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Way of the weibo


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RedTech Advisors, a Shanghai-based independent research and advisory firm, takes a deep look at Sina Weibo, its usage, positioning, competitive environment and valuation.

Published in: Economy & Finance
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Way of the weibo

  1. 1. THE CHINA TECH LETTER Way of the Weibo Sina’s Microblog-driven Stock: A Bubble Ready To Burst Or A Blimp Floating Higher?Research by …
  2. 2. Table of Contents 1. Summary 2. China Microblogs: Market & Drivers 3. Threat: Watch Out SNS 4. Sina Weibo: Building Defensible Leadership Position 5. Monetization: The South Park Model & Others 6. Competition: Attack of the Clones 7. Key Takeaways: Bubble Or Blimp?Analysts: Michael Clendenin, Joe Landgrebe, Autumn Zhu. Thanks to Bill Bishop and Dan Brody for advice. 2
  3. 3. Report SummarySina Is Transforming Itself  From an old-fashioned news portal with waning interest into a rising Web 2.0 hub that is capturing advertiser attention in social network marketing. Phase 1 of this transformation is complete, with Sina’s microblog (weibo) gathering together more than 100mn relatively affluent Chinese and boosting Sina’s stock >200% in the last year. In this report, we bring clients an in- depth look at the market drivers of microblogs in China, the threat they pose to traditional SNS, emerging competition and how weibo will monetize itselfMore than a “Twitter clone”  At worst, it is a Frankenclone – aggregating the best of IM, SNS, LBS, video, e-commerce and other features into a one-stop social networking platform that poses a threat to its local pure- play peers, like Youku.  Sina continues to add new features with the hope that users find little need to jump outside of the weibo ecosystem. Recent additions include group buying, location-based services, video uploads and voice microblogs. In aggregate, we see this as the biggest threat to China’s SNS sites, especially RenRen and Kaixin001, which are soon to IPO in the US. It is a marginal threat to Tencent’s QQ platform.RedTech Consumer Tracker  RedTech’s proprietary consumer tracker adds conviction to our belief that Sina won’t lose its leadership position anytime soon. We regularly conduct in-depth interviews with families in six large- and mid-sized Chinese cities to stress test our assumptions. On weibo, we discovered that users place more value on the size and quality of users on the network rather than the platform’s individual features.  This benefits Sina, as it has first-mover advantage and its user base is generally regarded as more active and sophisticated than competitors like Tencent Microblog. We also noted that many users signed up within the last 3-6 months and use the platform on a daily basis.A Concept Stock Again  Sina CEO Charles Chao has done a masterful job in convincing the Street that Sina should be rerated and judged in the same class as its ostensible peer – the other hyped up (yet unproven) Web 2.0 darling Twitter. Weibo shares some similarities with it, such as the extent of its unproven monetization model being matched only by the seemingly unshakeable belief that it is the best “Holy @%&!” idea of the decade that will eventually make oodles of money.  Yet it’s worth noting that unlike Twitter, Sina only has access to China’s ad revenue market, not a global market. The difference in 2010: $4bn in China vs $65bn globally. We’ll have to wait until 2012 to ultimately see concrete evidence of whether Weibo can be more like 2.0 firms such as Facebook or Groupon, which are actually pulling in sizable revenue. This will make the difference in determining whether Sina’s valuation is aggressive or outrageous. We believe it will be the former, as Weibo adds $231mn to Sina’s top line from 2011-2013 and ramps up from www.redtechadvisors.comPage 3 of 62 © RedTech Advisors (China) Ltd. 2011. All rights reserved
