My friend Shai Tsur asked me to write few words on China for BloGiza. I do not regard myself as an expert by any means and trust that my views are taken with consideration.
China is increasing access to personal computers and the Internet. This combined with domestic companies' increasing use of complex software in day-to-day business operations have spurred significant growth of China's Internet and software companies. Sales in China's software industry have increased over tenfold since 2000 from 59.3 billion RMB to 680 billion RMB in 2008. China's online population surpassed the United States' in February 2008, making it the worlds largest with approximately 310 million netizens. The fact that around 18% of China's total population is online, versus 71.4% of the US's, suggests that remarkable growth opportunities are still very much present, if you have a suitable joint venture, balls and money, there is plenty of room.
In my opinion, the Internet sector will be able to handle the financial downturn better than most sectors. Younger, middle class consumers who populate most of the Chinese Internet community have spent the same time if not more online in 2008 and Q1of 2009 and brought more of their friends along for the ride. With the online community expanding exponentially it is making up in value and positioning, than compared to the actual ad spending. It is after all early stages for the industry. In 2009, China ad spending is estimated at US$2 Billion compared US$ 25 Billion in the United States. A big difference sure, but the US is a mature market, while China is still in its infancy.
I refer to the year of 1994, when WebCrawler launched the world’s first full-text Web search engine and Time magazine’s cover for July 25th was titled ‘The Strange New World of the Internet’, as the beginning of the Internet in the US. I regard February 2008 as the ‘real’ beginning of the Chinese Internet. That month the total number of netizens reached 220+ million, 15% of the population, an online critical mass in comparison to the population. Online access has only been improving in the past 2 years.
I would very much like to see the comparisons of China to US in 15 years, the same head start the US has now over China. Analysts always like to compare the two in their reports and I find it more and more dull-witted. In 15 years from today, I will be 48 years old and China’s Internet will be 1+ billion online strong (larger than Europe, US, South America, Australia combined).
I estimate annual ad spending to be approximately US$ 100 Billion. With the computer growth rate maintaining a 35% lead over the US 2.2% the next few years will be important. Computers will be in more homes, online payment methods established and secured, a regulated ad market will emerge, more lenient regulations for web operators, reassurance from advertisers will be overtaken by their need for penetration. Presence in China is too big to cast aside.
Revenue is key in any business, but I do believe that in order for an Internet ‘start-up’ to succeed during the early stages when the sector is on the rise it is more about fundraising than revenue. I do believe that China is very much on the same theme, although it involves a much greater amount of backing as there is still a long way more to go and one embarking on the journey better be fully prepared for the ups and downs. Being solely revenue-driven is not enough in the market today.
No one is generating such impressive numbers. Let’s not forget that when Alibaba IPO’d in late 2007 at US$ 9 Billion it did only US$ 180 Million in revenues and approximately US$ 14 million in net profit. This was the same when it shot to a market cap of $25 Billion a few short weeks later.
Landmark companies such as Tencent, Giant Group, Shanda, Baidu, Taobao / Alibaba, Sina, Sohu are generating large numbers, but still pale in comparison to their international counter-parts. The rest are more or less competing for what is left over.
Foreign Web Metrics & the F@! K-ups when Trying to Rank China Websites
The issue of metrics amongst critics, reporters, VC’s or other types with no understanding of the ‘errors’ in measuring Chinese websites always frustrates me. There is always some ‘intellectual’ that thinks Alexa for example is his/her way of valuing or evaluating the basic traffic status of a website. Well, in China it’s not applicable. I have stated this before, but they think I am ‘pulling their leg’. If you want to be regarded an idiot by a web operator in China start your sentence with ‘I saw on Alexa……...’
This is Alexa in China, blatantly ridiculous:
Alexa ranks the following in the Top 100 Websites of China:
- Bank of America -Yes, yes, the ALL English, Bank Of America website designated for US account holders or corporate matters is ranked 75th largest website of China according to Alexa. No joke, kindly check yourself
- Wikipedia - Ranked 56th largest website in China according to Alexa. The 56th most populated online destination in China by Alexa. Wow, unbelievable for a website that has been blocked and banned in China since November 2006. No Chinese IP can even access Wikipedia as it is blocked. But according to Alexa it ranks them as the 56th largest website of China.
- RapidShare - Is ranked 29th largest website in China just below xiaonei.com the largest social network in China whose parent company Oak Pacific raised US$ 400 million in 2008. Not bad for NOT having a Chinese version or text website - RapidShare has no Chinese url.
- Craigslist - Ranked 32nd largest website in China according to Alexa, Not bad right? Guess what, there is no Chinese version, no information or variation of China and no directory reflective of the country. But according to Alexa it ranks up there with the 2nd most popular video sharing website of China.
