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    Inside QQ Inside QQ Presentation Transcript

    • Inside QQ Learning from China’s leading online community Plus Eight Star Ltd Mobile & Internet Innovation Arbitrage China, Japan & South Korea January 2008 www.plus8star.com This is a free sample of the full report, including about one fourth of the total content This document is released under the Creative Commons Attribute License (CC-BY) To order the full version (US$3,000), visit www.plus8star.com or email us at info@insideqq.com
    • Congratulations! You have looked beyond the hype, press releases and sensational reporting to dive into China‟s most astonishing Internet success. This report will confirm your intuition by exploring the details of the service, strategy, business models and actual usage. It will also highlight the key catalysts, best practices and milestones that led to QQ‟s success and its overwhelming presence in the Internet life of an entire generation. Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Why should I read this report?  Whether you are an Internet company, a SNS startup, a telecom or media group, an investor, or simply interested in knowing more, here are more reasons that will support your intuition:  First, Tencent is the world‟s largest IM service (270 million accounts vs. MSN‟s 250 million) and casual gaming portal. • How can you gather such a large user base? • How to keep them interested?  Second, Tencent‟s revenues will be in excess of 400 million USD in 2007, most of it coming from non-advertising services. • What are those services? • How can they make users pay for Internet services? • What are the successful business models at work to achieve such results?  Third, for numerous Chinese users, QQ is synonymous with Internet • What is the social impact of QQ? • What kind of economy & ecosystem are being created around the service?  Last, Tencent is considered China‟s greatest Internet success • What are Tencent‟s recent strategic moves? • What is their ambition for overseas markets? Mobile & Internet +8* | Plus Eight Star 2008 3 | 184 Business Consulting www.plus8star.com
    • Why should I read this report?  Now the next step is to dive into this report and spread its knowledge to your key people – a client of our Inside Cyworld report translated it into Chinese for his management team!  We encourage you to look beyond numbers and focus on what are the proven concepts and great ideas that Tencent implemented in QQ and gain a broader understanding of what online communities are about. Themselves got inspired by ideas from outside, such as ICQ (US IM), Cyworld (Korean SNS) or Hangame (Korean casual game portal) and more.  Last, we wish you to successfully adapt the best of them to create special business models and feelings about your service.  The editors  Benjamin Joffe | Managing Director | +8*  Yiqun Bo | Consulting & Research Manager | +8* Mobile & Internet +8* | Plus Eight Star 2008 4 | 184 Business Consulting www.plus8star.com
    • Disclaimer  Opinions  Opinionated views are expressed in several chapters, those should be seen as our opinion or the interviewee’s opinion according to the case.  Claims  Due to the nature of this product, all our sales are final.  We recommend that you study the information, table of content and sample pages provided on our website to determine whether this report fits your needs.  We are interested in your feedback!  Tell us your opinion and what you would like to see in the next version  info@insideqq.com Mobile & Internet +8* | Plus Eight Star 2008 5 | 184 Business Consulting www.plus8star.com
    • About the Authors  Benjamin JOFFE, Managing Director, +8*  For the past 8 years, Benjamin has been involved with telecom, mobile and Internet companies in China, Japan and South Korea. In 2005, he founded +8* | Plus Eight Star to provide „innovation arbitrage‟ between advanced  markets and companies in the mobile and Internet space around the world. The company now regularly works with Asian and Western players as a bridge to bring innovative service ideas and business models, helping them anticipate markets and accelerate their business  Benjamin is a regular speaker at Internet and telecom events and a contributing expert to the European Commission Delegation in China for mobile VAS and e-commerce regulation.  He is also the co-founder and organizer of Mobile Monday Beijing, the leading monthly forum and networking event in Beijing on mobile services and technologies part of the Mobile Monday global organization  Benjamin speaks fluent English, Japanese and French, and practical Mandarin, Korean and Spanish  Yiqun BO, Consulting & Research Manager, +8* Yiqun has been working in China‟s IT industry for the past 9 years, and he was notably  involved in research on B2B e-commerce, as well as Beijing Eleventh Five-Year (2006-1010) Plan on infomatization.  He has been the lead consultant in numerous projects ranging from Web 2.0, evaluation of MVNO opportunities in China, mobile innovation and ecosystem assessment, etc.  Yiqun speaks fluent Mandarin, English and French Mobile & Internet +8* | Plus Eight Star 2008 6 | 184 Business Consulting www.plus8star.com
    • Acknowledgements  We would like to thank for their contribution and support at Tencent  Mrs. Catherine CHAN, General Manager, Investors Relations, Tencent/QQ  Tencent executives who regularly contribute their views to the local media at various conferences and seminars  Unnamed executives and friends who gracefully enlightened us during informal discussions  Expert interviewees were a great balance to Tencent‟s views  Mr. Tangos CHAN, Editor-at-large, China Web 2.0 Review  Mr. Kaiser KUO, Group Director, Digital Strategy, Ogilvy China Chief Editor, Ogilvy China Digital Watch  Dr. Song LI, CEO, SinoFriends  Mr. A, CEO, Company A (competitor to QQ)  Mrs. B, Partner, Company B (China-focused VC)  Mr. C, CEO, Company C (UGC company in China)  Last, thanks to the numerous users of QQ – you made it what it is! Mobile & Internet +8* | Plus Eight Star 2008 7 | 184 Business Consulting www.plus8star.com
