"China Web2.0 Review is a blog dedicated to track and review web2.0 development in China. We will profile and review web2.0 applications, products, services and business in China, and track the buzz about web2.0 in Chinaís internet industry as well."

Graphic from keso

China Web2.0 Review has an interesting post about FeedSky, which is like China's answer to Feedburner (although more than that, according to the post).

Hat-tip Rex Chung for the link. It's great to see what's happening outside Silicon Valley and I hope to discover more international Web 2.0 blogs.

The China Web 2.0 Blog also notes some privacy implications: "the first time you use the service, it will give you a privacy alert that your IP information will be recorded for at least two months. And it will be available for authority on request."

According to stats compiled by vnunet.com, China will overtake the US next year to become the world's largest broadband internet market:

"The number of broadband subscribers in China is growing at a staggering 79 per cent annually, and will reach 79 million in 2007, consulting firm Ovum predicted in research released today.

Recent estimates from Leichtman Research suggest that the number of broadband connections in the US, currently the world's largest market, is around 51 million."

Like John Dowdell, I believe this will provide many opportunities to developers all over the world. The globalisation of web apps is a trend that I've been monitoring closely, particularly in my ongoing series on International Web Apps.

In my post Top Web Apps in China, I discussed how China's mobile sector currently has more innovation than the general Web sector - because of the high penetration rate of mobile handsets and highly developed short message, ringtone and ringback tone services. However the risks for non-Chinese people in this market include tough government regulations, plus the language and cultural barriers. I also noted in that post that China already has some very big Internet companies - Baidu, Sina, Sohu among them. Check out my China web app overview for more details.

The truth of the matter is probably not nearly so simple. As I understand it it's almost never as simple as "China is blocking X.Y.Z websites". It depends on which ISP you're using, there are technical obstacles to good service and there's a maze of face-to-face meetings that go on in order to plan and enact any such censorship, redirects, etc. It's highly unlikely that there is any nationwide policy suddenly put into place that effects internet users all across that huge nation. There are certainly a few big policies that are self-enforced by online service providers, but many of the comments being left on today's China coverage denying nation-wide censorship are probably the honest truth.

Today's news coverage itself deserves some serious scrutiny.

Some of the language of "economic attack" may be thinly veiled jingoism and calls to "boycott the Olympics" are pretty tasteless in light of the true Chinese crimes against humanity that long term human rights activists have been citing for withdrawal from the event. Darfur? Loud voices calling for economic sanctions in response to the alleged activities of the Western world's economic challengers sound like fair-weather friends of free speech to me.

Online freedom in China is important, but online accuracy is important everywhere.

It's not surprising that China's web site ecosystem is seeing such huge growth -- their Internet user population is as well. In February, the Chinese Ministry of Industry and Information reported that the country had 221 million Internet users, which means that it has effectively passed the United States as the world's largest net population. And there's still a lot of room to grow -- China only has about 16% of its population on the Internet, according to Internet World Stats, compared to 71.4% of Americans who are online.

In our 2008 web predictions, Richard MacManus predicted that this would be a break out year for China on the Internet. "The most interesting innovations on the Web in 2008 won't happen in Silicon Valley, but in Asia (China, Japan, Korea)," wrote MacManus. "At least one startup from China will break through in the US market with Twitter-like success in 2008 - and it will almost certainly be a Mobile Web app."

We haven't had a Twitter-like success come out of China year (it's still early in 2008, though), but China is definitely experiencing a web boom. Doing business in China, however, can be very tricky. Jerry Yang, CEO of Yahoo!, a company that has had a tough go in China, said that doing business in other countries was difficult because of legal "gray areas." Google has also taken heat for cooperating with Chinese censors.

It is important to note that a lot of Google's competitors in China, including Baidu, Sohu, and Yahoo, have recently been sued by the music industry in China because of their MP3 search engines which often link to illegal copies. Indeed, according to the International Federation of the Phonographic Industry, the record industry's international lobbying group, 99% of all music files distributed in China are pirated (in 2005, by the way, the piracy level in China was 'only' 85%). Baidu's MP3 search engine is responsible for about 7% of the traffic to its service.

While Google has clearly been able to work out deals with the music industry in China, it is currently locked in a number of battles with the music industry in Europe and the United States, and we don't expect that Google will offer a similar service anywhere else in the world anytime soon.

It will be interesting to see if Google manages to steal away users from Baidu thanks to this new offering. If anything, users have shown to be quite resistant when it comes to changing their search habits, and while Google's MP3 catalog is interesting enough by itself, it remains to be seen if it can be competitive against the other MP3 search engines in China.

Sadly, there is also some evidence that while the Chinese government is still keenly aware of the events of June 4th 1989, a large number of young Chinese know very little about the event.

