Advertising, Real-Name and Other Opportunities in China

July 14th, 2010

Several weeks ago, I wrote an article on China’s digital advertising industry for Forbes.com The China Tracker. Now that China’s online advertising expenditure is growing, I’d like to talk more about challenges, and what I see as good opportunities in the field.

The past few years in China have seen some investment in China in combined lead-gen/traffic websites in China. I won’t name any names, but if you know this space, then I’m sure you know a few players. Basically, combined lead-gen/traffic is not viable on the long-term because there is an inherent conflict in combining lead-gen and traffic together. Either you are in lead-gen, in which you sell your leads to other sites which then try to monetize them, or you are in the traffic business, and you sell your traffic to firms which try to segment that traffic for their campaigns.

You don’t do both under one roof.

I see advertisers and publishers getting smart about this very soon, and figuring out the inherent conflict, which will cause problems for the companies which are doing this, and I expect them to change to either traffic only or lead-gen only very soon.

This will lead to healthier market development, and will help digital advertising expenditure to grow as a whole, as the industry will then grow more healthily.

Many of the advertising plays in China have been laggards, as games have always generated more revenue. Growth is now slowing among game publishers, and the number of new game players is also slowing; this is a reflection of China’s aging demographics. The growth has moved from MMORPG games to casual games, which don’t eat up time and attention the same way MMORPG games do. With the growth of mobile phones, especially the Android and iPhone platforms, you can expect more mobile casual game popularity. Some of the MMORPG game publishers will move to these platforms; others will not. I expect their success to be mixed.

Blizzard and the Chinese government have all been trying to push real-name registration, for their own set of reasons. I predict that this year more people will begin using their real names on the Internet, not out of government registration threats and rules, but because they are building a following, and are becoming well-known, and even generating income from Internet referrals. This already happens for some people, but as the society becomes more digital, it is being pushed down further into society.

This will create a bifurcation of those who use multiple identities and remain anonymous, and those who use real names. Some people will become famous as leaders in their fields and will use their real names; in this respect, they will become like experts on South Korea’s leading search engine Naver.com. In this respect, I expect the Internet in China to develop along and follow South Korean lines. On the one hand, this will make the Chinese government more comfortable with its development, and it will also increase the accountability of the information.

I see the next five years in China as a kind of cleaning-up period, where content quality and reputation need to be re-examined. Let’s be honest, there is an awful lot of content on the Chinese Internet, and a lot of it is crap. Much of the content is just copied from other sites with no value added. Brands are going to advertise in China because of the importance of the market, but it would be much friendlier if it was cleaned up. This needs to be done.

As for advertising sites in China, too many of the startup ideas are content- and front-end related. This is because most of the westerners and westernized Chinese in China are content people. But content is not enough; the Internet is really about data and sorting and filtering very large amounts of data to capture insights for advertisers.

This is where the next generation of online advertising startups in China will add value. This will require REAL technology, and will be filled with terms like Hadoop, MapReduce, etc. This will replace terms like branding, China strategy, market entry, etc. In other words, the emphasis will move from the front-end to the back-end, where the real technology always is.

Google is the world’s most successful advertising company, and it is a backend data-driven business. Its front-end services are just there to drive traffic to the backend, where it is processed into useful data which generate profits.

That is something most people just don’t get.

It’s about time they did.

I wonder who will be the new VCs in this space?

I welcome your comments.

Bread and Circuses

December 17th, 2008

Gladiator movie poster

Gladiator movie poster

At the end of my previous post, where I painted a generally pessimistic picture of the near future, I mentioned that I would write about the businesses which would do well in this downturn.

In my opinion, they are bread and circuses.

During the decline of the Roman empire, the Roman emperors realized that in order to prevent uprisings, they needed to feed the people (bread), and to entertain them (circuses). Life was grim, ugly and short. People lived for the day. People were reduced to their most basic needs, food, sex and entertainment. Everything else was unnecessary, and most likely, did not do well as a business.