- DoubleClick - 44th largest according to Alexa, the ALL English corporate website of DoubleClick is the 44th largest in China.
It is truly irresponsible of Alexa to make such ridiculous ranking or traffic reports for China based websites. What makes it even more careless is that it breeds misinformation and misrepresentation which can lead to a poor investment or an inappropriate introduction.
Alexa should note that it is not applicable for China, it is irresponsible and although the following public companies; Sohu, Sina, Baidu, Netease have all issued statement, it has been disregarded.
I had a news reporter in Israel recently ask me, ‘Why does 360quan not appear on Alexa?’. I think it was best it was a con call, otherwise I might have punched him’ as I am so so tired of misinformation.
Google Trends is a much more respected tool than Alexa, when it relates to the rest of the world. In China it is still difficult as Google does not host solely in China, there is information lost over the ‘Great Firewall’ of China and at the end of the day Google is not a dominant force in China, their ‘trends’ are not applicable on a whole. Not that ‘trendy’ in China when compared to Baidu.
As for traffic reports or ranking of Chinese websites, iResearch is great, CNNIC a government division, or Baidu’s SearchLabs which ranked 360Quan as the most popular site amongst teens two years in a row and our browser iQ:Smart in the top eight.
Video - Taking a Tumble Online?
The Chinese Internet video market is seeing an increase of only 0.5%.
This flat growth is attributed to a number of factors such as P2P services being weakened, copyright protections becoming more important; and traditional media companies beginning to move into this sector.
The dominant position of P2P live service providers has been weakened and the market concentration has decreased. PPStream and PPLive, two major Chinese P2P live service providers, owned market share of 12.9% and 12.1%, respectively. The reasons for the decrease of market concentration are because the value of video websites has further gained the recognition of advertisers after the 2008 Beijing Olympic Games. In addition, these video websites enhanced their marketing and sales, which helped them shorten the distance to the P2P live service providers, who started earlier in the online advertising sector.
Second, video websites attached more importance to copyright purchases than the video-sharing model and enhanced their establishment of an authentic movie and TV products sharing platform. These high costs brought great pressure to video websites, and to turn their traffic to revenue as soon as possible, the video websites started to shift to authorized content to gain the recognition of advertisers. In the fourth quarter of 2008, Youku.com and Ku6.com topped the Chinese video website market with the market share of 8.6% and 8.5%, respectively.
Finally, traditional movie and TV media and organizations entered the online video channels in China. For example, Beijing Television Station has launched its own online TV channel and China Film Group Corporation has launched online broadcasting of short films. As the function of online video gained the recognition of traditional movie and TV makers, these companies realized that cooperation would bring more benefits than competing with online video websites. Taking online video as a new revenue channel, traditional movie and TV makers can not only expand their channels, but also can realize the value of their products for the second time.
Given the challenges of 2008 for Video sharing sites with regards Government license issues and now the advertising revenues being harder to attract and cover the significant cost structures it is likely we will see consolidation in this market and worst, some sites failing.
Koolanoo Group Updates
In December 2008, I stepped down as CEO of Koolanoo Group and remain today as Chairman of the Board.
The Company’s new CEO is Mr. Dan Brody. Previously, Dan held positions as Managing Director at the United Sates Government IT Office in China, where he was representing companies such as ATT, Cisco, HP, IBM, Intel, Lucent, Oracle, TimeWarner, Google, Microsoft enter and operate in China. Later, he was Director of Government Relations & Head of Business Development for Motorola China. Later he helped launch off Google in China. Widely referred to in China as ‘Google Dan’ as he was the 1st Google employee in China. Dan was Strategic Partner of Google China, and the Director of Business Development for Google. He holds 3 Model UN Best Delegate Awards and is Manager of the US-China Policy Foundation.
Mr. Brody is responsible for all executive management in Koolanoo Group China.
The Company today owns several leading web brands and software properties in China. In total Koolanoo Group develops, operates, invests and manages over 18 websites in China. Products include 360Quan, myiq.cn, 9949.cn, 6887.cn, Shimao.tv amongst others. In addition, the company had invested in iQ:Smarter an Internet Browser which launched on October 2008, servicing the Internet café environment, which still is responsible for 40% of all oline access. iQ:Mail, iQ:Music, iQ:Videos are all such integrator plug-ins created for the Chinese version. (www.myIQ.cn or English basic version www.myIQ.cn/en/ )
For introduction purpose the following was uploaded for BloGiza readers:
The Company has broadened its reach with a client-software division, Web, and further new media license holdings. Koolanoo Group is affiliated with several international content providers, games companies and other such new media affiliations.
Koolanoo Group is in the right place and at the right time.
O.D. Kobo is the Chairman of Koolanoo Group
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