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

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 2

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. 4

China Internet Facts 350 Million Internet Users 5

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 6

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% 7

China Internet Facts 660 Million Mobile Phone Users 8

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. 9

China Internet Facts 10

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 15

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 16

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 17

Online SNS in China ers! ve us Acti 18

SNS in China The Copy-Cat Issue www.xiaonei.com 40 million users in China www.facebook.com 3 million users in China 19

SNS in China The Copy-Cat Issue: 20

SNS in China 21

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 22

SNS in China 23

SNS in China www.geeksonaplane001.com !? 24

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 25

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 26

SNS in China Case Study: SNS n°1: Qzone: Virtual items 1 Q coin = RMB 1 27

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 29

But … Copy/Paste is not a Chinese phenomenon only… ☺ 30

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. 31

A quick look at Germany … vs. vs. vs. 32

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 33

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 34

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 35

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 36

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” 37

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 38

What can Chinese Internet companies learn from that for their own international expansion? 39

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 41

About Web2Asia: Divisions 42

1. Media & Events 43

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/ 44

2. Market Entry & Internationalization 45

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

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 47

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! 48

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! 49

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 50

Work with Us 51

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 52

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) 53

3. Incubation & Business Acceleration 54

3. Incubation: example BloggerInsight • Crowd sourced Market Intelligence Provider • Start-up physically incubated in our premises • Launch in China 2008 (click for details) 55

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 56

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

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