    • Methodology  A service as enormous as QQ is unlikely to be covered in its entirety. To make the best use of your time reading this research, we provided views from different angles to help grasp as much as possible of QQ‟s richness.  This research was conducted over a year relying on First-hand trial and analysis of QQ‟s various services   Online and print media reviews Analysis of Tencent and other key players‟ financial reports   Interviews and discussions with Tencent executives Interviews of experts involved in China‟s Internet and mobile scene   Interviews of users Identification of QQ‟s best practices and catalysts for success   We hope you will enjoy your reading and encourage you to apply QQ‟s numerous proven ideas to your own context. China has jumped onto the Web 2.0 bandwagon and is now an innovation powerhouse for Internet services, it is time for the rest of us to learn from it! Mobile & Internet +8* | Plus Eight Star 2008 8 | 184 Business Consulting www.plus8star.com
    • Table of content Foreword 10 Executive summary 13 1. Market overview 15 3. QQ key services 79   General figures Instant messaging   Why do global giants fail in China? QQ pet   Dispelling misconceptions: Internet and Additional services Media censorship  Boosting online ads: MIND  Key players  Access solutions  Internet creates heroes!  Payment systems  Economic value of virtual assets 2. QQ facts and figures 63  General figures 4. Strategy 152  Key milestones and results  5. Users interviews 157 Legal stories 6. Expert insights 165 Appendix 181 Mobile & Internet +8* | Plus Eight Star 2008 9 | 184 Business Consulting www.plus8star.com
    • Foreword Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Foreword  Internet business models are stuck in Internet 1.0  In most advanced Internet markets, the only way to gather revenues on the Internet seem to be by using online advertising, in the form of banners, paid search or paid listings (houses, cars, personals, etc.).  After studying dozens of key players in cutting-edge markets, we came to the conclusion that the main reasons for this situation were the following  Content is still in silos  Measurement and advertisers are lagging behind new usage patterns and technologies  Online payment mechanisms are too few and inefficient to provide hassle-free 1- click macro or micro-payment  Online communities need sociologists, not engineers • As technology is becoming more and more a commodity, the real issue lies today in the assessment of trust, social links and privacy.  Our words are poor to describe the reality of the social fabric • What are the differences between a “good friend”, a “business friend”, a “best friend”?. Who would you lend your car keys to? Who can see the pictures from your latest cross-dressing party or fishing trip? Also, how can you differentiate a MySpace from a Facebook only with the word “SNS”? Mobile & Internet +8* | Plus Eight Star 2008 11 | 184 Business Consulting www.plus8star.com
    • Foreword  Online communities and social networking services face very similar challenges in their development  How to build a community? How to monetize it?  What is it users value in the service? How to keep them interested?  As we worked closely with Chinese innovative companies, we realized that  Ideas from the West are readily available but how to differentiate when a handful of companies start a very similar service?  Many services do not work well in markets where the online advertising market is too small, or online payment systems are not developed.  As a result, while the first wave of Internet successes needed strong execution skills, the second wave requires numerous adaptations to the local environment and improvements leveraging local characteristics.  Chinese models provide today innovative business models and services ideas that can help develop Internet services worldwide.  Just as US powered the first Internet wave, Asia is now proving an innovation powerhouse in business models and service designs  This report demonstrates how QQ, not only triggered a social phenomenon, but also proved numerous business models that can be adapted globally Mobile & Internet +8* | Plus Eight Star 2008 12 | 184 Business Consulting www.plus8star.com
    • Executive summary Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Executive summary  In China, QQ is Internet  QQ is China‟s largest online community with over 270 million accounts. Many users connect to Internet solely for using QQ.  Starting with a simple IM for Chinese users, QQ evolved into an array of services ranging from blogs, avatars, virtual items and pets and online games.  And users pay for it  Tencent managed to monetize its service directly from users in an environment with poor payment systems, low trust and moderate network speed.  Revenues for the third quarter of 2007 alone amounted to 140 million USD. This is close to four times those of Facebook over 2007.  And there is more to come  Despite its incredible Internet influence, Tencent derives only a minor share of its revenues from online advertising.  Recognizing this untapped potential, Tencent is now beefing up its team and working on building a higher trust in their capacity as an advertising platform.  This requires notably to improve the understanding of it with advertisers, as those start timidly to shift ad dollars to Internet and embrace online communities.  Mobile is still a tough market as mobile carriers‟ control is tight, but growth can be expected from this sector as well in the future. Mobile & Internet +8* | Plus Eight Star 2008 14 | 184 Business Consulting www.plus8star.com
    • 1. Overview of China’s Internet & Mobile Markets Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • 1. Overview of China’s Internet & Mobile Markets General figures Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Foundation of the market: huge user base Million users 2002 2003 2004 2005 2006 Internet users 59 79 94 111 137 (Broadband subs) - 7.2 13.8 37.5 51.9 (ADSL subs) - - - 26.4 37.1 Fixed-line subs 214 263 312 350 368 Mobile subs 206 268 334 393 461 Sources: CNNIC, MII  Since 2005, mobile subs have exceeded fixed-line users  China is the #2 largest Internet country in the world  Penetration is still ~10%  Broadband grows strongly  Driven by ADSL (70% of broadband connections)  Cable, LAN, FTTX, PLC share the rest of market. Mobile & Internet +8* | Plus Eight Star 2008 17 | 184 Business Consulting www.plus8star.com