  4. 4. Risk of Sina News Portal Ad Sales Cannibalization  We figure the decline in popularity of news portals is a done deal. So a pre-emptive strike with weibo allows Sina to mitigate the impact of this inevitability. We doubt 1+1=2 in the early days of this scenario, but something like 1.5 looks ultimately doable based on our scenario analysis of incremental ad revenue gains. We haven’t factored in revenue from other sources, like e- commerce and apps but that is sure to come and add upside potential to our more conservative scenario.Competition Remains Weak At This Stage  Tencent is the most credible competitor. It’s been ratcheting up advertising campaigns the past few months that feature various stars, from Olympian Liu Xiang to Hong Kong stars Karen Mok and Jackie Chan. But its user base of 100mn isn’t nearly as active, evidenced by the lower amount of “retweets.” Tencent will bear watching, but we don’t see a clear way for it to yet leverage its huge QQ user base to beat Sina.Regulatory Risk Not High, But Boredom Is  Sina’s management and former managers are close to the government – there’s no way that weibo could get this big without those ties. So the risk of an outright shutdown is very low in the current environment. The more likley risk is that censorship on the platform becomes too Orwellian, leading to a neutered weibo that is of little interest to its users.Bottom Line  As competition and costs increase, weibo may wobble but it won’t fall down. In the near future, we believe better buy-in points will emerge as investors worry about competitors, the added investment cost to Sina to defend and expand its position, and the waning interest in traditional portals. Overall, however, our belief is that weibo is not a bubble ready to burst. It’s more like a blimp that over the long run will elevate Sina back to its lofty status as a must-have component in any China tech www.redtechadvisors.comPage 4 of 62 © RedTech Advisors (China) Ltd., 2011. All rights reserved
  5. 5. China Microblogs Market & Drivers 5
  6. 6. Microblogs: Penetration & ClarificationChina has >460mn Net users Weibo and Twitter Users 300 mn Weibo Twitter• Penetration: About one-quarter use microblogs, with Sina’s Weibo the 250 clear leader. Users up from 10mn in 200 April 2010 to >100mn in March 2011. 150 We estimate >190mn by year end. 100 50• Clarification: Weibo is not just a 0 “Twitter clone.” It’s more like a Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Frankenclone – an oddly compelling Source: RedTech Advisors estimates mixture of Twitter, Facebook, QQ, Groupon, Foursquare & YouTube. And we’re sure more apps will be grafted on in future. This wider platform will make monetization easier.• Innovation: Sina is a portal in the Web 1.0 style. Weibo is simply a larger portal in Web 2.0 style, i.e. it incorporates the best aspects of various social networking platforms and applications and layers on its own unique innovations. 6
  7. 7. Microblogs New To Most China Chinese• We regularly conduct in- How long have you used a microblog? depth interviews with 60 6-12 Months 18% Chinese families to track the evolution of their online 3-6 Months 27% habits. The goal is early discovery of new ideas and 1-3 Months 45% potential trends for further analysis in research reports. Less than a month 9% 0% 10% 20% 30% 40% 50%• Our latest quarterly review in March showed most Source: RedTech ConWeb Household Tracker microblog users only How did you learn about microblogging? recently came to the Others platform – more than 70% in 5% last six months. Friends, classmates, colleagues 68%• Generally, they were turned News 18% onto microblogging from friends or colleagues. Search engine 9% 7 Source: RedTech ConWeb Household Tracker
  8. 8. Sina Dominates In User Quantity & Quality Biggest Base: We expect Sina Weibo Active Users: Sina weibo user users to hit about 130mn by early base more affluent and willing to summer and about 190mn by year end, spend more time on the site. making it on par with Twitter, which will have more than 250mn global users. Netease Sohu Netease Sohu Baidu 3% 1% 1% 6% 2% Tencent 9% Baidu 13% Sina 57% Tencent 21% Source: iResearch Sina Source: iResearch 87% 8
  9. 9. The Network Effect Builds Up Defense Question: Why did you choose a particular microblog? Discovery 1: Functionality matters Discovery 2: Celebrities may have way less than the number of been the original marketing hook friends or users on a blogging for microblogs but they are platform, which clearly favors Sina. declining in importance. My friends are registered to the microblog 60% More people are using the microblog 40% Already have an email account with the 35% website The website has stars/celebrities that I admire 15% Used the website for a long time 5% The microblog has more functions 5% 0% 10% 20% 30% 40% 50% 60% 70% Source: RedTech ConWeb Household Tracker 9
