presentation given to mobilemonday belfast on oct 25, 2010

1. Mobile Internet Trends
& Business Environment
in China
Bruno Bensaid @
25 Oct 2010

2. About the Speaker & the Company
China Internet & Mobile Industry Facts and
Trends
Agenda
Trends
Investment Environment
Go-to-Market Strategies

3. Bruno Bensaid
In Asia since 1997 (learned Chinese in Shanghai). Worked at
Cisco (APAC Finance division) in Singapore 1999-2002
2002-2006: Launched/managed the China operations of
French, UK and Japanese internet and mobile VC-backed
companies; also advised French Telcos on China investments
About the Speaker
Bruno Bensaid
Founder &
Partner,
Shanghaivest
Founder,
MobileMonday
Shanghai
Launched MobileMonday Shanghai in 2006 and started
advising VC/PE funds, small and large enterprises in
investment strategies in China
First China employee of Ventech (French VC) in 2007-2008.
2008: created Shanghaivest, an investment bank advisory
firm and started angel investing in several local startups
Regular speaker/moderator at China Technology, business
and investment conferences
Aerospace Engineer (SupAero) & INSEAD

4. Pioneering China-based investment bank advisory firm
focusing on cross-border M&A, investment and capital
raising strategies between China and Europe (and MENA).
Focused on building synergies between Europe and China in
IT, renewable energy, Cosmetics , Fashion & Luxury.
Advisor to several Chinese and European private and public
About Shanghaivest
Advisor to several Chinese and European private and public
companies on overseas expansion strategies.
Community role: Shanghaivest helps Chinese startups raise
financing and is involved in non-profit organizations like
AngelVest and Mobilemonday Shanghai (“MoMo Shanghai”,
created in 2006, has held more than 25 events and counts
3,000+ followers in China and overseas).

5. China Internet & Mobile Industry
Facts and TrendsFacts and Trends

6. Internet at a glance
The largest internet population in the world, and
still growing: 420 mil internet users (June 2010,
source CNNIC), up 36 mil users from 2009, 31.8%
penetration rate.penetration rate.
Broadband internet users reached 363.81 mil.
Rural internet users reached 115.08 mil ie 27.4% of
all internet users, up 7.7% over the half-year period.

7. Internet Trends
Some of the key drivers of China’s internet market are online
advertising (24.1%) and gaming (20%). In 2010, online
shopping and travel will show strong growth (iResearch).
Online Gaming to reach $4-$4.5 Bil in 2010, with casual
games growing fast (but still small compared to MMORPG),
driven by social networks.driven by social networks.
Social networking is dominated by local players Like QQ,
Kaixin001, RenRen, 51.com etc. Facebook, twitter are
blocked in China (but would be small even if unblocked).
Weibo (the local Twitter) reached 56 Mil subs August 2010.
Kaixin001 (the fastest growing SNS) reached RMB 100 Mil in
revenue in H1 2010 (advertising: 80%), with 86 Mil users and
25 Mil unique users per day.

8. Mobile Telecom Trends (1)
833 mil mobile subscribers (Sept 2010, source MIIT), growing
15.85% on year. 65% penetration.
9-10 mil new mobile subscribers per month.
301 Mil fixed telecom subscribers networks (Sept 2010,
source MIIT), 22% penetration, and declining.source MIIT), 22% penetration, and declining.
In Sept 2010, mobile subscribers sent 72.89 Bil SMS,
averaging 2.87 messages per phone number daily.
Mobile internet users reached 292 mil (Sept 2010), 66% of
total internet users.
Of the total mobile internet users, 11.7% had only their
mobile phone to access the internet

9. Mobile Telecom Trends (2)
3 Mobile Telecom Operators: China Mobile, China Unicom,
China Telecom. GSM > 90% market share.
China Mobile is dominant operator with 70% Market share,
China Unicom 25% and China Telecom 5%.
3G: Fragmentation! 3 different technologies have been3G: Fragmentation! 3 different technologies have been
adopted (TD-SCDMA, WCDMA and CDMA 2000).
~44 Mil 3G users by end 2010. Take up slow due to lack of
attractive phones on the market (despite China Mobile’s
Ophone or Unicom’s Uphone newly released). Android and
Symbian-based smartphones will make the most of new 3G
subscribers in 2010-2011.