    • Service revenues Million US$ 2002 2003 2004 2005 2006 Internet Ad 83 183 320 489 710 E-commerce 126 233 481 760 1190 Online game 146 195 394 662 839 WVAS 157 566 852 915 995 Source: Deutsche Bank  Online Payment & e-Commerce  Emergence of payment systems like Tenpay (from Tencent/QQ) and AliPay (from Alibaba.com), and billing by mobile operators make online payment easier  As a result, the volume of online payments is projected to rapidly increase.  Online advertising  Online advertising includes both brand advertising and paid search.  Online advertising has been a proven model in developed markets as well as in China. Although paid search is a relatively new concept, it has achieved rapid growth in recent years in China.  Online game  70% of Internet users in China are <30 y.o., fueling the online gaming market Mobile & Internet +8* | Plus Eight Star 2008 18 | 184 Business Consulting www.plus8star.com
    • Internet Portals and local players  Local players won the top spot in all the main Internet sectors.  Baidu (search engine) and QQ (IM) Sector Local player Global player enjoy a strong lead in their sectors in Portal #1, QQ #7, Yahoo terms of market share Search #1, Baidu #2, Google E-commerce #1, Taobao #2, Ebay China  No foreign company operates directly IM #1, QQ #2, MSN in the online game sector (mostly due Online game #1, NetEase -- to Chinese regulation) Source: Plus Eight Star  eBay China lost its #1 position in C2C auctions to Taobao since 2005 and is unlikely to bounce back in the near future Mobile & Internet +8* | Plus Eight Star 2008 19 | 184 Business Consulting www.plus8star.com
    • Chinese Web 2.0 scene might be the world’s #2 most active  China has turned into a Web 2.0 powerhouse.  Environment for Web 2.0  Large influx of venture capital  Overseas-educated returning talent  Low entry barriers in the Internet and mobile fields  Many copycats from overseas („Copy-2-China‟)  Several hundred Internet startups joined the “China Web 2.0 Conference” in 2007. Chinese Web 2.0 Companies Logotype Mobile & Internet +8* | Plus Eight Star 2008 20 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Four telecom operators in China  Internet Portals and local players Mobile & Internet +8* | Plus Eight Star 2008 21 | 184 Business Consulting www.plus8star.com
    • 1. Overview of China’s Internet & Mobile Markets Why do global giants fail in China? Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Why do global giants fail in China? Foreign company Local company People Team leader often coming from HK, Taiwan; Employees are They cover not only white-collar, but „small potatoes‟ educated white-collar staying in high-class buildings in Shanghai Field of vision is limited to high-class buildings in Shanghai, and Target regular people and SMEs, Fortune 500 Companies do not care about having good taste Know Gmail, but not 163. They use MSN Messenger, but not QQ, considered to be „less professional‟ Look down on netizens from Internet cafés, fans of Super Girl, because of their education. Would prefer to close their website rather than run one with no taste or differentiation Comment: Without attention to the masses, it is difficult to be a Top 3 website Attitude Earning a salary 8 or 10 times higher than local competitors, Prefer to be hated than to be they worry about negative news. They prefer „no achievement‟ forgotten than to take a risk which could bring a mistake. Always ready to make mistakes Cautious, conservative, polite, educated, but little fighting spirit. Comment: Local players don‟t care about sounding good or making mistakes. The worst for them is to be forgotten. Jack Ma, CEO of Alibaba, and Zhou Hongyi, CEO of 3721 are representative of this philosophy. Efficiency Long term strategy, spend a lot of money on market research React fast May have to wait one month for HQ‟s answer on the purchase Numerous small steps, and correct of a laptop if it is out of budget. quickly when making a mistake. Comment: As the Chinese saying goes, ‘Eagerness for quick success and instant benefit should not be encouraged’. But in the ICT sector, efficiency and speed are of the essence. Mobile & Internet +8* | Plus Eight Star 2008 23 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Why do global giants fail in China?  Results or means?, Localization, design  Communication, Advertising strategy  Comments from industry insiders: Jack Ma (CEO, Alibaba)  Comments from industry insiders: Zhou Hongyi (ex-CEO, Yahoo China) Mobile & Internet +8* | Plus Eight Star 2008 24 | 184 Business Consulting www.plus8star.com
    • 1. Overview of China’s Internet & Mobile Markets Dispelling Misconceptions: Internet & Media Censorship Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Media and Internet Censorship in China China has the world‟s largest population in a territory  similar in size to the United States. Unlike its Western counterpart, China has extreme gaps between haves and have-nots, East and West, cities and countryside  Within this context, the key objectives of the Chinese Government is stability and “avoid chaos” whatever the cost. The consequence on the Internet is that websites are required to get a license (Internet Content Provider or “ICP” license) and to filter some politically-sensitive and illegal keywords ICP license of  Sensitive issues: Falung Gong, Tibet Independence, Google China Tian‟anmen, Taiwan…  Illegal content: adult, drug and gambling  Those issues are treated more or less like Nazi groups or pedophilia in Western countries  Intimidation power?  The Shenzhen Public Security Bureau created two anime- style quot;Internet Policequot; characters named quot;Jingjingquot; and quot;Chacha“ (“Jingcha” means “police” in Chinese); each Chacha cybercop has a blog and a chat window where Chinese citizens can talk to them.  The main function of Jingjing and Chacha is to intimidate all Netizens to be conscious of “safe and healthy use of the Internet, self-regulate their online behavior and help support a healthy Internet.“  That being said, Western media are much more aware Jingjing than local netizens of the existence of those mascots. Mobile & Internet +8* | Plus Eight Star 2008 26 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Media and Internet censorship in China  Misconception 1: The Chinese government is furtive about censorship  Misconception 2: Censorship is only a political issue  Misconception 3: The government checks everything  Misconception 4: Regulations are too numerous and unclear  Misconception 5: Chinese people suffer from the limit of information  Comments from industry insiders  Charles Chao, CEO, Sina.com  Jack Ma, CEO, Alibaba Mobile & Internet +8* | Plus Eight Star 2008 27 | 184 Business Consulting www.plus8star.com