The most popular entertainment of the time in Rome were massively staged gladitorial spectacles which were fights to the death for the gladiators. When people were this miserable, they wanted to have power, if only for a moment, to see others fight to live. People were not happy, and they got pleasure and enjoyment out of what some would call sadistic entertainment (in happier times).

The Roman emperors provided a huge spectacle as an outlet for this frustration in the form of gladiator fights at the coliseum. Instead of trying to resist this angry urge, they saw that the only way out for them was to channel the urge away from them. The state rode this wave, and brought Hollywood production values and state funding to this entertainment to keep the sheeple happy. That is how they were able to extend the period of decline in the Roman Empire to 400 years instead of being overthrown much earlier.

Bread and circuses.

The times we live in will be very similar.

In China, where entertainment is already a large part of what makes up the Internet, there is already a very large entertainment component.

Historically, Chinese rulers have been experienced at putting down rebellions and uprisings, but when it came to entertainment for the masses, they could not hold a candle to the Roman emperors. On the other hand, they did not produce characters quite as twisted as Caligula and Nero either. The Roman emperors were in a league of their own.

Now, how to get state funding and production values for huge epic productions which recreate the smell, blood, excitement and drama of a real gladitorial spectacle as was captured in the movie Gladiator? Whoever can answer that question and can figure out how to bridge online games and the real world drama of life and death gladiator fights, creating a whole new experience, is in the money, not only in China, but globally.

Plus ca change, plus c’est la meme chose.

China’s Public Sector On The Defensive

September 4th, 2008

One of the recurring themes of China’s reforms and opening up over the past thirty years has been the expansion of China’s private sector, usually at the expense of the public sector, or government-invested industries. This is a theme which has been often overlooked in the west, even by westerners in China, as they are more focused on the relationship with western companies, specifically Western Foreign-Owned Enterprises (WFOEs). There are three important components in the Chinese economy: state-owned enterprises, private companies and WFOEs. For the most part, the WFOEs are only allowed to play a peripheral role with all kinds of restrictions placed on them from time to time. It is highly unlikely that the Chinese government will allow them to play major roles in any sector.

The most important and vibrant part of the economy are the Chinese private sector. In spite of being out of power politically, occasionally suppressed, lack of capital and resources, it has managed to the point where it now employs more people than the public sector.

Let’s take a closer look at the media industry, just to cite an example. All official media, including newspapers, magazines, books, television and radio are owned, in one way or another, by the government. These might be the central government, provincial government or municipal governments. The performance and careers of these government officials are often measured by how these media perform: if they perform, the careers of these officials go up, if they perform less than well, then it goes into their performance evaluation, and has an effect on their careers.

The challenge for the official media in China now is that they are, generally speaking, losing audience to smarter and more creative challengers from the private sector in fields like online gaming. When this happens, and audience and circulation go down, these officials have to think of ways to address the situation. If that doesn’t work, they cover up the bad numbers.

Virtually all of the challengers in the Internet media field are private companies which are venture capital funded. In short, they are all private sector. When the audience moves to the private sector companies, public sector media companies tend to lose first audience, then revenue.

Many westerners look at the media ownership issue in China too much from a political and social oppression angle.

Actually, there is a lot more to it than that. It’s about what industries will still stay in Chinese state ownership, and how they will remain competitive in the hyper-challenging Chinese market. The official media has tried to counter-balance this trend by showing women in bikinis and other devices, but the trend to the private sector media (or user-generated media) is continuing. This is what Chinese ministries are thinking about all the time.

After all, if there are no longer competitive industries in the state’s company portfolio, how will it get revenue?

Apple’s App Store Shows Early Financial Success for Devs

August 3rd, 2008

Several months ago I wrote about how Apple’s opening of the iPhone SDK and its App Store would create a whole new business ecosystem for application developers for that platform. Apple offers globally accessible hosting and payment clearance in return for a 30% cut of the app’s sales price.

Now, there are early signs that the strategy is paying off for some early application developers who have developed popular apps for the iPhone and iPod touch (which uses the same SDK as the iPhone) users. Eliza Block, who developed 2 Across, a word game for the iPhone platform, has reportedly cleared in the area of $2,000 a day according to this article.

