Startonomics Beijing - June 11, 2009 Georg Godula, Web2Asia

1. Western Internet Companies in China <
Chinese Internet Companies in the World
Georg Godula, Web2Asia, June 11th 2009

2. 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
2

3. China Internet Facts

4. 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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5. China Internet Facts
350 Million Internet Users
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6. China Internet Facts
User Characteristics
Internet Users by Age
Million people
90
76,7
80
70
60
49,6 47,3
50
40
27,8
30 22,0 19,7
20 9,9
10
0
Under 18 18-24 25-30 31-35 36-40 41-50 Above 50
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7. China Internet Facts
User Characteristics
Internet Application
Online music
Online news
Instant message
first!
Online video
mes
Search engine
nt co
Email
nme
Online games rtai
Having blog/personal space Ente
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%
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8. China Internet Facts
660 Million Mobile Phone Users
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9. China Internet Facts
Quiz: Who is market leader in China for these categories?
Type Leading player in China Global player
Search Engine Baidu Google
C2C eCommerce Taobao eBay
Instant messenger QQ MSN Messenger
Video hosting Tudou, Youku YouTube
Picture hosting Yupoo, Bababian Flickr
Student SNS Xiaonei Facebook
Working Class SNS 51.Com, Kaixin Myspace
Business SNS Tianji, Wealink LinkedIn
Portal Sina, Sohu Yahoo!
Micro blogging Digu, Zuosa, Fanfou Twitter
etc. etc. etc.
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10. China Internet Facts
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11. China Internet Facts
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12. China Internet Facts
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13. China Internet Facts
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14. China Internet Facts
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15. 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%
mity
ony
1-3 hrs 36,3%
An
3-8 hrs 44,7%
> 8 hrs 15,1%
0% 5% 10% 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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16. 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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17. BBS in China
Categories & Examples
Alexa
Name Website User Number 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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18. Online SNS in China
ers!
ve us
Acti
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19. 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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20. SNS in China
The Copy-Cat Issue:
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21. SNS in China
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22. 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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23. SNS in China
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24. SNS in China
www.geeksonaplane001.com !?
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25. SNS in China
Foreign Capital Investment in Chinese SNS: Selected Examples
Name Year Value Investors
(USD million)
OPI 2008 430 Softbank/SBI Holding/JOHO Capital
(Xiaonei)
2006 48.1 General Atlantic Partners/DCM-Doll Capital
Management
51 2008 51 Giant Interactive
2007 12 Intel/Sequoia/Redpoint Ventures/SIG Asia
2006 4 Investment
2006 2 Sequoia
SIG
Wealink 2006 4 United Capital Investment/SIG
2004 n/a United Capital Investment
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26. SNS in China
The Copy-Cat Issue: The Difference
Western SNS Chinese SNS
Objective n°1 for users Building up networks based Entertainment
on shared interests 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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27. SNS in China
Case Study: SNS n°1: Qzone: Virtual items
1 Q coin = RMB 1
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28. Western Internet Companies in China
or
„Why is so damn hard for them to gain a
foothold here!?“

29. A common excuse …
Cat vs. Copy-Cat
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30. But …
Copy/Paste is
not a Chinese
phenomenon
only… ☺
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31. A quick look at Germany …
Type/ Leading player Global player
Search Engine/ Google Google
C2C eCommerce/C2C eBay eBay
Instant messenger/ MSN Messenger MSN Messenger
Video hosting/ MyVideo YouTube
Student SNS/ StudiVZ Facebook
Working Class SNS/ Wer-kennt-wen.de Myspace
Business SNS/ Xing LinkedIn
Portal/ GMX, Web.de Yahoo!
Social bookmarking/ Mister-wong del.icio.us
User submitted news/ Yigg Digg
etc. etc. etc.
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32. A quick look at Germany …
vs.
vs.
vs.
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33. 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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34. 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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35. The Meaning of Colors
Meaning
Color China Europe
Black „color of death“, darkness, glory, death, darkness, mourning
winter, north
White mourning, bad luck, age, autumn, west cleanliness, brightness, hygiene,
virginity
Red Traditionally: joy, good, wealth, bright, danger, forbiddance, war,
summer, south, recently: government, sexuality
authority
Yellow traditionally: emperor, earth, middle caution, envy, avarice, cowardice
and china, recently: pornography
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
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36. The Meaning of Symbols
Meaning
Symbol China Europe
Magpie que joy, fortunate marriage thievery, robbery, defraud
Owl xiāo disaster, scare, crime wisdom, clever, bright,
intelligent
Rat shǔ wealth, avarice, demonical dirt, cloacae, illness
possession
Spider zhīzhū luck fear, disgust, threat
Clock short life, wish death time
Swastika wàn luck, numerousness, all war, death, terror
Fish yú wealth, luck Christianity, Jesus Christ
Dragon lóng power, strength, wisdom, power, danger, chaos
luck, emperor
Bamboo zhú integrity, pertinacity, -
conservativeness, long life
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37. The Meaning of Numbers
Positive
6 problem-free, promising, smooth
8 fortune, wealth
9 forever, long-lasting
Negative
4 sì ( ) sounds almost like death, dying ( ), disaster
10 shì ( ) sounds almost like „4“, therefore death
13 failure, imperfection
14 yao si sounds almost like “going to die”
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38. 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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39. What can Chinese Internet companies learn
from that for their own international
expansion?
39

40. About us

41. 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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42. About Web2Asia: Divisions
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43. 1. Media & Events
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44. 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-e-
business-still-lagging/
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45. 2. Market Entry & Internationalization
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46. Facts China, Japan & Korea
USA EU27 China Japan Korea
Population 303.8m 490.43 1.33b 127.29 49.23m
m m
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

47. 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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48. 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 (quot;guanxiquot;), 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 quot;Great China Firewallquot; 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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49. 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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50. Our Services
− Market Entry − Translation − PR, Networking, − Community
Studies Government Management
− Localization - Relations
− Feasibility Cultural content − Customer &
Assessment adaptation − Business Technical
Development Support
− Asian Strategy − Software Design
& Roadmap & Development − Online & Offline − Order
Development Marketing Management,
− Legal Consulting Payment
− Hosting & Management &
Administration Fulfilment
Services
− Cooperation
Deals − Expansion
Financing
Turnkey strategy development & execution of
your start-up's expansion to Asia
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51. Work with Us
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52. Your Advantages with Web2Asia
On your Own With Web2Asia
• High up-front investments in • Fully functional infrastructure
Infrastructure infrastructure, legal entity and • Legal entity already established
relocation expenses
• Loss of key management in the • Local management and operative
home market team fully functional
HR • Hard to find qualified people to trust • Home market focus can be
• Long training time maintained
• New and culturally challenging • Deep market knowledge
Market environment • Local network already established
• No social and professional network
•Operational start can take up to one • Operation can be deployed within 1
Speed year to 3 months
• High sunk costs and long term • Predefined budget and clearly
capital commitments (infrastructure, defined milestones and goals
Financial contracts, cetup fees, expat • Easy to pull out of the market if
salaries) targets are not reached
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53. 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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54. 3. Incubation & Business Acceleration
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55. 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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56. 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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