    • 1. Overview of China’s Internet & Mobile Markets Key players Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • The struggle of mobile and Internet companies  Internet is a low-trust and crowded place  While China‟s Internet has seen an overflow of content, portals and Web 2.0 companies, Internet remains a low-trust environment due to poor measurement.  Alexa ranking? This has been the key measure to raise venture capital in the Internet space, making pageviews a critical metric, above actual service quality (we say China follows the “Alexa School of Investment”).  In addition, many companies have used self-installing “hooligan software” to beat competitors, gain subscribers and boost their Alexa ranking.  As a result, advertisers have been very cautious and unwilling to switch from traditional media to online media. Today, less than 5% of China‟s advertising spending goes to Internet. The prevalent ad sales format is a antiquated CPD “cost-per-day”, rather than CDM (per thousand) or CPA (per action).  Mobile content providers are under tremendous pressure  Due to operators‟ policies working in a self-serving mode, mobile CPs have been declining steadily since 2005, undergoing major changes of strategy.  China Mobile and China Unicom are more or less using content providers as free research centers: once a CP achieves some success with a service, operators will replicate it and launch their own version.  The trend today for CPs is to find new distribution channels and business models independent from operators, working with manufacturers and media companies. Mobile & Internet +8* | Plus Eight Star 2008 29 | 184 Business Consulting www.plus8star.com
    • Leaders the WVAS market WVAS revenues of key CPs in 2006 Top 8 = $630 million in 2006 from WVAS (45% of the total) Million USD (estimate) WVAS IM WVAS WVAS Web Online WVAS Web Portal games Portal Source: Plus8Star Mobile & Internet +8* | Plus Eight Star 2008 30 | 184 Business Consulting www.plus8star.com
    • Performance of leading Internet and mobile companies 1st day: Baidu‟s share price shoots at 5 times its introduction price Getting NASDAQ‟s attention was easy for “China‟s Tencent enjoys amazingly good karma since its Google”, Baidu, also enjoying a healthy curve introduction on the Hong Kong Stock Exchange New policy introduced End of the “Internet Winter”. Investors come back to China As the leading Internet portal, Sina has enjoyed sustained Along with other mobile content players, KongZhong has suffered from government and operators‟ policies. growth along with the online advertising market Mobile & Internet +8* | Plus Eight Star 2008 31 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Company snapshot: Tom Online  Company snapshot: KongZhong  Company snapshot: Sina  Company snapshot: Tencent  Company snapshot: Linktone  Company snapshot: Hurray  Company snapshot: Sohu  Company snapshot: Netease Mobile & Internet +8* | Plus Eight Star 2008 32 | 184 Business Consulting www.plus8star.com
    • 1. Overview of China’s Internet & Mobile Markets Internet creates heroes! Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Digital entertainment is booming  In China, there are not many alternatives for affordable entertainment  The media/music/cinema industries are still in their infancy and tightly controlled.  Internet is thus filling a gap.  Consequences  Social networks, digital creations, interactive TV are all booming in China  Online advertising is also taking off  Digital music sells more than “offline” music, most of it via mobile phones  Among recent Internet phenomenon, the following provide a glimpse of the current Chinese Internet pop culture. All are whether “user- generated” or “interactive” content “Mice Love Rice” | Internet-originated national hit song   Backdorm Boys | Lip-synch artists  Furong Jiejie | Self-proclaimed Internet beauty  Mu Zimei | Sex blogger SuperGirls | China‟s “American Idol” leverages mobiles  Mobile & Internet +8* | Plus Eight Star 2008 34 | 184 Business Consulting www.plus8star.com
    • “Mice Love Rice” Mobile & Internet +8* | Plus Eight Star 2008 35 | 184 Business Consulting www.plus8star.com
    • “Mice Love Rice”  In October 2004 the song ''Mice Love Rice'' is released on the Internet  The author, Yang Chengang, is a 26-year-old music teacher by day and lounge singer by night in central China's Hubei province  The song became an instant hit online and its popularity quickly spread to traditional media  Over 100 million Internet downloads (mostly free)  At peak, it sold 6 mln RBT in one month (sales equivalent to 700,000 CDs)  #1 in RT, RBT and real tones over mobile phones and Internet and made it to iTunes Top 10 World list in 2005  The rights holder and SP Hurray Freeland generated $21.5 million in licensing fees (170 million RMB, mostly coming from RBT) Sources: Hurray, 2006.9; Chongqing Evening News, 2006.10 Mobile & Internet +8* | Plus Eight Star 2008 36 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Comments from industry insiders: Universal Music  The Backdorm Boys case  Comments from industry insiders: Ogilvy  The Furong Jiejie (Sister Hibiscus) case  The Muzi Mei case  The SuperGirls case  So why dealing with Net stars? Mobile & Internet +8* | Plus Eight Star 2008 37 | 184 Business Consulting www.plus8star.com