The App Store is a new updated version of the shareware movement which took hold in the early 80s with the launch of the Apple Macintosh 128K. In those days, homebrew developers would develop games, apps and productivity tools which were distributed on floppy disks. (Remember those? If you do, you’re showing your age.) More often than not, these came with a message which went something like “If you liked this app, please show your appreciation by sending a contribution to this address.” More often than not, people just used the apps without sending money, although there were a few kind and generous souls who did.

Now, Apple has become the doorkeeper for these independent developers. There is no more reliance on the kindness of strangers; Apple takes care of global distribution and payment for new apps in return for 30% of the app’s sales price. For devs, the App Store is the perfect barometer for what’s hot and what’s not.

In contrast, Facebook and others have not been able to find the magic balance point between independent developers and their own corporate needs for revenue. When Facebook opened its platform to developers, it ended up enabling app developers to spam the FB audience, driving many away from Facebook. Now, with Facebook Connect, FB is trying to find that balance point.

Chinese social media companies are no better at finding the right balance between independent devs and their own need for revenue. While there has been talk about open systems in China, all of the competing business models in fact, are not open. Apple’s system is certainly not open. it’s just that Apple is willing to share in order to grow the pie.

Apple and Steve Jobs have successfully put themselves at the juncture of technology, business and hardware, and are willing to share a larger cut in order to drive up sales of a very attractive new hardware platform. With growing earnings from hardware sales, Apple can afford to be generous with devs, and is effectively subsidizing a new business ecosystem. By making some independent developers financially successful with App Store and getting that word out, they do something none of their competition have been able to do yet.

The question for Chinese companies such as Tencent is whether they are willing to use their high corporate earnings to subsidize their own independent developers’ business ecosystem as Apple has, and share some of the revenue in order to grow the pie for everyone? Or do they still think that they can own the whole pie? Tangos Chan says that they still believe that they can own the whole pie.

But Tangos believes that this will change in the future. In the meantime, more independent devs will gravitate to developing for the iPhone platform. It’s better to open up sooner while there is still interest in their platform because opening up later means that they will have to be that much more generous in order to attract developers away from Apple’s platform.

After all, that’s where the money is. And I’m sure that Steve loves how his competitors’ moves help his platform.

What more could he ask for?

How Chinese Websites Are Helping Donations For Sichuan Earthquake Victims

May 16th, 2008

There has been a strong outpouring of support in China for the victims of the Sichuan earthquake, and I thought it would help just to give those outside China and/or do not read Chinese a picture of what is going on in the online world in China.

Tianya is one of the larger BBS sites in China, and they have created a page where Tianya users and visitors can make cash contributions to support earthquake victims and help the recovery.

Tianya has given visitors five options for making cash contributions:

  1. Online payment using Taobao’s online contribution

    2. option

  2. Making an offline cash donation using a specially set-up post office account
  3. Making an offline cash donation to the Chinese Red Cross using a specially set-up account at ICBC
  4. Foreign currency donations are accepted at an account set up by Jet Li’s One Foundation
  5. Community members can also donate goods to receiving offices in Chengdu, from where they will be sent on to earthquake victims.

There is a warning to Tianya members that they should be careful about who they donate their money to, as there are fraudulent accounts which have been set up to take donations.

The page further lists corporate donations from Chinese companies for earthquake victims, with amounts listed in Chinese yuan.

Leading gaming site Shanda has also set up a donation page for online gamers. Shanda chairman Timothy Chen Tianqiao donated 1M yuan to earthquake victims, which was matched by online gamers. Shanda then added another 1M yuan, making for a total 3M yuan which, according to an announcement, has already been sent to Sichuan for disbursement.

The9, another US-listed game publisher and distributor, created a simple page to announce their donation of 1M yuan.

Giant Interactive, also listed in the US, has created a page on their Zhengtu site where players can post their best wishes to Sichuan victims. They do not ask for money/goods donations.