  10. 10. Microblog Users: Active & Opinionated How often do you use a microblog? • Many microblogs users Once per week or longer 23% check in at least once a day. Once every 4-5 days 9% • Chinas microbloggers use this platform to Once every 2-3 days 9% express personal opinions much more Once a day 27% actively than theirTwo or more times per day 32% western counterparts. • Chinese love this microblog service partly 0% 5% 10% 15% 20% 25% 30% 35% for the reason that Source: RedTech ConWeb Household Tracker Why do you use it? their opinions will Express personal opinions 80% spread quickly and gain Learn more about hot topics 60% attention. Follow the action/opinions of others 55% • Thus, Sina employs at least 500 censors to Join the discussion of hot topics with others 20% manage content andPut forward questions and get suggestions from 15% make sure opinions others don’t run afoul of See comments to myself or others 5% Beijing’s sensitivities. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 10 Source: RedTech ConWeb Household Tracker
  11. 11. Why Some People Stay Away Why don’t you use microblogs? Boring, do not want to 26% use Not familiar with 23%• Discovery 3: microblogs Dont have any friends 21% Though microblog on microblogs Dont have time 13% usage has grown Microblogs dont have 13% rapidly, barriers any useful information No interesting topics 5% to further growth 0% 5% 10% 15% 20% 25% 30% aren’t significant. Source: RedTech ConWeb Household Tracker New users will be Will you microblog in future? drawn in by better Yes, I definitely will, content and more 3% No, I am not interested in it, 13% friends that use the platform. If have content Im interested in, 54% If friends around all use microblogs, 31% 11 Source: RedTech ConWeb Household Tracker
  12. 12. Marketing Messenger Is Key For Credibility• Discovery 4: Marketing Do You Believe Marketing Info On Blogs? info on microblogs might Yes, I may try, 9% not have an advantage, unless it comes from a No, 36% friend or peer.• Marketers still have a long way to go to determine what really works in Chinese microblog Yes, but will communities. not try, 55% What’s your impression of product recommendations of friends or people you follow on microblogs? 35% 32% 30% 25% 23% 20% 18% 18% 15% 9% 10% 5% 0% Will increase my interest Will consider the product The product shared or It has no impact on my I dont like product in the product or brand shared or recommended recommended will purchase recommendation on in priority become one of my microblogs choices 12 Source: RedTech ConWeb Household Tracker
  13. 13. Threat: Watch Out SNS Ren Ren, Kaixin001 At Risk 13
  14. 14. Microblogs Threaten Pure-play SNS Model• Microblogs offer a one-stop shopping opportunity by combining the best of blogs, SNS, instant message, online video and more. Much more powerful and wider impact than SNS. Microblog vs SNS Habits• Simple way of Micro Blog linking, no 60% 52% Social Network Site approved 50% 54% connections, which 40% 38% 34% can limit SNS use. 30% 28%• Weibo lets ordinary 20% 20% 21% 20% people become 10% "friends/fans" of 0% celebrities and get t rs e s y cs d en ns d e t e e d g nd m ud oo uc ee e at . ic ic w in pi io .. to know their daily th nm Ti ie rv od St rv pd M ro at N m To ut O Fr g Se Se C D ss ai al Pr U e ol & in ss at on rt t/ ew d la S t/ r s ill k life and personal of fo de cu te pd uc or C uc nd r K rs N fo s/ En is in ch s W od U Pe od ie w e D nd -m h ar or Fr ie ak Pr Pr rc information, which st ie ev Se ke s/ M ay ea Po of Fr of ew R s/ Li S pl fo fo ith re ew r N is greatly shortens the In fo In ha D w st N h st ck S te e y rc at Po rit he La distance between ea ic eb C un r S ve el m C co the two. om is Source: DCCI D C• Microblog and SNS user base overlap, so more time on weibo hurts SNS players. 14
  15. 15. Microblogs Threaten Pure-play SNS Model (2)• Keyword searches for Sina’s Weibo vs SNS sites RenRen and Kaixin. Kaixin Weibo RenRen Source: Baidu Index 15
  16. 16. More Microblogging = Less Time For SNS• Discovery 5: A series of conversations and questions about microblogs versus SNS reinforced the potential risk of consumers moving away from SNS over the long run because of the bundled approach that microblog platforms use in China. Question: I dont use Yes, I spent How does SNS, 27% less time on microblogging SNS, 41% impact your SNS usage? Has no impact, 32% Source: RedTech ConWeb Household Tracker 16
