Future

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.

Y! and MSFT new ad systems (posted by Matt Comyns)

Today Yahoo! announced their new ad system roll out.  Perhaps their new platform and MSFT's AdCenter will give Google a run for their money.  However, I have a few observations:

*    If they both have so much confidence in their new ad systems, why have they been talking about partnering in a major way to try to compete with Google?

*    I saw that MSFT Ad Center has 6000 businesses in its system now.  That compares with over 400,000 in Google's AdSense.  Seems like a lot of catch up to do, even with the web's ubiquity.

I was with a multi-billion dollar media company on Friday who commented to me:  "I think it's over.  Google wins, and the rest of us will fight for the scraps." 

Regardless of where you come out on this arguement, the rest of this year will be very enlightening because we should know a lot more about Google dominance or lack thereof by December.  With the last quarter, they appear to be pulling away.  If that is the case, the following quarters will be even more obvious.  We'll know whether or not these new ad systems of Y! and MSFT are really competitive, whether or not MSFT's new search technology can make a dent in the market (they are currently at 11% marketshare), etc etc.

In the meantime, GOOG's stock will whiplash with rumors and speculation on where search is going.  So, be careful.

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.

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."