    • Backdorm Boys Mobile & Internet +8* | Plus Eight Star 2008 38 | 184 Business Consulting www.plus8star.com
    • Sister Hibiscus Mobile & Internet +8* | Plus Eight Star 2008 39 | 184 Business Consulting www.plus8star.com
    • Muzi Mei Mobile & Internet +8* | Plus Eight Star 2008 40 | 184 Business Consulting www.plus8star.com
    • SuperGirls Mobile & Internet +8* | Plus Eight Star 2008 41 | 184 Business Consulting www.plus8star.com
    • 2. QQ Facts and Figures Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • 2. QQ Facts and Figures General figures Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • What is QQ? Key Ideas  QQ is the main service brand of Tencent, founded in November 1998 and located in Shenzhen (South of China, near Hong Kong)  Tencent is the #1 Instant Messaging (IM) service provider in China, and a leading provider for Internet and mobile value-added services. Tencent‟s IM community counts over 270 million active accounts and is said to be covering  95% of Chinese Internet users and 70% of China’s IM market. The IM platform allows users to communicate in real-time across the Internet, and mobile and fixed line telecom networks using various terminal devices. Tencent‟s is operating of 4 lines of business:  1. Internet and mobile value-added service 2. Mobile and telecommunications value-added service 3. Advertising service 4. Trademark licensing business The former two made up 90% of Tencent‟s revenues in 2006.   Its IM tools include Tencent QQ, Tencent Messenger and RTX. Though these services are free, they are the core of Tencent‟s business and are the foundation for VAS products.  Tencent is reinforcing its portal QQ.com to activate its huge IM user base and introduces all kinds of WVAS and IVAS.  QQ uses a penguin as its brand mascot. The brand commands very strong awareness thanks to its early entry and its „cute‟ factor. Mobile & Internet +8* | Plus Eight Star 2008 44 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Key figures: users and page views  Key figures: users growth and ranking among competitors  Why is QQ so successful in China? Mobile & Internet +8* | Plus Eight Star 2008 45 | 184 Business Consulting www.plus8star.com
    • 2. QQ Facts and Figures Key milestones and results Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • QQ History Rise of a Star  Largely inspired by ICQ, an IM tool originally developed by two Israeli, Tencent launched OICQ in China in 1999. OICQ means: “Oh, I seek you!”  Paipai.com launched QQ Pet launched Q Zone launched IPO at HK Stock Exchange Sep. 2005 Jun. 2005 QQ.Com launched 30 QQ Game/ RTX launched 24.5 Mar. 2005 25 Jun. 2004 Internet VAS launched 20 Dec. 2003 16 Mobile QQ launched 15 Sep. 2003 Oh, I seek you OICQ launched 9 Jun. 2001 10 Company founded in Aug. 2000 4 Shenzhen 5 2 Feb. 1999 1 0.1 Nov. 1998 0 2000 2001 2002 2003 2004 2005 2006 IM PCU (million) Mobile & Internet +8* | Plus Eight Star 2008 47 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  QQ bloomed with China‟s Internet industry  Shareholding and revenue breakdown Mobile & Internet +8* | Plus Eight Star 2008 48 | 184 Business Consulting www.plus8star.com
    • Business models Free services to attract user to come and to keep them stay in the community (QQ IM, QQ.com, WAP portal, QQ Group…) Personalization, value-added Interactivity Fee-based revenue Traffic-based revenue IVAS WVAS Advertising (Internet value-added service) (Wireless value-added service) Fee-based IM Fee-based IM IM Client-end Premium QQ, QQ Xing Mobile QQ Online identities Content-based SMS QQ.com QQ Show, Qzone, QQ Pet.. 2.5 G QQ Games Search MMS, WAP… Casual, MMORPG Mobile Voice VAS Others IVR+CRBT Dating, e-card, e-magazine… Mobile & Internet +8* | Plus Eight Star 2008 49 | 184 Business Consulting www.plus8star.com
    • 2. QQ Facts and Figures Legal stories Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  Domain name  QQ and Chery (car manufacturer)  QQ and Pica (mobile & PC IM service provider)  Embezzled QQ accounts Mobile & Internet +8* | Plus Eight Star 2008 51 | 184 Business Consulting www.plus8star.com
    • 3. Key services From Instant Messaging to instant noodles Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  QQ service map Mobile & Internet +8* | Plus Eight Star 2008 53 | 184 Business Consulting www.plus8star.com
    • 3. Key services Instant Messaging Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Instant Messaging QQ QQ is Tencent‟s IM software for common users. Simplified Chinese, traditional Chinese, and English versions (with less functions) are available. The core is entertainment and to have fun. Free to use TM TM stands for Tencent Messenger. Compare to QQ, TM looks more professional, and provides more business applications such as contacts management, business card, agenda, and so on. Free to use RTX RTX is Tencent‟s professional IM version dedicated to internal communication for companies. The software interface can connect to internal management tools and information systems Not free to use Tencent tries to cover several market segments. However, TM and RTX are not as popular as QQ Mobile & Internet +8* | Plus Eight Star 2008 55 | 184 Business Consulting www.plus8star.com
    • Typical QQ IM interface Take a group photo with Cathy‟s QQ Show Mobile & Internet +8* | Plus Eight Star 2008 56 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  QQ lingo Mobile & Internet +8* | Plus Eight Star 2008 57 | 184 Business Consulting www.plus8star.com
    • QQ Show Chinese avatar  Largely inspired by South Korea‟s Cyworld, QQ Show is a personalized avatar service.  Users can buy various items (clothes, background image, decoration) with QQ‟s cybercash called „Q Bi‟ to create their „QQ Show‟. 1 Q Bi = 1RMB (0.14 USD)  This „QQ Show‟ is then used within the IM client, QQ.com‟s online community and QQ game portal.  Users have various ways to obtain a QQ Show  Buy in QQ Show Mall  Buy in C2C e-market  Gift from friend Initial female and Simple QQ Shows Richer QQ Shows male characters Mobile & Internet +8* | Plus Eight Star 2008 58 | 184 Business Consulting www.plus8star.com