Perfect World, a leading online game publisher, went public last year in the US under the PWRD symbol. Their BBS for their online community has not mentioned anything with regard to the earthquake or any drives to make donations to earthquake victims.

What Tibet and Carrefour Can Teach Us About the Chinese Internet

May 9th, 2008

When the western media and some outside observers talk about “Angry China”, they really miss out on the real story, and even the real questions which need to be asked. For instance, how do very large groups of people, who at least on the surface, have nothing to do with each other, organize in large numbers so quickly in a society which many westerners see as authoritarian? Are they government-led or influenced, or do they do it themselves? How do they come to believe some of the wild rumors which come up, such as for instance, the belief that Carrefour sends a portion of its earnings to support the Dalai Lama and Tibet independence, and are seemingly oblivious to the fact that any large company would like to keep as much of its earnings for itself?

There is a very simple answer to all this: a large part of the organization is done on the Internet in China, specifically on BBSes. While the BBS (bulletin board system) is something outdated and antiquated in the US Internet, it has been a very important part of the Chinese Internet, and I would argue, it is growing and becoming more influential. For the Chinese government, it is a headache because in spite of Chinese government regulations, it is largely unregulated. For western corporations it is a good place to gather information but is useless for advertising, but for many Chinese it is the most important part of the Internet (along with online gaming and their IM client, which is most likely to be QQ or MSN Instant Messenger depending on their age and demographics).

Don’t believe me? Go to your nearest Chinese Internet cafe and watch what people are doing.

Most westerners who come into the China Internet market have no idea of its power and influence, and instead think that the Chinese Internet is largely the same as the US market, but it isn’t. The Chinese government doesn’t really like BBSes because it really is free (as in free speech), and is the breeding ground for all kinds of weird stuff. And while it is important for gathering buzz on products (as CIC, based in Shanghai, does) for corporations, nobody has really been able to monetize it. And, western journalists fail to monitor it, which is why they miss on so many big stories, and end up giving credit to some sinister Chinese government policies. ( I guess it’s kind of flattering for the Chinese government to be given credit for something when most Chinese know that it isn’t that powerful.)

Isn’t it amazing that such a huge and important part of free speech in China has been entirely missed? Fortunately, Tom Melcher’s new blog Live from Beijing! has a very good introductory article to BBSes (h/t to Andrew Lih). I got something of an introduction to the BBS in 1998, shortly after Sina was formed from the merger of SRS and Sinanet. One of the first web applications created by Wang Zhidong was a simple BBS which he demoed to me in the summer of that year. It really took off in popularity with the US’s accidental bombing of the Chinese embassy in Belgrade in April 1999 when millions of angry Chinese hit the Sina news forum. Please don’t think of the Strong Nation forum on the People’s Daily site as being at all representative of Chinese BBSes; it is official and closely monitored for content. The interesting BBSes are all unofficial or semi-official.

Most of the angry Chinese in China, or fenqing, are organized on the BBSes, where they gather and shoot the breeze. These people have time on their hands, and play games, spend time in QQ, and gossip on the BBSes of their choice at the moment. They spend almost no time on what we would call the official Internet, except going to get news on Sina, Sohu and Netease. It is very hard to reach them with advertising.

Now, let’s talk about their persona. For the most part, they:

  • They distrust the official media and do not buy magazines, and get as much information as they can from unofficial sources, such as BBSes. They only go to the official media for some sports information and major news information.
  • They trust unofficial news more than news which comes from official sources.
  • They are the perfect audience for spreading rumors, because they can be quickly organized by anonymous leaders, or “honeybees” as Tom Melcher calls them in his article.
  • When organized, they can be huge, in the millions, and they can move like a swarm.