  17. 17. Sina’s Weibo Building Defensible Leadership Position 17
  18. 18. Weibo Drives Sina To Best Performance• Market Cap: US$7.3bn as of April 15, 2011. Priced at $123.68.• Substantial additional gains require Sina to show progress on monetization. Source: Reuters 18
  19. 19. Weibo Net Stats Weibo rolled out on Famous users Recent posts (weibo) Most popular Users People Online (weibo) (weibo) Wap Portal 19 Source: Alexa
  20. 20. Weibo Key Indicators & Features Sina Weibo• Launched: Aug. 2009 Registered Users (mn) QoQ Growth 250 200%• Reg. Users: ~115mn 200• Active Users: ~92mn 150 129% 150% 150% 100%• Market Share: ~85% 100 65% 100%• User Experience 50 45% 39% 27% 21% 50% ◦ Easy to register 0 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 0%  Provide email, password and name and you’re in ◦ Clean page, User Friendly, Easy to navigate Source: RedTech Advisors• Daily Use: 25-30mn msgs.• Employees: At least 600 of Sina’s 3500 by end 2010. At least 500 are censors. Sina expects to hire another 1000 people in 2011.• Features: IM, SNS, Groupbuy, LBS, Online Video, Search• Financials: Cost of running weibo significantly increasing, with combined expenses growth likely outpacing overall Sina sales growth this year as the company sees 2011 as a “year of significant investment.” R&D likely to pop up 15-20% in 2011 and SG&A up ~30%. As a % of sales, R&D will remain about flat at 9% but SG&A will increase to about 30% from 24% in 2010. 20
  21. 21. Sina Weibo SWOT AnalysisStrengths Weaknesses More than just a Twitter clone  Users may reject “social marketing” First-mover advantage/network effect campaigns  Censorship: Weibo is very politically Partnerships (i.e. Youku, 360buy, Meituan) sensitive. It’s popularity is partly because Sina is China’s top portal. Strong balance people can disseminate messages or events notsheet. ~$880mn in cash. always reported by traditional media, i.e. Demographic: Urban, young, affluent corrupt officials, suicides and other socially sensational stories. Focus is on expansion rather than quickmonetization.  Self-censorship may dull long-term interestOpportunities Threats The next QQ: Huge user base provides good  Regulatory risk – low b/c gov and Sina willplatform for advertisers and rich resource to agree on some level of censorship.enhance direct communication with users.  Competition – not significant yet. But Cross selling platform, i.e. ads, e-commerce, Tencent spending payments  User fickleness: Weibo users care less about Killer mobile app. (~about 30-40% of msgs service’s brand and more about the magnitudecome from mobile devices.) and activity of the users. If a competitor can Corporate portal (5000 firms already use it. match this, then users will jump.2700 media organizations)  Cannibalization of Sina portal ad revenues. 21
  22. 22. Partnerships Make Platform Sticky & Tricky• Sticky: Multiple partnerships help Sina expand the one- stop shopping allure. Inline videos with partners like Youku make Weibo more dynamic.• Tricky: However, Sina is encroaching on some of its “partners,” i.e. by allowing users to directly upload videos to Sina video site thru the weibo interface, it Partnerships competes with Youku and Tudou on user-generated content. Weibo is likely just getting started. 22
  23. 23. Stars Seeded Weibo, But Friends Drive It Applications Messages Friends Search Mobile App Followers Bonus SchemeMessage forwarded 54times, 55 comments 23
  24. 24. Applications Expand The Ecosystem Applications Notice Pizza Hut Ad Recommended Applications Application Scoreboard Latest Application ListOpen API: 3rd party developers 568, 079 Userscan submit apps online for one app 24
  25. 25. Most Popular Apps In Weibo • Micro Music Users can listen to broadcasting stations of stars and friends as well as music, and send a song as a gift to another user. • Star Appearance Upload a profile picture and you’ll know which famous star you most look like. • Micro Mr. Doctor V Show the most faithful fans of microblogs, tracking how many times he/she posts, reposts and replies to other microbloggers. • Cartoon ID User discovers his/her cartoon identity by inputting name 25
  26. 26. Games Create Stickiness Games 84 Games 2,638,287 people have connected their Weibo to this gaming platform RatingOpen API: 3rd party developerscan submit apps online 26