The Times of London is reporting that Facebook has made an $85 million offer to purchase Zhanzuo.com. The Times reports that Zhanzuo.com CEO Jack Zhang and Facebook founder Mark Zuckerberg have engaged in talks but that no deal has been completed. Facebook is denying the report.

Facebook, however, is denying that they have any intention to acquire Zhanzuo.com -- or any Chinese site, for that matter. Facebook's Director of Communications Brandee Barker told TechCrunch that Facebook has not made any acquisition offers for the site. "No offer has been made and no acquisition in China is being considered by Facebook," said Barker. "And I don’t know who the spokeperson [sic] is that they are referring to in the story. The Times never contacted me or my team to confirm the accuracy of this story."

"While Baidu continues to gain market share in China — and does so with a Web site that the Chinese government heavily censors and that gives priority to advertising rather than relevant search results — some analysts question whether Baidu can withstand competition from Google and Yahoo, which possess superior technology and global work forces."

I actually think the question is the wrong way round - it should be: can Google and Yahoo withstand competition from Baidu, in China?

While I'm not able to judge whether Baidu's technology is inferior to Google and Yahoo's - although I'd love some comments on this from techies who are familiar with Baidu - I think Western companies (even Google) will be hard-pressed to compete against Baidu in China. In our Top Web Apps in China post, we noted that government regulations, language and cultural barriers are all difficult for western companies to overcome. While there continues to be a lot of hype about China being the next big market for Silicon Valley companies to conquer, the reality may be completely different.

Does US have a lock on innovation?

And who's to say Google's technology is better? Netanel Jacobsson is one person who should know - he runs the up and coming browser Maxthon from China. In a recent post Netanel commented on whether America still has a lock on innovation. In short he doesn't think so and indeed had this to say:

"China should not be seen as a copy cat - but a great force on future innovation. Between 2004-05 there was an increase in close to 40 % in filed patents from China."

Baidu gaining market share, while Google struggles

Source: Sina

Also, regarding Baidu in particular, China Web2.0 Review noted recently that Baidu gained market share last year and strengthened its leadership in China’s search market. Meanwhile Google China lost a significant amount of market share:

"According to CNNIC report, 62.1% users choose Baidu as their preferred search engine, representing an increase of 10 percentage in one year, while Google China’s market share decreased 8 percentage to 25.3%. In Mr. Lv’s research, Baidu gained 13% market share in last year, almost two third users use Baidu as their first choice, during the same period, Google China lost about 12% shares."

Why the market share slump for Google in China? According to Tangos Chan, who is the publisher of China Web 2.0 review, "Google China did not think locally."

This theme that localization matters has come through very strongly in our series of posts on international web markets. Perhaps it even matters more than the technology.

One man in particular is staging a protest against the censorship: He is calling for everyone in China to abandon the Internet on the day the new rule takes effect. According to GlobalPost, Beijing artist and prominent political critic Ai Weiwei wants other Chinese citizens to realize their own power.

Weiwei has a reputation for being a hugely prolific blogger, generating around 3,000 posts in his first three years of writing online. He also uses Twitter, Chinese microblogging service Fanfou, and other sites to spread the word about freedom of expression and overt criticism of the government in China.

On July 1, he is calling for all of China's 300 million Internet users to completely log off for the day. In the original post, even Ai noted, "Chinese people are very practical. They think 'Oh, what's that going to do?'" He is aware the action he's requesting is huge; however, he feels that even a small gesture of protest will have an impact.

In his own words, "A small act is worth a million thoughts."

Given Westerners' sudden bout of green-tinted solidarity with Iranian protesters, we do wonder if Weiwei's call to action (via online inaction) will spread beyond China. What effect do you think Weiwei's protest will have? How can those of us in other countries best express our own disapproval of that nation's censorship policies? Let us know your thoughts in the comments.

How edgeio got into China

Keith's background in China largely stems from the period 2000-2002, when he ran a domain names company that did business there. For edgeio, it was about April this year that they started to notice Chinese listings coming in. Keith noted that they built edgeio from the start to be globalized - meaning developing for UTF-8 characters and not just ASCII, and in the database being able to parse and search different character sets. By about June, edgeio noticed there were a lot of tags in Chinese. That has grown bit by bit over the months and now about 10% of their listings come from China. 

The competition in China

I asked Keith who is mulu100's major competition in China? He told me it's a very fragmented market for listings, but all the major portals are buying listings companies. He reckons there is no one big player in China - the biggest is probably kijiji, an eBay brand. However Keith told me that mulu100 probably has the biggest number of listings in China, mainly because of the edeng listings.

Despite its growth, Keith said he doesn't think China will be the number 1 market for edgeio revenues (which Wenzhi's post had implied). They're mainly looking at the China market for visibility and attention, rather than revenue potential. He thinks pretty soon it will rival edgeio US for number of listings among individuals and small businesses, but it won't compete with edgeio US in big company listings (eBay, Amazon, Cafepress, etc - which together account for tens of millions of listings). He says the China e-commerce market is not as sophisticated in terms of APIs and web services, to allow that level of listings from the big companies.

