The rise and rise of China’s internet companies

June 15, 2010 § Leave a comment

Media adviser Charles Mabbett sums up highlights from the Reporting New Realities in Asia and the Pacific international media conference in Hong Kong, April 2010. This is the second of three articles in a series on latest developments in the Chinese media. Read part one and part three.

The huge and growing numbers of internet users in China have catapulted a select few Chinese internet companies into a league previously the exclusive preserve of American internet companies such as Google, Amazon and Yahoo.

Recent reports by Chinese state media, quoting official sources, say the online population has now exceeded 400 million, up from 384 million in 2009. If the figures are correct, about a third of China’s population now has access to the internet via mobile phones, dial-up and broadband connections.

It is this huge market of domestic internet users, Chinese language specialisation and the degree of protectionism offered by the Great Firewall that arguably have been the key advantages in the establishment of the successful business models enjoyed by China’s burgeoning internet giants.

A news executive at QQ.com, one of China’s biggest news portal and social media websites with over 100 million members, told an international media conference in Hong Kong that its basic service was free and available to all users. Its revenue came from value added services and advertising.

Chen Juhong (pictured) was speaking at at the Reporting New Realities in Asia and the Pacific conference in April 2010 organised by the Hawaii-based non-profit think tank East-West Center and the University of Hong Kong.

She said making one’s personal profile or blog “more charming” costs money. “We also have games and advertising but we don’t only display ads, we also have interaction for the advertisers. We can show them how many people join their events.” Revenue also came from other value-added services that included virtual pets and ringtone downloads.

As editor-in-chief of QQ.com, Chen said running a journalism 2.0 website meant monitoring and editing content was a vital responsibility for her 600-strong newsroom. Her staff had to pay close attention to the user generated content which made up half of her website’s total content. “If you don’t pay attention to that, then you lose the whole future.”

QQ.com and its namesake QQ instant messaging service which boasts over 800 million individual accounts, are both owned by Tencent Holdings Ltd, currently China’s most valuable internet company and the third largest in the world behind Google, Amazon, and ahead of Yahoo.

Ms Chen said 60 percent of QQ.com users accessed the web using their mobile phones while the basic QQ messaging service was free.  “First of all we have products to make it happen, like blogs and micro-blogs, so we encourage people to upload their content. We just make it useful for people to record their life. And during the (Sichuan) earthquake or the Olympic Games, it’s been very powerful.  And people just love that.”

While the success of QQ.com and its sibling enterprise, the QQ messaging service, have been relatively unknown to the rest of the world, they are the two best known examples of a range of about 20 internet and mobile phone based subsidiaries owned by Tencent which encompass online services in entertainment, gaming, social media and e-commerce.

Founded in 1998 in Shenzhen, Tencent listed on the Hong Kong Stock Exchange in 2004 and in 2008 it was added as a Hang Seng Index Constituent Stock.  Today the company is valued at $US37.53 billion, making it the first Chinese internet company to break the $US30 billion barrier. Last year, the company reported $US1.8 billion in revenue.

But there are other Chinese internet companies that have enjoyed rapid and sustained growth on the back of increasing internet penetration and a boom in mobile telephony, one of which may even surpass Tencent in value in that exclusive global $US30 billion club.

The South China Morning Post recently reported that analysts JP Morgan Asia-Pacific Equity Research were forecasting that Baidu, the country’s most popular internet search engine, could be valued at $US35 billion by the end of the year, a jump from its present valuation of $US21.51 billion.

When Google China withdrew its search engine functions to Hong Kong after a disagreement with the Chinese government over cyber-hacking and censorship, it was immediately clear that Baidu would be the company that would have most to gain from Google’s departure.

Since Google’s departure, Baidu’s net profit has rocketed and revenue has doubled although the company’s management has downplayed the Google effect, attributing the success to its own performance.

With about 75 percent of the search engine traffic in China (about twice Google China’s market share before it withdrew), Baidu has set its sights on a share price target of $US860, up from its current price of about $US709. The company has been listed on the Nasdaq index since December 2007, the first Chinese company to do so.

While it may take some doing for China’s other internet giants Alibaba, Netease, Sina and Sohu to push their way into the same league as Tencent and Baidu, no sensible person can rule them out given the market environment they operate within.

Alibaba.com is the world’s largest business-to-business trading platform and owner of Taobao, China’s equivalent to eBay, and has a Hong Kong Stock Exchange valuation of $US9.75 billion, while Netease, valued at $US4.53 billion, has established itself as China’s leading online gaming website owning the country’s  most popular online multiplayer game Fantasy Westward Journey.

There is also Sina, China’s oldest and best known portal website which has a Twitter-like micro-blogging platform that is fast growing in popularity. It has over 230 million registered users and enjoys over 700 million daily page views. It is also home to blog posts by some of China’s most popular bloggers like Han Han and Guo Jing Ming and is valued at $US1.9 billion.

Like its chief rival Sina, Sohu is another Nasdaq listed company that is a popular portal website offering a range of services including social media, blogs and search functions. It is valued at $US1.83 billion.

Another to watch is Ren Ren, China’s equivalent of Facebook, although there are rumours that Facebook, which is currently blocked, is exploring making a play in China’s unique social media market.  As an example of the uniqueness of the China internet scene, many overseas Chinese will relate they use Ren Ren to keep in touch with their friends in China and Facebook to connect with friends outside China.

– by Charles Mabbett

Photos Marco Lui/JMSC 

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