Future

Empowering Self Expression on the Web (posted by Brad Bowers)

Over at GigaOm, Robert Young has an interesting post about the growth of social networking as "a micro-phenomenon of a much larger macro-trend that the Internet has spawned since its birth… digital self-expression."

He points out how regular people now have many ways to express themselves, especially on the Web. We see this to be true in blogs, podcasts, MySpace pages, Flickr albums, and more. 

This phenomenon can clearly be seen in China:

• The number of podcasts is booming (China Web2.0 review points to a study saying there are approximately 145,000 Chinese podcasts, showing nearly 300% growth in the last four months.)
• One report predicts that there will be more than 60 million bloggers in China by the end of 2006 (up from about 36M currently).

Add in the success in China of the American Idol-type show Super Girl, where citizens in China can watch amateur female singers perform and then vote for their favorite winners via SMS, and personal expression is obviously raging in China.

I think that what is happening in China is particularly interesting, given that until recently there weren't very many ways for the citizens to speak out, much less be heard.  Clearly Chinese citizens (particularly the younger set) are rapidly embracing the new technologies that are giving them a voice.  This bodes particularly well for China web businesses that can tap into this fervor, and then build a scalable business model around it.

CRV Invests in Maxthon (posted by Brad Bowers)

Congratulations go out to our friend Bill Tai of Charles River Ventures on his just completed investment in the Beijing-based company Maxthon, which makes a browser by the same name.

We've known Bill a few months now, and find him to be one of the most genuine, friendly, and sharp VCs around.  It's great to see VCs such as Bill getting more active with investments in the China market.

Maxthon's browser has reportedly been downloaded over 55 million times, and is doing upwards of 1 million downloads per week.  Also, notably, it is the second most popular browser in China (just behind IE).  Not a bad place to be with the China net population set to surpass that of the U.S. in the next year or so.

There's more on the investment on the Maxthon blog.

In talking to another upstart browser company a few months ago, I was told that Mozilla is making a ton of money (millions and millions) just off of their deal to have Google as the default browsing partner.  Given the success of AdWords, this is not hard to believe, and a given Maxthon's reach and continued growth, it clearly has a platform to generate lots of revenues, both in the U.S. and eventually in China as the ad market matures.

Business Week Proclaims "China's Online Ad Boom" Posted by Brad Bowers

This week's issue of BusinessWeek has an article that gives a great overview of the rapid rise of online advertising in China.

The article states:

"The migration of advertising from print to online is an accelerating trend in the U.S. Now, the same thing seems to be happening in China's fast-growing ad market. With 111 million Internet users on the mainland -- typically trend-conscious, young, and relatively wealthy."

Another passage states:

"Online ad spending has been growing by more than 75% annually for the past three years. It's expected to reach $812 million this year and top $1 billion in 2007, according to Shanghai-based IResearch. While Net advertising today represents just 2.3% of the total ad market in China, the balance is changing fast. "New Media's advertising revenues are starting to catch up" and will surpass traditional media's within 10 years, says Cui Baoguo, director of the Center for Media Management Studies at Beijing's Tsinghua University. "There is huge space for growth."

The article also talks about the struggles that Chinese print publications are facing, which is a topic I covered recently in a previous blog post.

Clearly online advertising is still in the early stages in China, but there is no denying the trends, which are all "up and to the right".  Further, as lessons, technologies, and methodologies from the U.S. Internet ad market are applied in China where possible, the online publishers will be able to avoid some pitfalls, and apply best-practices more quickly.  This should help accelarate growth even more quickly.

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.

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."

China Analyst Has Bullish Comments (posted by Brad Bowers)

Looks like some China stocks had a good day based on some bullish comments by Michael Tieu, a Brean Murray Carret & Co. analyst.

Some highlights:

• "The Chinese market for Internet-based services is poised for sustainable long-term growth amid a surging economy fueled by the rapidly expanding consumer population, whose buying power continues to increase."

• "China Internet is the most dynamic industry within the world's fastest-growing major economy, in our analysis."

• "This [China Internet] industry grew 20-fold over the last four years to $2 billion, and is poised to triple over the next four years to $6 billion."

• Premium services from mobile phones is now generating $1 billion (and has reached this mark in less than four years) and is expected to double by 2010.

• The other major category, Teiu said, is online games, where revenue topped $470 million last year and is projected to quadruple.

Day after day, the stats get bigger, the businesses grow bigger, and the opportunities get bigger.

Online Travel Services Showing Success in China (posted by Brad Bowers)

As recently reported on the web by several news outlets,   China’s online travel services market is growing quickly.

Some key stats from the research done by Analysys International:  

• For Q4 ’05, China’s online travel services market reached RMB 254 million or US$31.6 million in the fourth quarter of 2005 (which puts it on an annual run rate of over US$120 million

• Hotel reservations are currently the major business of online travel, accounting for 64.96% market share

• The study estimates that China’s online travel market will develop at an annual growth rate of 82.2% from 2005 to 2009 and the market size will reach RMB 77.2 billion (US$9.6 billion) by 2009.
  

There are already several companies focued on this market in China, such as CTrip (NASDAQ: CTRP)  which in Q4 ’05 generated net revenues of RMB154.8 million (US$19.2 million), up 57% year-on-year. Others include companies such as Yoee, Golden Holiday, and eLong (NASDAQ: LONG)  (which has a partnership with Barry Diller’s IAC).

Over at the ChinaStockBlog they are speculating that CTrip could be acquired or become a partner with a U.S. entrant.

There was also a recent report by Analysys referring to the rise of vertical travel search sites. The report states that "those large traditional online travel services providers, with a better awareness of brand and website but also a higher price have lost their advantage" due to the entry of the vertical travel search providers (just the same as has happened to some degree in the U.S.)   This report highlights the opportunity for companies like SideStep and Kayak here in the U.S. to provide vertical travel search to that market.

Overall it appears that the travel category presents yet another great potential market opportunity for U.S. internet companies to pursue.  Given the massive size of the market, the huge and growing online population, the increase in travelers to and within the country, and the growing per capita income, China shows lots of promise for this market sector.