 16.798 5.245 208.890 9.460 28.105 359.391 54.444 26.378 1.990.228 Target Group General General Mobile Phone Stock Forum Auto Home Appliances Administrator Forum Home Decoration Business Forum Tongji University Furniture Diet & Losing Weight Travelling in Europe Sewing Machine

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Online SNS in China

ers! e us v Acti

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SNS in China
The Copy-Cat Issue

www.xiaonei.com 40 million users in China

www.facebook.com 3 million users in China

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SNS in China
The Copy-Cat Issue:

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SNS in China

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SNS in China
The Copy-Cat Issue: Also among Chinese SNS

Recent example: On campus: students www.xiaonei.com www.xiaonei001.com

Happy: white collar workers

www.kaixin.com

www.kaixin001.com

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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 OPI (Xiaonei) Year
2008 2006 2008 2007 2006 2006

Value
(USD million)

Investors
Softbank/SBI Holding/JOHO Capital General Atlantic Partners/DCM-Doll Capital Management Giant Interactive Intel/Sequoia/Redpoint Ventures/SIG Asia Investment Sequoia SIG

430 48.1 51 12 4 2

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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 Objective n1 for users

Building up networks based on shared interests Interactive services

Chinese SNS
Entertainment Killing time Multiplayer gaming Virtual items

Special applications

Main source of revenue

Targeted advertising

Sales of virtual items: avatars (personalized figures) background music decorations for personal space

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SNS in China
Case Study: SNS n1: Qzone: Virtual items

1 Q coin = RMB 1
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Western Internet Companies in China or Why is so damn hard for them to gain a foothold here!?

A common excuse

Cat

vs.

Copy-Cat

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But

Copy/Paste is not a Chinese phenomenon only

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A quick look at Germany

Type/
Search Engine/ C2C eCommerce/C2C Instant messenger/ Video hosting/ Student SNS/ Working Class SNS/ Business SNS/ Portal/ Social bookmarking/ User submitted news/ etc.

Leading player
Google eBay MSN Messenger MyVideo StudiVZ Wer-kennt-wen.de Xing GMX, Web.de Mister-wong Yigg etc.

Global player
Google eBay MSN Messenger YouTube Facebook Myspace LinkedIn Yahoo! del.icio.us Digg etc.
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A quick look at Germany

vs.

vs.

vs.

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Rest of Europe
Largest SNS in France

Largest SNS in Spain

Most popular website and SNS in Poland/ Most popular website and Search Engine in Czech Republic Largest SNS in Finland Largest SNS in the Netherlands
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So what are the real reasons? 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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The Meaning of Colors

Meaning Color
Black White Red

China
color of death, darkness, glory, winter, north mourning, bad luck, age, autumn, west Traditionally: joy, good, wealth, bright, summer, south, recently: government, authority traditionally: emperor, earth, middle and china, recently: pornography algid, ill misfortune cheap, dull glory, royal, wisdom, perfection life, vitality, spring, east

Europe
death, darkness, mourning cleanliness, brightness, hygiene, virginity danger, forbiddance, war, sexuality caution, envy, avarice, cowardice sky, water, reliable, authentic laziness, old-fashioned elegant money, sun, nature, friendliness nature, hope
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Yellow Blue Brown Grey Gold Green

The Meaning of Symbols

Meaning Symbol
Magpie Owl Rat Spider Clock Swastika Fish Dragon Bamboo wn y lng zh que xio sh zhzh

China
joy, fortunate marriage disaster, scare, crime wealth, avarice, demonical possession luck short life, wish death luck, numerousness, all wealth, luck power, strength, wisdom, luck, emperor integrity, pertinacity, conservativeness, long life

Europe
thievery, robbery, defraud wisdom, clever, bright, intelligent dirt, cloacae, illness fear, disgust, threat time war, death, terror Christianity, Jesus Christ power, danger, chaos -

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The Meaning of Numbers

Positive 6 8 9 4 10 13 14
s ( problem-free, promising, smooth fortune, wealth forever, long-lasting

Negative
) sounds almost like death, dying ( ), disaster sh ( ) sounds almost like 4, therefore death failure, imperfection yao si sounds almost like going to die

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So what are the real reasons?

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?

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About us

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

Headquarter Sales offices

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About Web2Asia: Divisions

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1. Media & Events

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1. Media & Events: selected examples

Largest (and only) Pan-Asian Web conference Started October 2008 in Seoul/Korea Organized by East Asian work group Click here for details

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-ebusiness-still-lagging/
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2. Market Entry & Internationalization

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Facts China, Japan & Korea

USA
Population

EU27
490.43 m 273m 56% 199%

China
1.33b

Japan
127.29 m 88m 69% 86%

Korea
49.23m

303.8m

Internet Users (Q1 2008) Penetration Rate Growth (2000-2007)

215m 72% 126%

230m 17% 833%

35m 71% 83%

Mobile Users (Q1 2008) Penetration Rate Growth (2007)

256m 84% 3%

549m 112% 8.6%

547m 41% 20%

103m 81% 2%

44m 89% 4.5

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

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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

Market Entry Studies Feasibility Assessment Asian Strategy & Roadmap Development

Translation Localization Cultural content adaptation Software Design & Development Legal Consulting

PR, Networking, Government Relations Business Development Online & Offline Marketing Hosting & Administration Cooperation Deals

Community Management Customer & Technical Support Order Management, Payment Management & Fulfilment Services Expansion Financing

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 Infrastructure
High up-front investments in infrastructure, legal entity and relocation expenses Loss of key management in the home market Hard to find qualified people to trust Long training time New and culturally challenging environment No social and professional network Operational start can take up to one year High sunk costs and long term capital commitments (infrastructure, contracts, cetup fees, expat salaries)

With Web2Asia
Fully functional infrastructure Legal entity already established Local management and operative team fully functional Home market focus can be maintained Deep market knowledge Local network already established

HR

Market Speed Financial

Operation can be deployed within 1 to 3 months 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 Jimdos 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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Contact

Thank you!
Web2Asia
George Godula Founder Room 2022-2026 No. 1438 Shaanxi Road (North) Shanghai 200060, China Phone: +86 21 32270872 Mobile: +86 159 2100 2780 Fax: +86 21 32270875 E-Mail: info@web2asia.com Web: http://www.web2asia.com
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