  27. 27. Popular Microblog Games • Sina Wanwan Developer: Sina Wanwan• Game platform with a variety of web games. Sina WanwanA large game platform with a variety of small web games.• Beg to Be Adopted Developer: Qi MengThrough the game, the user can be “adopted” by othermicrobloggers and the value of the user measured by virtualgolden coins will increase when more microbloggers click toadopt him/her. • What were you in your last life? Developer: Ci123 Predicts the career of the user using birthdate. • Microblog Marriage Certificate Developer: MicroWorld Create an Internet marriage certificate. 27
  28. 28. Sina Keeps Building Up Feature SetThe past few months …• Group buy function• LBS (Location Based Services) “Wei Lingdi”• Instant Messaging “Microblog Air”• Voice-based microblog• Groups• Video uploads/sharing• Voting or Polling (like Facebook)• Trend spotting 28
  29. 29. Group Buy Social Platform• Subscription based• Allows users to receive group buy messages that meet their selected criteria (i.e. location, product category, price, etc.)• Participating group sites: ◦ 58tuan,,,, etc.• Social Features ◦ Friends Activity:  Share group purchases, bookmarks, custom subscriptions, etc. ◦ Group Buy communities:  Forums for sharing about discounts, purchased items, complaints, etc. ◦ Wish List:  Rank and organize group purchases ◦ Reward Point System:  Rewards sharing, invitations, comments, purchases, etc.  Points can be used to purchase products and coupons  Risk: People spamming friends and other followers to build up free coupons. 29
  30. 30. Sample Group Buy Page Group Buy PriceOriginal Price Discount Savings Already Purchased Time Remaining Days Hours Minutes Seconds 30
  31. 31. Location-based Services Platform How Do You Visit Microblog Sites?• 40% of Weibo users access through mobile device Both PC and Mobile• Available for iPhone, Phone 27% Android, Symbian (pending) PC 64% Mobile Phone 9%• Help users find stores, ATM, friends, stars, etc. ◦ Like Foursquare, can check- in and get badges When Do You Use Handset To Visit Microblog? ◦ See where friends are 60% checked-in 50% 48% LBS feature will try to ◦ Use “Star News” to follow 40% connect consumers to merchants 32% favorite stars’ footsteps 30% 20% 12%• Weibo will potentially 10% 8% receive revenue from shops 0% In transportation Shopping or Waiting Working or Having for advertising and data Having fun classes analysis Source: RedTech ConWeb Household Tracker 31
  32. 32. Weibo Going Mobile With LBSFollow favorite star here Find out where friend is to meet for coffee Check-in for lunch here Earn badges 32 Download to smartphone function
  33. 33. Instant Messaging Platform• “Microblog Air” competes with Simple design and interface Real time chat Tencent’s QQ• Sina (and others) have tried fielding IM QQ killers before. Didn’t work. But Weibo popularity may allow for better Built-in music player traction.• Client can tailor make the application to meet Support for video Graffiti board for drawing their individual preferences• Supports an integrated multimedia player 33
  34. 34. Clubbing: Ability To Join Groups• Social Clubs• Divided into 8 major categories and 100 subcategories: ◦ Celebrities, industry, interests, culture, lifestyle, housing, old friends, cities• Users allowed to create their own unique groups according to their interests• Each group is limited to 500 users and each user is limited to 10 groups 34
  35. 35. Social Networking on Steroids Groups Hot Politics Stars Industry Interests Science Lifestyle Cities Friends Create a Group Most Active Last 24hrs Suggested Groups Join 35
  36. 36. Weibo’s Housing Group Page 36
  37. 37. Money Exploring Business Models 37
  38. 38. Biz Models• South Park Dysfunction• Traditional Advertising• Product & Event Search• Cross-selling, Third Party, e-Commerce• Corporate Digital Strategy• Open Platform: Apps & Gaming• Scenario Analysis 38
  39. 39. South Park Model: Underpants Gnomes• Gnomes steal underwear, await divine inspiration and big profits.• Investors worry Sina is doing the same. Weibo has generated minimal revenue to date, and effectiveness of microblog in marketing is still unproven. Sina now moving to test ways of monetization, but not the focus in 2011. Expansion is. We expect Weibo to add 18mn/70mn/142mn to Sina’s top line from 2011-2013.Season 2, Episode 17. URL: Script … Gnome: This is where all our work is done. Cartman: So what are you gonna do with all these underpants that you steal? Gnome: Collecting underpants is just phase 1. Phase 1: collect underpants. Kyle: Sooo, whats phase 2? Gnome: (has no response. Looks around, then calls out to the other gnomes sifting through mound of underpants) Hey, whats phase 2? Gnome 2: Phase 1: we collect underpants. Gnome: Yeah yeah yeah, but … What about phase 2? Gnome 2: (says nothing, then) Well, phase 3 is profit. Get it? Stan: I dont get it. Gnome 2: (walks up to a large chart) You see, Phase 1: collect underpants. Phase 2: … Phase 3: Profit. 39