10. Mobile Value-Added Services Trends

11. • ~RMB 18 Bil is the size of the Chinese mobile internet market in 2010
(approx 10% of total internet market), +5.8% Y0Y. Source iResearch
• Mobile Newspaper is by far the most popular MVAS application by
Chinese telcos and all 3 operators are offering e-books/magazines on their
platforms (e-books, dominated by Shanda with 90% market share, is a 6
Bil RMB market with 3 mil units sold in 2010).
Mobile VAS at a glance
• Mobile Commerce: explosive growth is expected, starting with coupons
and tickets, and now extending to physical goods. Mobile Commerce
growth will be largely aided by LBS and local search growth.
• (Mobile) Search: China Mobile working on own search engine with Xinhua
News Agency. Largest Chinese portals to catch-up with Baidu and Google.
• Mobile Gaming and Apps: cumbersome process, skewed towards telcos,
but games growth compensates for slow MVAS (impacted by regulations).
• Mobile Advertising: still immature but will be pulled by search growth.

12. Good buzz, but few $ available as industry is just starting.
Adoption impacted by low 3G penetration, high phone
fragmentation and already rampant piracy.
China Mobile’s MobileMarket (launched 2009) claims 50,000+
developers, 40,000 apps and 25 Mil downloads (June 2010).
App Stores’ buzz…and reality
China Unicom’s UniStore just launched, after faulty start
China Telecom's E-Surfing Space App Market launched in
2010 and expected to reach 1 mil users by year end.
Nokia’s first phone pre-loaded with MM-Ovi application store
(a combination of Mobile Market and Ovi).
iTunes and Android App Market: many pirated apps via
jailbreaking and alternate app stores.

13. Chinese e-commerce users reached 142 Mil (June 2010), up
31.4% in past 6 months.
Online retail sales will reach $65.9 Billion in 2010 (source:
alibaba). It reached $35 Bil in 2009 and estimated to reach
$84 Bil in 2011 (CNNIC/I-Research).
E-Commerce
$84 Bil in 2011 (CNNIC/I-Research).
Clothing #1 category in online retail (source: Alibaba).
In 2009, Taobao (an Alibaba’s sub-company) commanded
about 77% of the total E-commerce (B-to-C, C-to-C) market.
In 2009, C-to-C dominated the market with 93% of
transactions with Taobao representing 82% (Tencent’s paipai
10% and Tom-Ebay 8%).

14. In 2009 alone, Taobao
wireless claimed 10 mil
active users & 2.5 mil daily
active users
Taobao also claimed 302
Taobao, China’s E-Commerce leader, is bound to
dominate in M-commerce too
Taobao also claimed 302
mil RMB in annual
transactions in 2009
In the second half of 2009,
transactions increased 40%
Source: Taobao management

15. With E-commerce explosive growth and progress in 3G
adoption (44 Mil users end 2010), M-Commerce is predicted
to increase 300% in 2010 (Experian Marketing Services)
Union Mobile Pay (a joint-venture between China Mobile
and China Union Pay) is reporting m-commerce sales of $ 4.4
Bil (RMB 30Bil) in 2010 and 140 mil users (Payments Source).
M-Commerce at a glance
Bil (RMB 30Bil) in 2010 and 140 mil users (Payments Source).
China’s largest e-commerce players (Taobao, Baidu, Tencent
etc) have developed native mobile offerings and will fuel the
growth. Online payment leaders (such as Alipay) also
launched their mobile versions to support their clients.
Contactless payment coming into the picture too, via RF SIM
first (a SIM-based NFC-like system co-developed with China
Mobile), and via industry standards (Single wire protocol)

16. The Investment EnvironmentThe Investment Environment

17. Flushed with money, the China investment market
is dominated by late-stage Funds
VC/PE investors are focused on larger, later-stage
opportunities and tend not to consider deals under
US $3 Mil.
In H1’10 alone, $5.8 Bil (up 67% from H2’09) were
raised by funds for the Chinese market.
43% of funds raised were RMB-funds.
In the same period, $1.587 Bil was actually invested
(down 10%, but overall up 30% y-o-y).
“Too much money is chasing too few good deals”

18. Seed/Angel Financing still immature
Tremendous demand for start-up capital in China in the sub-
$500K range.
The Kauffman Foundation estimates that there are over 300
institutionalized angel groups in the US; but China had less
than 6 such angel groups end 2009.than 6 such angel groups end 2009.
Traditionally, Chinese entrepreneurs have raised start-up
capital from friends and family.
Some incubators / seed funds are emerging (Innovation
Works, China Founders Fund, China Venture Labs, Taishan,
DAD Asia etc), alongside committed angel organizations
(AngelVest in Shanghai etc).