How is China Web market different to US?

I segued then into the China Web market in general, in comparison to the US market. Keith said the biggest challenge in China is that although costs are low, revenues are even lower. So this makes it difficult to make money in China. He says if you look at Baidu's revenues compared to Google's, "it's a tiny, tiny fraction". He notes that Baidu trades at a much higher revenue multiple than Google. So he says China is "an early investment opportunity, with very large valuations compared to the revenues". Keith thinks that driving up revenue will be China's major challenge in the Web market over the next 5-10 years. But he says due to low costs, you can afford to make those investments (in China) now and wait.

I asked Keith what are the approaches of the big US Internet companies in China. He said they're all active, but they each take very different approaches. It comes down to how fast they localize. He says Yahoo is probably the most localized of the big companies, due to their JV partnership with Alibaba. They've given over management of Y! China to a local team with a local brand. Which is similar to what edgeio has done.

He says Google is pretty much Google China, even though their name doesn't scan well in China. They're hiring locally and trying to do business in China under the Google umbrella, but so far have been relatively unsuccessful at taking a market leadership position - which currently sits with Baidu.

eBay is a kind of hybrid of what Yahoo and Google have done in China - eBay's kijiji is doing OK and the eBay brand is known, but there have been consistent rumors that eBay will pull out of China due to a lack of traction in the market. This, says Keith, is a symptom of lack of localization.

The importance of localization

As an example of localization, Keith tells me how in China it's common for teenage girls to advertise that they will accept an SMS message from people, for a price. Kind of like a pen pal, so innocent in that way. This is very common in China and social networks there take advantage of it - but you would not see this kind of activity anywhere else in the world. So this is an example of a business opportunity that non-Chinese people won't understand - and so may miss.

Summary

I'd be interested in hearing other tales from Web entrepreneurs who have done, or are in the process of doing, business in China. Let us know your experiences and advice in the comments below.

"One of the most important words in the Chinese language is “guanxi.” It means “relationship.” Whatever you think about the term “Web2.0”, the point is that social networking and relationship-building are at the core of today’s most exciting web innovations. The Chinese happen to be the most natural and skilled social networkers on earth."

Censorship is an issue in China of course and Rebecca outlined some practical measures to work around that, in her thought-provoking post. And I loved how Rebecca ended her post:

"Another thing about this story: it’s not so much about what the internet is “bringing” to the Chinese, or how the internet is coming in as an outside force and “changing China.” The real story is about how Chinese users are taking the connectivity, tools and applications, internalizing them, and making them their own."

Also check out China Web2.0 Review's post about Intellectual Property Issues in China’s Web2.0 business, in response to a comment someone left on my blog the other day.

There was a flurry of rumors in November 2007 that Facebook was looking into acquiring Zhanzuo.com, one of a number of mid-sized Chinese social networks with about seven million users. That acquisition, however, never materialized. Currently, the largest social network in China is 51.com with over 60 million users.

Facebook's largest competitor, MySpace already launched a Chinese-language version of its site in 2006.

Besides the translation, it doesn't look as if Facebook made any changes to its layout to cater to the Chinese speaking market.

Facebook is entering an already crowded market in China and it remains to be seen if it can establish itself against the bevy of clones and original services such as Xiaonei, Zhanzuo, 51.com, and Xiaoyou that have already established themselves there by now. It will also be interesting to see if Facebook will try to pursue a different monetization strategy for the Chinese market similar to what Twitter is doing for its Japanese version.

Benjamin told us in our interview that currently "Facebook has almost no presence in the three markets we cover: China, South Korea and Japan." In China, QQ is the dominant player with 300 million active accounts. MySpace has a presence in China, but according to the Forbes report linked above, it "hasn't been able to steal significant market share from any of the top Chinese social-networking sites since it launched in China a year ago."

We reported in November that Facebook made an $85 million offer to purchase Zhanzuo.com, a leading Chinese social network with 7 million users. Nothing appeared to come of that though.

Forbes noted that Facebook currently has 247,000 members from China. If you browse Facebook, you'll come across Chinese language users in Facebook. So this move by Facebook to crowdsource the site translation would be one step in formalizing that user base. But there's still the matter of monetizing and doing business development in China, which would require an office and staff there.

Can Facebook Be Competitive in China?

It would be fascinating to see Facebook try to enter China, a Web market that is very tough to succeed in for Western companies. This was one of the main themes to come out of the recent Media 08 conference in Sydney, at which I met both Benjamin and Kaiser. Indeed a presentation at Media 08 by Jonathan Haagen, an analyst from the Economist Intelligence Unit, was entitled Why Western Tech Companies Fail in China(!) I've embedded it below, because it's well worth Facebook's execs reading it ;-)