  40. 40. Advertising ModelUpside Potential China Online Ads Market Online Ads Revenue (bn yuan) YoY C hange• Tried-and-true revenue model. 100 60% Market for online ads is surging. 51% Exceeded $4bn in 2010, will 80 46% 46% close in on $6.5bn this year and 40% continue growing by at least 40% 30% to 40% a year through 60 2013.• Leverages Sina’s sales force to 40 22% 20% cross-sell and bundle. 20• Target ads based on user preferences and behavior. No wasted ads. 0 0% 2009 2010e 2011e 2012e 2013eDownside Risk Source: iResearch, RedTech estimates• Effect of marketing on this platform is hard to measure and value.• Users may grow sensitive to data mining of personal info (assuming they are willing to share it.)• Weibo may soon approach Twitter in size, but it doesn’t have same access to global online ad dollars (est. at $65bn in 2010). Only China (~$4bn).• Potentially cannibalizes Sina portal ad revenue. Though it’s better for Sina to eat into this business than someone else, which is inevitable as portals succumb to Web 2.0.• Currently, many stars already endorse products, but cut Sina out by directly working with the advertiser or agency. It’s not yet clear how Sina will control this. 40
  41. 41. Advertising ModelAdditional Concerns• Promoted “tweets” run the risk of seeming like spam if Display ad for victims of the they are written by PR hacks earthquake in rather than the user of the Japan. weibo account, i.e. a celebrity. Chinese are tolerant of display and text ads, often seeing them as the price to pay for “free” content, i.e. online video, but the weibo platform is more personal.• Verifying quality of followers • Commercializing personalization key of a particular user can be to social ads. Traditional media can’t difficult. There is already a make the one-on-one connections of cottage business in building up microblogs, so Sina needs to draft weibo accounts (min of 200k clear guidelines for commercially users) with good content and then selling them on. These engaging users so the platform users may soon turn into maintains its personality and doesn’t zombie followers if the devolve into an online mirror of the account personality changes. spammy stuff found elsewhere. 41
  42. 42. Product & Events Search Model• Relevant: User has interest in the particular product or Connect to company’s website service• Search results can include Product descriptions, feedback from reviews, comments, etc. peers, friends or celebrities• Monetization: Sina takes cut of each transaction (pay-for- performance) 42
  43. 43. Cross-selling, 3rd-Party Model, e-Commerce• Utilize Sina’s large Sina’s online clothes retailer Mecox Lane ecosystem (i.e. online video, online Company URL games, online shopping mall) to help facilitate e- commerce• Vertical integration with Mecox Lane• Mecox Lane provides platform for Weibo to transform users into revenue• Link to existing online shopping malls (i.e., Taobao)• Encourage third-party development within Weibo ecosystem• Monetization opportunity: provide click-through to the merchant and receive cut of revenue 43
  44. 44. Corporate Digital Strategy• Tap into the 5000 companies that use Weibo to help them promote, recruit, and do PR ◦ Verified accounts  Customers know they are talking to the actual business ◦ Testing tool for companies doing research  See how market will respond to a particular ad campaign• Monetization opportunity: packaging Weibo into Sina’s main advertising package or clients pay separately for a verified account 44
  45. 45. Edelman Pitch To Corporate Clients • Agencies, PR outfits have long been pushing for microblog as part of comprehensive, interactive digital strategy.For full presentation, go to Slideshare … engagement-sinaweiboby- liblogedelman-compatibility- mode?from=ss_embed 45
  46. 46. Provides Platform for Dialogue with CustomersPR Promotion forEarth Hour Indicates site is verified Channel for PR, recruitment, product promotion, etc. 46