In simple terms, the characteristics of this unofficial crowd are:

  • Chinese official government influence is very limited
  • They are mostly self-organized
  • The numbers are in the millions
  • They move extremely fast
  • They disappear just as fast as they appeared
  • They are almost always anonymous and do not use their real names, preferring instead to use their own handles

In simple terms, they are an issue-focused flash mob. For corporations, they are:

  • Not susceptible to traditional PR methods since you are dealing with an anonymous group
  • Very tightly focused around one issue
  • Move much faster than corporations and their decision-making apparatus is diversified,
  • Do not trust/ believe in information from any government, including Chinese

My estimate is that more than 60% of non-IM traffic in China is to these unofficial BBSes, and that number is growing.

When it comes to advertising, most adspend hits that remaining 40% of the official and semi-official Internet, without reaching where many people are. CIC acts as the eyes and ears of corporations, but corporations have not been able to do anything yet with that information and are still reliant on mainstream advertising approaches for both online and offline which are largely out of date. This is the background for my article on why agencies need a new approach to online marketing in China.

So, BBSes are the real social media marketing tool, and as usual, the Chinese are ahead of everyone else, but just haven’t figured out that part themselves. While the west talks about social media and Web 2.0, China has had a version of it for the past ten years. It may not be pretty, but it works.

It’s just that vast majority of outsiders haven’t figured it out yet.

Understanding China’s Youth Through Tencent’s QQ: A New Must-Read Report

January 26th, 2008

qq.gif

As China becomes more developed and sophisticated, more westerners are coming to China to understand the reasons for its success. I don’t believe that the Chinese success can be fully ascribed to China’s rising wealth and development; a good deal also has to deal with how western countries have screwed up in their politics and policies.

In the kingdom of the blind, the one-eyed man is king. Right now, China is the one-eyed man.

Setting this aside, there are areas where China’s growth is remarkable.

In a recent blog posting, Henry Jenkins of MIT shows how much more willing Chinese youth are to live their lives out and share their behavior with complete strangers in a manner American youth are not yet willing to. Here are some of the statistics (mostly in percentages) of what he has observed:

# Almost five times as many Chinese as American respondents said they have a parallel life online (61 percent vs. 13 percent).

# More than twice as many Chinese respondents agreed that “I have experimented with how I present myself online” (69 percent vs. 28 percent of Americans).

# More than half the Chinese sample (51 percent) said they have adopted a completely different persona in some of their online interactions, compared with only 17 percent of Americans.

# Fewer than a third of Americans (30 percent) said the Internet helps their social life, but more than three-quarters of Chinese respondents (77 percent) agreed that “The Internet helps me make friends.”

# Chinese respondents were also more likely than Americans to say they have expressed personal opinions or written about themselves online (72 percent vs. 56 percent). And they have expressed themselves more strongly online than they generally do in person (52 percent vs. 43 percent of Americans).

# Chinese respondents were almost twice as likely as Americans to agree that it’s good to be able to express honest opinions anonymously online (79 percent vs. 42 percent) and to agree that online they are free to do and say things they would not do or say offline (73 percent vs. 32 percent).

Some of the differences can be accounted for because, until recently, Chinese played relatively few games using game consoles, an area American youth have long had free access and exposure to. Instead, they play games in the Internet cafe, which offers an online and offline social experience which has not existed until very recently on the Microsoft and Sony platforms, and which has been addressed very well with Nintendo’s Wii.

These statistics do not tell us much about China on their own; I frequently insist that if one is to really understand what makes China’s Internet different it is necessary to dig deeper and look at its development at least from the application level. If one were to make even the most cursory look at users in any Internet cafe in China, one would find that most if not all, would have an instant messaging (IM) window open and are chatting with their friends while they are playing an online game. Lately I have noticed that in the Starbucks I frequent near Guomao in Beijing (Starbucks in China often offers free WiFi, compared with the US which charges users a daily subscription through its partnership with T-Mobile; go figure), many office types often have an IM window open even when they are busily working through their Excel spreadsheets.

For this reason, I particularly welcome the recent report by Plus8Star on Tencent’s QQ which started as a simple IM client and has now metamorphosized into China’s largest online company, and which has more than than 270M users in China. Basically, it has become what AOL would have become if it had been able to pull everything off with its acquisition of ICQ in 1998. In fact, the first version of QQ was called OICQ, standing for “open ICQ”; in its early days the company approached AOL seeking to become its China partner; it was brushed off. Now the company is listed on the Hong Kong stock exchange and has a market cap of US$11.4B.

