Future

Microsoft Bets Big on China (posted by Brad Bowers)

It's been announced that Microsoft is planning to spend a whopping $3.7B in China over the next five years.

Apparently Microsoft has signed an MOU with China's top economic planning body, the National Reform and Development Commissions (NDRC).

According to Red Herring's story on this topic, the MOU states that "Microsoft will provide $100 million to support domestic Chinese software enterprises; will purchase Chinese software products and tech support, software development, and testing services worth $100 million; and will make hardware purchases in excess of $700 million each year for the next five years."

In other Microsoft and China news, PC Advisor is reporting that Microsoft is stepping up its search research in China in order to fight for marketshare.  They have built a search technology center in Beijing and plan to introduce better Chinese search later this year.

eBay Spent $100 million in China in '05 (posted by Brad Bowers)

This past weekend, the San Francisco Chronicle had a feature story on the cover of the "Business" section about the battle in China between Alibab's Taobao.com auction site and eBay's EachNet site.

In the article, aside from some of Jack Ma's usual grandiose posturing (such as his overly optimistic claim that "In China [eBay is] gone") some interesting facts about this horserace are presented::

• eBay spent a whopping $100 million in China in 2005 - most of which was on technology and marketing.

• eBay's market share is 31.5 percent vs. Taobao's 57.7 percent (according to research firm Analysys International).

• eBay recognizes the massive opportunity that China presents and according to the article "hope to revive a slowdown in the company's overall growth" through it's China strategy.

Meg Whitman told the Chronicle that

China is "far to important to ignore and an integral part of the firm's future".

Ma accuses eBay of several missteps that can generally be characterized as actions that did not take into account the cultural differences in China (such as using a U.S. business model there instead of a more locally grown version).

As we've seen recently with Google, it is very important for U.S. Internet companies who are looking to enter the China market to gain a strong understanding of the differences in that market, how to best localize their service for Chinese businesses and consumers, and how to deal with the government there, in order to stack the cards in their favor.

Chinese Internet stock prices year to date

Here it is.

GOOG $600?

Well, Google performed.  After having a rocky Feb/Mar that proved they were human, Google came back with a vengance.  In my opinion, it's almost guaranteed GOOG will cross $500 in 2006 (as I posted on Feb 8, 2005 after the stock got hit).  And there is a good chance it may break $600.

So, does that mean GOOG is a no-brainer investment and going straight up??  NO.  If you are not prepared for more 30% drops from time to time, then this is not the stock for you.  As GOOG crosses $500, $600, etc, it becomes increasingly subject to what happened in Feb/Mar of this year.  Pain.  Any missteps, comments, or perceived competitive advancements, and GOOG is in for more pain.  I am prepared for that which is why I stay in the stock.

For the risk takers, go heavy after long term GOOG options.  Over the long term, it's likely to perform nicely.

Newspapers Struggling in China (posted by Brad Bowers)

Not unlike the misery that has befallen the traditional newspaper publishers here in the U.S., where the percentage of adults who report reading daily newspapers has fallen from 81 percent in 1964 to just 52 percent in 2004, China's newspapers are also struggling.

The South China Morning Post reported recently that a Chinese government backed think tank suggest that the Chinese newspaper industry has entered an "ice age".

Some key facts from the article:

• Newspapers' continuous revenue growth of the past two decades halted early last year under pressure from online services.

• Average advertising revenue in the traditional print-media industry declined for the first time last year, shrinking by at least 15 percent compared with 2004.

• In contrast, Internet media flourished, earning 3.1 billion yuan in advertising revenue last year -- up 77 percent.

Once again, the trends in China related to the rise of the Internet seem to be following the same story arch that we've seen here in the U.S.

And the bad news for newspaper outlets in China is likely to continue unabated as only about 12 percent of the China population is yet online (which still represents a staggering 111 million users).  Further, a large percentage of those online in China skew younger (70 percent of the Internet users are under 30 years old, and 50-55 percent are under 24).  As we well know, the younger generation has certainly embraced the web over newspapers.

When you also add in to the mix the 400 million mobile-phone subscribers in China, many of whom are certainly consuming lots of news and information via their phones,  the future for newspapers looks somewhat grim, while the future for online and mobile looks incredibly bright.

e-Commerce Revving Up in China (posted by Brad Bowers)

Over at Pacific Epoch they are reporting that China's Ministry of Commerce has announced that China's e-Commerce transaction volume totaled 740 billion Yuan (about USD $93 billion) in 2005.

He also reported that during this past year, China's e-Commerce transaction volume grew 50 percent year-on-year and the number of online shoppers increased to 22 million, a 6 million increase from 2004.

I think this is an important announcement as e-Commerce is an area that has been developing a bit more slowly than other online segments such as advertising. Some attribute this to things such as cultural differences, the nacent credit card market, and other factors.  Apparently the Chinese are starting to get past these various roadblocks and are getting comfortable in using the Internet more and more as a shopping platform.

Google's Schmidt Predicts "Large" Revenue in China (posted by Brad Bowers)

Reuter's scored a sideline interview with Google CEO Eric Schmidt at the Google news conference in China where they announced the name for their China service, which is "Gu Ge" or "Valley Song".

"I don't know where (Chinese) revenue growth will be, but it will obviously be large,"

Schmidt said they'll have 100 software engineers working for them in China by this summer at a new research and development center in China, a number that will grow to "eventually thousands,"

"You have an enormous number of computer science and smart  people here who are Chinese and want to stay in China," he  said.

"But there are relatively few companies that are trying to build worldwide R&D centers here, so we have been able to attract the top people."

YouTube Scores More Cash (posted by Brad Bowers)

As widely reported  and discussed yesterday, YouTube just raised another $8M from Sequoia (on the heels of their $3.5M round last November).

Given that a lot of people have recently been speculating about YouTube being acquired, this move raises some interesting questions. My initial reaction is that this may be a case of them raising more money at a time when they are showing meteoric user growth, have a lot of buzz, and could secure a reasonable valuation.

Also, this funding could potentially signal that they are not looking for a quick sale -- otherwise, why would they want to dilute themselves further at this time?

If they are looking to stay private, and build the business further before looking for an exit, they may have realized that the cost to continue to grow, and host and serve millions of videos will continue to increase and they want to have plenty of rope to work with.

This, especially given the nascent stage of their revenue model, could have led them to seek more funding to shore up their financial position into the future and give them time to get revenues going.

There are a lot of competitors out there, but more than any other, YouTube seems to have caught fire among users (especially MySpace users). The viral nature of this service, and the fact that until recently not too many consumers had really started engaging with these products, meant that each viewing of a YouTube video resulted in exposure to a new potential customer, and this has happened millions of times (and continues to happen each day). I'm not sure this is all that different from what competitors were (or are) doing, but sometimes a leader naturally emerges and then their momentum builds more quickly than others.

This space is crowded, but the winners are far from being set. Based on the fact that anyone can now cheaply and easily film, edit, and upload video on the web, this market should continue to grow into the future, and there is likely to be more than one winner.

As we've seen with other social networking companies (and with business in general) to stay on top you have to listen to your customers and continue to innovate. It's not hard to imagine that other companies will come out with new features and enhancements in this very young space, and if they catch on, users may be persuaded to move to new applications, as there may not be too much loyalty at this early point in time (especially among the short-attention-span, non-brand-loyal teen audience). It's simply too early to anoint a single winner in this space, especially based solely on funding and traffic.

Various media companies may buy these types of companies in the future, but I suspect that it will be more for their audience (and maybe their revenue at some point) versus the technology, which is obviously not a major barrier to entry. Likely, many companies will choose to license or build similar offerings for use on their own sites.