    • QQ Show use case Mobile & Internet +8* | Plus Eight Star 2008 59 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Selection of standard items  Selection of branded items  Change your QQ portrait in QQ Show Where is the “QQ Show” visible?   Generating revenues from QQ Show Mobile & Internet +8* | Plus Eight Star 2008 60 | 184 Business Consulting www.plus8star.com
    • QQ Show Mall  QQ Show is not free, and should be paid by Q Bi Starting avatar Mobile & Internet +8* | Plus Eight Star 2008 61 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Buy a QQ Show online  Online auction for QQ Show  Q Zone, a blog-like & Cyworld-like service  Q Zone without decoration  Q Zone decorated  Customizing page style and content modules  Generating revenues from Q Zone  Performance and key factors of virtual items Mobile & Internet +8* | Plus Eight Star 2008 62 | 184 Business Consulting www.plus8star.com
    • 3. Key services QQ Pet Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • QQ Pet Virtual pet community  QQ Pet is a virtual pet community game. If you users like, the pet can stay on the desktop and accompany its host  The host feeds the pet, showers it, takes it to see a doctor. The pet expresses its emotions, studies, takes medicine, works, makes friends, travels, marries. In short, does everything a person does in a human society.  Main features  Nurture and educate: study, feed, take shower, take medicine, see doctor, get married, …  Outdoor activities: travel, make friends, see friends, drive a car. Reactive functions enable QQ Pet to go to desktops of its host‟s QQ buddy, and to be feed and canoodled by them.  Entertainment: play toy, send to buddy active emotions related to pet  Pet status: desktop or hiding, customize pet‟s dress, house, etc  Pet levels: like the age, some activities are accessible according to the age, such like getting married, go to university, work as a lawyer or an artist, etc Mobile & Internet +8* | Plus Eight Star 2008 64 | 184 Business Consulting www.plus8star.com
    • QQ Pet Internet portal Promotions Log in Mobile & Internet +8* | Plus Eight Star 2008 65 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Breeding a pet  Packages for pets  Use case: a pet‟s life  QQ pet from 1 to 4 years old  QQ pet from 5 to 8 years old  QQ pet from 9 to 12 years old  QQ pet from 13 to 16 years old  QQ pet from 17 to 20 years old  QQ pet above 20 years old  QQ pet community  Performance and key factors Mobile & Internet +8* | Plus Eight Star 2008 66 | 184 Business Consulting www.plus8star.com
    • Use case: QQ life step by step, from 1 to 4 years old Illustration explains QQ Pet functions I was offered 300 Yuanbao. With this One day, a new QQ money, I can enjoy life for pet was born a while Mobile & Internet +8* | Plus Eight Star 2008 67 | 184 Business Consulting www.plus8star.com
    • 3. Key services Additional services Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  Voice QQ: calling other users via QQ number  Voice QQ service fees  Little Q IM chat robot  QQ.com Internet portal main page  QQ.com details  QQ levels  QQ Group QQ Group‟s stickiness  Mobile & Internet +8* | Plus Eight Star 2008 69 | 184 Business Consulting www.plus8star.com
    • Internet portal details Lower half Upper half Content Channels Paipai Ad Search QQ services News center Woman/fashi on/health news Mobile & Internet +8* | Plus Eight Star 2008 70 | 184 Business Consulting www.plus8star.com
    • 3. Key services Boosting online advertising: MIND Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Tencent MIND: online marketing/advertising  In the last quarter of 2007, Tencent launched its MIND strategy to accelerate its online marketing/advertising service.  Until then, Tencent‟s has been relatively weak in terms of internal skills, solutions offered to advertisers and advertising revenues (10% of total) compared to other large Internet players like Sina, Sohu or Baidu.  Tencent MIND is the online branding and advertising philosophy of the solutions provided by Tencent  M: Measurability, measurable effect of online marketing/advertising I: Interactive Experience, improve end-user‟s experience by interactivity   N: Navigation, ensure the precision of selected targeting end-user  D: Differentiation, customize online marketing solution for different advertisers Mobile & Internet +8* | Plus Eight Star 2008 72 | 184 Business Consulting www.plus8star.com
    • Other pages in this section Tencent‟s MIND is based on its interactive platforms   QQ Skin  QQ Skin examples  In-IM advertising example  Q Zone interactive online marketing example Mobile & Internet +8* | Plus Eight Star 2008 73 | 184 Business Consulting www.plus8star.com
    • Tencent MIND: QQ Skin in-IM advertising cases: Samsung, KFC, Lenovo  Ad element is naturally integrated in the skin design. Samsung KFC Lenovo MP3 Juice PC Mobile & Internet +8* | Plus Eight Star 2008 74 | 184 Business Consulting www.plus8star.com
    • 3. Key services Access solutions Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • PC – client software  The registration is quite simple, and not restricted.  No personal ID check  One person may register different QQ accounts. Mobile & Internet +8* | Plus Eight Star 2008 76 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Browser-based IM  Mobile IM: SMS version  Mobile IM: WAP version  Mobile IM: client software Mobile & Internet +8* | Plus Eight Star 2008 77 | 184 Business Consulting www.plus8star.com
    • 3. Key services Payment systems Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  System structure  Wireless value-added services (WVAS)  Tenpay  Internet value-added services (IVAS)  What can we do with Q Bi?  How can we get Q Bi?  How many monetary functions has Q Bi?  Benefits and issues brought by the usage of Q Bi as an online currency Mobile & Internet +8* | Plus Eight Star 2008 79 | 184 Business Consulting www.plus8star.com
    • 3. Key services Economic value of QQ virtual assets What kinds of QQ numbers are considered the best? How is the value of numbers calculated? Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  Value analysis of QQ numbers  Value analysis of users‟ online history, rank and gaming levels within QQ Mobile & Internet +8* | Plus Eight Star 2008 81 | 184 Business Consulting www.plus8star.com