19. Group buying websites (Groupon model, 400 competitors
approximaltely) and E-commerce at large drew the most
internet investments in the past 6-9 months.
We expect a spill over into mobile ventures (or mix
online/mobile) in the same sectors soon.
Mobile Internet Investment Trends
On the Mobile side:
Growth capital injected into a select number of mobile
companies, with amounts ranging from $8 - $70 Mil. Sectors
covered: security, coupons, multiplayer or casual gaming,
entertainment and education.
Much smaller investments are injected into android
developers, mobile marketing companies etc.

20. Some Recent Transactions (1)
Source: Skillnet

21. Some Recent Transactions (2)
Source: Skillnet

22. Go-To-Market StrategiesGo-To-Market Strategies

23. Holding Company
Foreign Investor
e.g.: BVI, Cayman etc.
Share disposalShare disposal
Capital gains not taxable in China
or in Holding company jurisdiction.
Typical Investment/operations structure
Holding Company
China Operating Co.
WOFE
If shareholding < 25％％％％, capital gains not
taxable in China.
Share disposalShare disposal
Chinese Company
different shareholder
Contractual relationship, but no official ownership
SP/CP LicenseSP/CP License Mobile Operator

24. China Mobile’s MVAS/App platforms
The “historical” (high traffic) MVAS platform,
compatible with all possible phones: offering
games (mostly freemium model),
Newspaper, TV, Streaming, Maps, CRBT,
ringtones, Instant Messaging, 2-D barcode,
Disney Channel etc.
China Mobile’s App Store, compatible mainly
with Ophones (China Mobile’s developed
phones) and Symbian phones. End Oct 2010:
6818 apps, 2483 games, 30314 theme-based
apps (wallpapers, pix etc)

25. Selling on Monternet (China Mobile MVAS platform):
• Mainly for games (not apps) and all other China Mobile’s core MVAS,
such as instant messaging, mobile newspaper, search etc.
• Usually serves most phones and OS.
• Requires a Service Provider (SP) license, only granted to local
companies. Without a license, the vendor needs to go through an SP.
MVAS: a byzantine go-to-market Process (1)
companies. Without a license, the vendor needs to go through an SP.
• Typical revenue sharing scheme: 70% SP / 30% China Mobile.
• If vendor sells via an SP, both parties customarily split 50/50 of the net
proceeds (aka post telco split). Therefore, an app vendor would get
35% (or less) of total revenue in the end.
• Lengthy, cumbersome approval process (3-5 months), need to comply
with censorship criteria etc. Having “connections” helps expedite the
process, but does not guarantee good placement on the “deck”.

26. Selling on MobileMarket (China Mobile apps platform):
• Mainly for apps, games and themes (wallpapers, b-day cards etc).
• Only Ophones (China Mobile’s phones) and Symbian supported.
• Does not require a Service Provider (SP) license, but vendor needs to
be a local company (foreign ownership <50%), be operating for more
than 2 years and with ~RMB 0.5 Mil in registered capital.
MVAS: a byzantine go-to-market Process (2)
than 2 years and with ~RMB 0.5 Mil in registered capital.
• Otherwise, vendor needs to go through an SP or CP (content
provider), like in the Monternet case.
• Typical revenue sharing scheme: 80% SP / 20% China Mobile (or 50-50
split on the 80% if the vendor is not an SP/CP itself).
• Uploading the app on the platform is easy, but the app requires
approx. 2 months of testing before being approved and published.
Selling on Nokia Ovi China: similarly, the app vendor needs to go
through a 3rd party (Kong or Netease, 2 large players) to get published.

27. Thank You!
For more,
bruno.bensaid@shanghaivest.com
bruno@mobilemondayshanghai.net
China Cell: +86 13818184399
France Cell: +33 686056830
www.shanghaivest.com
www.mobilemondayshanghai.net
www.sh-angels.com