The report is available in a free downloadable PDF version; the full version costs US$3,000. The greatest value of this report for those coming into China is that it provides valuable context and answers the “how” and “why” China’s Internet has developed the way it has.

Too much of the time, western observers claim that China’s Internet has changed the way it has because of Chinese government control and policy; not enough is mentioned about the business reasons why local competitors have succeeded why western companies have failed. This reports does a good job of plugging that hole in most peoples’ knowledge.

The title of the report sums it up: “Inside QQ: Learning from China’s leading online community”. An especially helpful page is page 23 of the report “Why do global giants fail in China?”. There have been billions of dollars which have been expended, and mistakes have been repeated over and over again in their quest for western dominance of the Chinese consumer market. I’m amazed that it continues to this day. This page alone is worth the price of the whole report; just read it.

If you are a business person anxious to break into the Chinese consmer market, or are just interested in learning more about the Chinese Internet, this report is a must-read.

Chinese Face, Chinese Heart Part I

January 24th, 2008

Zhengtu gaming title

One of the frequent questions I run into in China is how western Internet companies coming into China should position themselves for growth in China.

Should they try to be western, or should they try in the shortest possible time, try to become Chinese, hiring Chinese for their local staff and management? Under what circumstances is it best to be western, and under what circumstances is it best to be Chinese? And what if a company has been in Taiwan, Hong Kong and/or the US; how should they position themselves for future growth in the Chinese market?

Their positions are made more complicated because it is now hard to find good management people they can trust locally in China; as an organization becomes larger the camaraderie and culture which forms in the management team becomes increasingly important. Over time, this builds into trust, especially if they need to deal with problems and challenges which need to be overcome on a daily basis. This comes face to face with another China reality: it simply is not easy to find people you can trust in China. Backgrounds can be fudged, headhunters want to push their candidates; the list goes on and on.

Internet businesses are especially complicated; most founders come from technology backgrounds, even today, and they have very little understanding of marketing, company positioning, and yes, national and corporate culture. Many still have dreams of serving the world from one virtual data center in Redmond, Mountain View, Beijing, Hong Kong or elsewhere, and letting more junior management deal with the soft and fuzzy stuff like “culture” and “marketing”. Even relying on ethnic Chinese management from Taiwan or Hong Kong has not really worked, as China is littered with Internet startup failures led by Taiwan and Hong Kong management teams who really did not understand the dynamics of the market in China. There have been many western executives who have said “How was I supposed to know that they didn’t understand China; they told me that they were from Hong Kong/Taiwan?”

For anyone from established business service sectors, such as banking, these ideas seem silly, even foolish. And they are. A simple reality of the Internet is that it is going to come under more national jurisdictions and regulations as it becomes a more important part of peoples’ lives. Just as it is inconceivable that banking would not be government regulated (unless you count the ongoing subprime mortgage crisis as a failure of the government’s regulatory system), it is becoming inconceivable that the Chinese, US or other governments would not want to have a say in how the Internet is run.

These established sectors know only too well how important it is to somehow find a way to live with government regulatory bodies. In China, successful new startups have almost always come from new areas which the Chinese government has not figured out regulations about and does not yet know how to regulate.

The perfect example is the online gaming industry. This industry was basically an import from South Korea, and took root in China because gaming consoles are technically illegal. (Sony PS2 and 3, Nintendo Wii and xBox360 are all freely sold; that law is seldom enforced, and all of the games sold are cracked versions.) The Chinese government’s rationale for that law was because way back in the nineties, the Chinese government saw PCs as a valuable educational tool, but considered gaming consoles to be expensive frivolous tools for kids to waste their time. At a time when the Chinese had much less buying power than they do today, it seemed like a good idea to ban gaming consoles.