    • 4. SWOT Analysis Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Other pages in this section  Strengths  Weaknesses  Opportunities  Threats Mobile & Internet +8* | Plus Eight Star 2008 83 | 184 Business Consulting www.plus8star.com
    • 5. User interviews Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Methodology  A good way way to understanding a service‟s reality is to ask its users.  With this in mind, we conducted interviews over QQ chat with six different users to get a sense of what QQ is about for them.  Interviewees were selected to represent a reasonable variety of profiles (age, gender, activity, experience with QQ).  Questions revolved about their general usage and their feeling and social links within QQ.  Illustrating the social impact of QQ  Among other things, we could verify how strong was QQ‟s influence on Chinese netizen‟s lives: from maintaining social ties, to creating new ones, sometimes even leading to marriage!  Interviewees were rewarded for their time with Q Bi. Mobile & Internet +8* | Plus Eight Star 2008 85 | 184 Business Consulting www.plus8star.com
    • User interviews Chen Tingting Female, 21 University student QQ number: 12507XXXX Note: the last four QQ numbers are masked for privacy reasons Mobile & Internet +8* | Plus Eight Star 2008 86 | 184 Business Consulting www.plus8star.com
    • User interviews Why did you register to QQ? How about your contacts list? Do you know all of them offline? Mobile & Internet +8* | Plus Eight Star 2008 87 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Usage of Q Bi  QQ and you  Pros and Cons of QQ Perception of QQ‟s values   Other Internet usage  Image of QQ Mobile & Internet +8* | Plus Eight Star 2008 88 | 184 Business Consulting www.plus8star.com
    • 6. Experts insights Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Experts interviewed in this section Name Title Company Description Catherine GM, Investors Tencent Tencent is the company operating CHAN Relations QQ Tangos Chief Editor China Web Leading English website covering CHAN 2.0 Review Internet innovation in China Kaiser Group Director, Ogilvy Leading advertising agency. Editor of the “Ogilvy Digital Watch” KUO Digital Strategy China blog on digital media in China. Mr. A CEO A Competitor to QQ Song LI CEO SinoFriends Founder of the leading mobile content provider, sold to Sina in 2003. Now operating both mobile and Internet community services Mrs. B Partner B China-focused Venture Capital firm Mr. C CEO C One of the leading Chinese user- generated content community sites Mobile & Internet +8* | Plus Eight Star 2008 90 | 184 Business Consulting www.plus8star.com
    • Exclusive interview with Catherine Chan General Manager for IR at Tencent • Q. How would you define Tencent/QQ's core competence? • Large user base and sticky community experiences • Better understanding of user needs, continual innovation and focus on R&D and long term development • Ability to develop diversified products based on core IM platform to cater to user needs. • Q. What were the strategies to reach the quot;tipping pointquot;? • We launched QQ in February 1999 for users to free download on the website, it gained popularity soon and registered users grew to millions quickly. In April 2000, QQ registered user accounts reached 5 million. • By July 2007, QQ peak simultaneous online user accounts reached 30 million • Q. How would you describe the influence of QQ on the Chinese society? • As of July, 2007, Tencent‟s active IM user accounts reached 273 million, covering most of Chinese internet users. • In June 2007, Tencent was awarded the “Best Chinese Lifestyle Brand” which shows QQ has become a part of people‟s lives. Through its various online platforms, Tencent fulfills the user‟s different needs for communication, information, entertainment and e-Commerce on the Internet. Mobile & Internet +8* | Plus Eight Star 2008 91 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  Exclusive interview with Tencent  QQ global?  Next steps of QQ  View on policies on virtual money  View on policies for WVAS  Social responsibility  What about the penguin? Mobile & Internet +8* | Plus Eight Star 2008 92 | 184 Business Consulting www.plus8star.com
    • How would you define the characteristics of China’s Internet industry? • Low penetration (12%) indicates great growth potential • Still in early stage of development, reflected by the fact that wireless and online games have well developed but online advertising and e-Commerce are still in their infancy. • Unique Chinese culture. For the time being, major internet companies like portals, game operators, ecommerce services are local companies. 1. Lack of innovation 2. Entertainment-oriented 3. Internet is still mainly a channel for getting information, rather than a tool to use in their daily life and work. 4. Big Internet companies still dominate the market. Tangos Chan China Web 2.0 Review • Entertainment-focused to the point of distraction; both more- and less- regulated than the industry in the U.S. (more in terms of acceptable content; less in terms of things like P2P and pirated media) • Ferociously competitive because of the relatively low level of disposable income • Plagued with very bad and unreliable metrics • Less obsessed with privacy issues. Kaiser Kuo Ogilvy Mobile & Internet +8* | Plus Eight Star 2008 93 | 184 Business Consulting www.plus8star.com
    • How would you define the characteristics of China’s Internet industry? • The Chinese Internet industry is by and large an online media industry at the moment, online commerce (which generates transaction-based revenues) for real goods is not here yet • Online commerce for virtual goods, on the other hand, is well proven (QQZone, or those online games that are free to pay but sell virtual items). • C2C ecommerce sites for real goods are essentially free thanks to Taobao.com and B2B sites for real goods do not really exist (Alibaba, despite its marketing itself as a B2B ecommerce site, is really a B2B online Song Li CEO, SinoFriends media for classifieds because it does not generate revenues from transactions) • B2C sites are in a very tough business in general because margin is usually very low after taking care of warehousing and delivery logistics. Focused on young people and entertainment. Few business models and still in a growing stage, and having huge potential. • Early stage with an entertainment focus Mr. A • Low monetization Company A • I see a future in user behavior-based lead generation, RIA, AJAX and It is large but in ubiquitous video services Mrs. B a chaotic state. Mr. C Company B Company C Mobile & Internet +8* | Plus Eight Star 2008 94 | 184 Business Consulting www.plus8star.com
