I have to thank several people for the information in this post: In particular Tangos Chan, who runs the excellent China Web 2.0 Review blog, and Benjamin Joffe - CEO of Asian Internet consultancy Plus Eight Star Ltd and co-founder of Mobile Monday Beijing. Also thanks to Chang W. Kim, who introduced me to Tangos and Benjamin! Sam Flemming of Chinese research company CIC Data and Micah Sittig from Shanghai also contacted me with their thoughts.

Overview of China market

Let's start with an overview of Chinese web apps. Benjamin Joffe said "there is basically at least one Chinese equivalent for every single US web2.0 service that is more than 2 months old." Here are some other characteristics of the China web scene, suggested by Tangos Chan and with further comments from Benjamin...

Big companies still dominate the market

Tangos says that so far there are no outstanding small startups that have successfully gained the attention of ordinary internet users. For example, in the blog hosting market Blogcn, Bokee and Blogbus were among the first movers. But after big companies Sina, Sohu and Baidu entered the scene, they won market share quickly [see short profiles of these companies below]

Benjamin adds that no Chinese startup that stays a startup for long - "basically they grow to over 100 staff and get their first million $ round of financing fairly quickly, or disappear." 

Chinese startups often copy the Silicon Valley model

Tangos: "Sometimes, just a copycat even without any change."

M&A is rare in the China market - or is it?

Tangos says M&A is rare in the China market, which makes it more difficult for China's startups to raise funding and find an exit.

Benjamin has different information from an M&A consultancy firm: "there has been over $500M worth of M&A in 2005, which is huge for a country with a GDP/capita well below 1/10th of the Western developed world. But he says that "most of the M&A occur in the wireless space" and there are "several hundreds, if not thousands" of companies competing in this wireless space.

Tangos agrees that China's mobile sector has more innovation than the Web sector, because of the high penetration rate of mobile handsets and highly developed short message, ringtone and ringback tone services. He said that in the general Web sector the big companies - Sina, Sohu, Baidu, Netease, etc. - seldom acquire startups, unlike what usually happens in Silicon Valley. In China the bigcos "just build new services by themselves."

So looks like both Tangos and Benjamin are right - M&A is relatively rare in general web apps, but common in the wireless space.

Regulation is a potential risk for Chinese startups

Tangos: "for instance, SARFT (State Administration of Radio, Film and Television) recently announced plans to regulate the online video market."

Benjamin: "I would also mention the regulations in the mobile space (as many Internet portals derive revenues from mobile phones). Sanctions and new rules for getting subscribers all impact the content providers' businesses. You can have a look at the change in their stock price around mid-July to see the impact of China Mobile new regulations."

Foreign companies find it difficult to compete

Tangos says that language barriers, difference in culture and government policies and regulations make it difficult for foreign companies to compete in China's market.

Benjamin totally agrees - he says "it is almost a national sport to show how foreign those companies are." He mentions a viral video by Baidu making fun of a foreigner, representing Google (explanation here). Benjamin also thinks US Internet giants are suffering from many shortcomings in China:

"...lack of understanding of local netizens' tastes, weakness in Chinese language software treatment, slow reactions. The only one doing fairly good in China is Google. Yahoo and Amazon bought their way in, and web 2.0 US companies are all concept-copied and adapted by local players."

Top China Web Apps

Baidu is the leading Chinese language search engine. It's the 4th ranked website in the world in Alexa's rankings - putting it only behind Yahoo, MSN and Google on a global scale. According to Wikipedia, the Chinese word "Baidu" translates to "hundreds of 'degree-level'" in English. It has an index of over 740 million web pages, 80 million images and 10 million multimedia files. Baidu.com had its initial public offering (IPO) on 5 August 2005. It also offers blogs and other services similar to the US Internet giants.

Sina is is the largest Chinese-language web portal (news, entertainment, email, search, etc), so similar in a way to Yahoo. Alexa ranks Sina as the 7th biggest web property in the world, just behind MySpace. It's said to have 94.8 million registered users and more than 10 million active users engaged in their fee-based services, with an estimated 3 billion page views every day [source: Wikipedia].

Sohu is a "mass portal and leading online media destination" [source: Wikipedia]. It's ranked 12 globally by Wikipedia.

Benjamin told me that Sina, Sohu and Baidu are all listed on US Nasdaq and each is valued at over $500M. And those are just 3 of the more familiar names to english-speaking Web people. China is such a big player now on the Web that they have 4 companies in Alexa's top 10 web properties in the world (Baidu, qq.com, sina.com, 163.com). The US has 5 in the top 10 and Japan 1.

Other China Web 2.0 apps

There is already a 'web 2.0 logo' display of China web apps, at internetdigital.org (in list format here). So for this post Tangos has come up with his personal list of favorites. Feel free to add yours in the comments, along with reasons why. Here's Tangos' list:

• Douban: One of the choice of Business 2.0's "Web 2.0 Around the World "; my profile for it
• Podlook: A  Chinese podcast  directory  (profile).
• Dianping: Local business review and search service, some introduction here.
• Wealink: business social networking service.
• zhuaxia: online rss reader similar to rojo (profile).
• Sohu Blog: blog service by Sohu, a popular internet portal site, just upgrade to allow users to add various widgets into their blogs.
• iephotoshop: online image editor, very powerful, but IE only [update 12/9/06: now works on Firefox too].
• Feedsky: an analog of Feedburner in China.
• Editgrid: Online spreadsheet (profile).
• Maxthon: a IE based browser.
• City8: online map service with local real view (profile).
• eDushi: online 3D map service.
• Qihoo: BBS and blog search and aggregrator. (disclaimer: Tangos is currently an employee of Qihoo)
• wretch.cc: Taiwan-based blog and photo album service.
• 8box.cn: music discovering and sharing service (an interview with its founder).

China Web blogs and news

• China Web 2.0 Review blog (this has been on my RSS subs ever since it started in Nov 05)
• mobilemonday beijing
• web20asia.com
• Virtual China
• Sam Flemming's blog

I'm sure there are other interesting english language blogs about China Web that I've missed, so please mention them in the comments.

Thanks again Tangos and Benjamin for the fascinating information. China is obviously a very important part of the Web and its influence will only get bigger over the coming years, particularly in mobile one suspects.