  47. 47. Open Platform Model• Work with developers to expand ecosystem ◦ Develop apps, Games ◦ About 2000 developers attended Weibo’s first developer conference in November. ◦ Sina and VCs set up 200mn yuan fund to invest in app developers.• Leverages third parties expertise into Sina’s R&D base ◦ Tencent and Baidu have stronger R&D base• Monetization opportunity: Consumers pay for app or game and Weibo shares the profits: 30% to Sina/70% to developer 47
  48. 48. Scenario Analysis: Weibo Arrests Sina Decline ◦ Sina and Weibo is not 1+1=2, but in our scenario we factor in 5%/15%/25% incremental growth in ad sales from 2011-2013 as Sina moves to monetize Weibo. This will add $231mn to Sina sales. ◦ Sina will invest significantly to expand Weibo’s reach. This will push up sales and marketing as a percentage of total revenue by ~10-15ppts between 2011-2013, but we believe this aggressive investment and expansion of headcount will help Sina keep weibo the top microblog for users and advertisers and help fend off new competition in the sector. R&D expense will also grow, but should still hover around 8-9% of overall sales. Online Ad Revenue (Ex. MVAS, Other) Sina Sina + Weibo 800 USD mn 712 600 570 537 467 366 384 400 200 0 2011 2012 2013 Source: RedTech estimates 48
  49. 49. Competition Attack of the Clones 49
  50. 50. Sina Remains the Industry Leader • User’s home page • Competitors have only cloned this 140 character entry design; offer very little in terms of differentiation. 50
  51. 51. Move To Boosts Branding Sina launches nationwide contest to inspire people to advertise the weibo name in clever ways. For more examples, see n/z/paijingpin/51
  52. 52. Attack of the Clones: TencentLook familiar?• Sina’s most viable competitor• Strengths ◦ Microblog has large user base (100mn). Since April 2010. ◦ Supports many similar features ◦ QQ ecosystem (630mn users)  QQ (IM), (group buying), QZone (SNS), TenPay (third party payment system), Gaming• Weaknesses ◦ Branding: Started as Taotao and re-branded as Tencent Microblog ◦ Big numbers but weak demographics  Rural+Teen = No Money ◦ Product Differentiation 52
  53. 53. Attack of the Clones: More on Tencent• Tencent has some of the best product design teams in China.• We believe they are making a bigger push into microblog than many people realize.• Already seeing a huge ad campaign with stars launched during last few months to woo new users.• Currently building out platform with apps and features, then will shift focus to improving user interactivity, likely by linking with QQ. This will be key because currently retweets on Tencent platform are low.• The Sina-Tencent microblog battle will be one of the key Internet battles in 2011. 53 Olympian Liu Xiang (top); HK Actress Karen Mok
  54. 54. Attack of the Clones: Part II (Sohu) “Sina copied Twitter first and then we all followed in copying. So there is no technological barrier.” -- Charles Zhang, CEO Sohu• Strengths ◦ Second largest Chinese news portal ◦ Strong gaming presence ◦ Partnership with Hunan Satellite TV  Engages audiences via TV, internet, and mobile ◦ Supports many similar features as Weibo• Weaknesses ◦ Stability  Experienced outage in February ◦ Product Differentiation ◦ Overall, just not nearly at the same level as Tencent in terms of being viable competitor 54
  55. 55. Attack of the Clones: Part III (Netease)• Strengths ◦ Focusing on Mobile Internet Strategy, which aligns with 163 character entry growth in microblog user base. ◦ Gaming ◦ Supports similar features as Sina ◦ Strong email user base• Weaknesses ◦ Product Differentiation  Get some small credit for extending character limit from 140 to 163. ◦ Overall, just not nearly at the same level as Tencent in terms of being viable competitor 55
  56. 56. Attack of the Clones: Part IV (Baidu)Shuoba• Strengths ◦ #1 search in China ◦ Box Microblogging  Post directly from Baidu search box  Ability to post to every major microblogging site ◦ Supports many of the same features as Sina• Weaknesses ◦ Invades Privacy  Requests too much information to register (i.e. Baidu queries gov’t database to check if ID card # valid) But this may change soon. ◦ Product Differentiation ◦ Not really a credible competitor at this point, but might be depending on whether they team with Facebook 56
  57. 57. Key Takeaways It’s a Blimp 57