    • How would you describe the influence of QQ on the Chinese society? The 1980s and 1990s generations grew up together with QQ, the style of entertainment in QQ has significant influence on them. They developed a QQ lifestyle and a new kind of language, which is called Words from Mars (火星文), it is mainly used in QQ chatting and QQ‟s Qzone. Tangos Chan China Web 2.0 Review QQ has has largely defined the way that young Chinese people communicate with one another online, creating by its convenience and its sheer ubiquity a preference for IM over email. Young Chinese people don’t ask one another for email addresses; they ask for QQ numbers. It has created a powerful channel for the viral Kaiser Kuo spread of news and information, of entertainment, and even of brand Group Director, Ogilvy & Mather Advertising messages. Young people QQ brought the think that “QQ” entire young has the same generation to meaning as “IM”. Internet, i.e., millions of users Song Li Mrs. B CEO, SinoFriends Company B Mobile & Internet +8* | Plus Eight Star 2008 95 | 184 Business Consulting www.plus8star.com
    • Other pages in this section  What made QQ so successful?  Professional opinion of QQ services  Weaknesses  Competitors and their advantages  What is needed to make QQ global?  Influence on society  Favorite Internet services Next steps in China‟s Internet  Mobile & Internet +8* | Plus Eight Star 2008 96 | 184 Business Consulting www.plus8star.com
    • Appendix Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com Business Consulting
    • Glossary and Links Glossary Links Services and technologies Tencent www.tencent.com QQ www.qq.com 2G services SMS, IVR, CRBT and others 2.5G services WAP, MMS and Java/brew Telecom operators CP Content Provider SP Service Provider China Mobile www.chinamobilehk.com SMS Short Message Service China Unicom www.chinaunicom.com.hk MMS Multimedia Message Service China Telecom www.chinatelecom.com.cn IVR Interactive Voice Response China Netcom www.china-netcom.com RBT/CRBT Ring Back Tone / Color Ring Back Tone China Mobile‟s WAP portal Monternet Internet and mobile companies China Unicom‟s WAP portal Uni Hurray! www.hurray.com MMOG Massively Multiplayer Game KongZhong www.kongzhong.com MMORPG Massively Multiplayer Online RPG Linktone www.linktone.com PCU Peak Concurrent User Netease www.163.com PHS Personal Handyphone System Pica www.pica.com VAS Value Added Services Sina www.sina.com WVAS Wireless Value Added Services Sohu www.sohu.com WAP Wireless Application Protocol Tom Online www.tom.com UCC User-Created Content WangYou www.wangyou.com UGC User-Generated Content Government and Associations Operators and Authorities MII www.mii.gov.cn CMCC China Mobile VASC www.vaschina.org CNC China Netcom MCSC www.mcsc.com.cn CU China Unicom Mobile Monday Beijing www.mobilemonday.cn CT China Telecom CNNIC China Internet Network Information Center MII Ministry of Information Industry MCSC Music Copyright Society of China Mobile & Internet +8* | Plus Eight Star 2008 98 | 184 Business Consulting www.plus8star.com
    • About +8* The future has already arrived. It is just not evenly distributed yet. William Gibson Science fiction author & father of the cyberpunk genre Coined the term quot;cyberspacequot; in 1982 The company Our focus • [+8*] (Plus Eight Star Ltd.) is a consulting boutique • „Innovation Arbitrage‟: bridging differences in market operating from Beijing, China maturity worldwide, using Asia as a source • To learn more about us, please visit www.plus8star.com! • Strategic consulting on best practices in mobile and Internet services in China, Japan and South Korea Our services Local expertise and global perspective • Provide strategic analysis to operators & content providers • Multicultural team covering the 3 markets • Hands-on experience with local companies to anticipate their markets • Bring best practices in business models, service design • Large network of contacts • Hands-on experience with local companies and marketing to Internet and mobile companies to • Cross-market & cross-cultural awareness accelerate their business • Other services range from M&A advisory, market entry, partners identification to negotiation support Co-Founder & Organizer | Mobile Monday Beijing Founder and CEO | Benjamin Joffe • Leading Information and networking event related to mobile • 8 years in Japan, Korea and China • Tel: +86 1371 880 3321 services in China • 16 sessions since March 2006 • Skype: benjamin0123 • 2000+ members, 50+ presentations • Email: benjamin@plus8star.com • www.mobilemonday.cn Mobile & Internet +8* | Plus Eight Star 2008 99 | 184 Business Consulting www.plus8star.com
    • There is more to know that QQ!  Cyworld is also very relevant to you  A broadband country since the late 90s, South Korea is today enjoying super- high speed broadband and its society has evolved accordingly, making Korea today the most „Internet literate‟ country on the planet and a perfect laboratory for new broadband Internet services.  Among Korea‟s success stories, the online community Cyworld has been the shiniest star: over 30% of South Korea‟s population, and 90% of Korean netizens in their 20s have a personal page on the service.  What you will learn  The critical elements that made Cyworld a success  The money-making services and payment systems generating 200 million USD  Original services that could help differentiate and plan some great innovations!  Pricing  Company license | USD 2,000 (PDF report) Mobile & Internet +8* | Plus Eight Star 2008 100 | 184 Business Consulting www.plus8star.com