  58. 58. Sector Thoughts• Microblogs are especially popular in China for two reasons. ◦ Chinese have shown a much stronger interest in expressing themselves on the Internet than what we see in many other countries. ◦ As traditional media has too much control in China, weibo offers a new, relatively free way to efficiently keep up on social trends, products, events, business and even some political gossip. It is gradually becoming a primary way for people to get information in the social networking universe.• The commercial potential is hard to gauge. ◦ As with SNS companies, the real effect of marketing on these platforms is difficult to measure and therefore hard to predict. But we like microblog more than SNS because of the ease of viral communication and reduction of barriers to forming relationships. 58
  59. 59. More Sector Thoughts• Big threat to SNS, i.e. RenRen, Kaixin001 (pending US IPO). ◦ We have talked to several people in SNS companies who can never illustrate clearly the value of their business in just a few sentences, which makes us wonder if they can’t define the value of the business in a simple way, the future prospect of this business will be fuzzy as well. ◦ As stated earlier, microblog connections are easy to make and the value to the user is more compelling, i.e. they can disseminate opinions to wider audience and interact with a huge base of users. ◦ SNS concepts like “friends” or “classmates” can be exclusionary. Microblog provides a way to gather people together regardless of previous relationships. As long as you are interested in knowing someone or something, you can become a fan.• Regulatory risk not significant but worrisome. ◦ Major concern is not that it will be shut down by gov’t but that it will be neutered to such an extent that many lose interest. For instance, during “jasmine fever” Sina asked users with high numbers of followers to “behave” and not write anything sensitive. ◦ Gives people an angst outlet against bungling local officials that Beijing wants to keep an eye on. ◦ Conveniently gathers potential “troublemakers” in one spot, making them easier to watch. 59
  60. 60. Outlook for Sina’s Weibo• Maintains dominance ◦ Sina management is totally focused on Weibo, so unlikely to lose first-mover Valuation: $7bn and counting advantage anytime soon. ◦ ~190mn users by end of 2011. ◦ 25-30mn messages per day. You can say a lot in 140 characters. ◦ Growth strategy  Improve quality and user experience  Sacrifice short-term profit for long-term growth. Optimistically est. $18mn in 2011 weibo sales, with as little as $5-$10mn.  Sina wants to use Weibo like Tencent used QQ.• Needs to further expand its moat ◦ Add features that increase user loyalty and stickiness  Doing so with recent addition of LBS and IM services. ◦ Further develop its ecosystem  Expanding Gaming & App Channels 60
  61. 61. Outlook for Sina’s Weibo (2)• Competition Growing ◦ In basic features, microblog services not that different from one another. This is a threat to Sina as other deep-pocketed companies try for a piece of the market. ◦ Already many celebrities launch the same microblog on Sina, Sohu, Netease, etc.• Weibo Advantage & Disadvantage ◦ But microblog has one difference from blog, as its attractiveness largely depends on who you connect with, so that is an advantage for Sina as it has a more sophisticated user base. ◦ Bundling sales with Sina portal must be carefully managed. Very unlikely that it will be 1+1=2 in sales. Sina portal revenue will be cannibalized to some extent.• Management guanxi good; savvy excellent ◦ Sina CEO Charles Chao is cautious, closer to government. Former Sina CEO, Mao Daolin, is now Hu Jintao’s son-in-law. Sina Weibo management team well regarded for negotiating and implementation skills, while product design team is also strong. ◦ As portal popularity wanes, Chao manages to convince the Street that Sina is a concept stock again. Clever. ◦ Sina needs to invest heavily to reinvent itself. Weibo, online video, etc. are all ways of doing that, but it means more spending on servers, data centers, people and partnerships. This means some margin squeeze in the short-term, which Sina will gloss over with visions of Weibo – the best thing to hit China tech since fireworks, paper and porcelain.• Potential Weibo IPO spinoff ◦ Just moved to new URL last week:• It’s a Blimp 61
  62. 62. THE CHINA TECH LETTER Thanks! +86 21 6248 3975Research by …