This created an opportunity for Shanda, which was the first company to launch online games (almost all from South Korea) in the Chinese market. This idea caught fire with many younger Chinese and spawned the Internet cafe industry, where many younger Chinese choose to spend/waste their time and has also popularized QQ, the ultimate social networking application if there ever was one, and which for many Chinese, is the Internet.

This industry has swiftly matured, and with success has come regulation. Online gaming companies have tried to adapt, some have adapted (or tried to adapt) by moving into the online game publishing business from online game distribution. The transition from online game distribution to online game publishing has been a rocky road for companies like Shanda. The company has in the past acquired studios and titles, but many of the creative pros have left post-acquisition. A new wave of game publishers with strong titles have come up, led by Perfect World and the highly-contentious Giant Interactive.

On the regulatory and marketing fronts, the online game publishing company has become a victim of its own success: the huge amount of revenue it generates has created something the government and other regulators call a “social problem”, and it has fallen into a rut on the creative side, adding more titles in what are basically the same genre with very little to differentiate each other. The result: titles with diminishing shelf lives and ROI. People who are not addicted to games (i.e. people who have lives) have an increasingly bad view of the industry and game titles.

Unless you have some way to break out of your core audience, which is exactly what Nintendo did with the Wii. The greatest contribution of the Wii is that it has forced people to take a second look at gaming, as something other than just frivolous entertainment which wastes a lot of time and is anti-social for people who do not play games. (Heavy game players would argue that game players are social; they are just online.)

So the Nintendo Wii is halfway there; it has offered a new paradigm for games and gaming.

Now, if gaming is going to really succeed, it will have to get non-gamers to think that they are not playing a game. Then we are talking breakout.

And the game publishers (creative people) will have to learn how to get along and work with the marketing pros, and will have to understand that there is much more to marketing than press releases, press conferences, paying off the media to pick up their stories, planting stories and fake planted conversations on Chinese BBSes, etc.

To really go big, they will rely on a new class of professional and and a new kind of strike force.

We’re not there yet, and we’re not moving fast enough. But there is a way.

I believe in the value of history, but I also believe that there are times when we have to stop referencing the past for what we do in the future.

This is one of those times.

A Quick Look at 2008 and China

January 1st, 2008

Is there any way at all that 2008 will not be the year of the Chinese Olympics, and by extension, China? Will we be stuck between the rise of China narrative and the sourness to the point of completely puckering up of the US media and to a lesser extent European media re China?

I say yes.

The coverage of China by the major media has been completely unsatisfactory; it has not been informative and has instead driven their own editorial agenda. That old editorial agenda no longer works because it does not reflect the ground reality of China. It does make sense though to take a closer look at China’s development outside of just the tier one cities. Let’s hope that this begins to happen.

In the big picture though, the Chinese Olympics are not the biggest story. There are so many interesting things and opportunities happening on the Internet. I’m surprised that so many people miss them, such as the fall of Facebook even though their numbers continue to increase, and the failure of social networks to monetize their traffic because they have chosen to side with advertisers against their own user base.

Facebook is like a rocket which continues to coast upwards even though its engine has cut off; momentum is carrying it upward. But eventually gravity will win…

We are in the early stages of growth for the Internet, I believe that increasingly new Internet startups will be founded by business people, not technology people. On the PC platform, the technology is mature; it is the business models which aren’t working. Now, the smart technology people are switching their focus to the mobile Internet.

For smart business people who want to disrupt the current business models, 2008 will be a banner year. For more predictions, take a close look at the predictions of Mark Anderson and Fred Wilson. Part of the reason new and viable business models have grown relatively slowly on the Internet is because the business side has been driven by technology people who don’t understand business and how to make deals, and the business people have been thinking too much in terms of the large corporate businesses which are now being disrupted by the Internet.

It is time for a new breed of entrepreneurs who understand technology, and are not behoven to traditional businesses. In China, this has already happened in gaming with Timothy Chen Tianqiao of Shanda and Shi Yuzhu of Giant Interactive. Ironically, it has not happened as quickly in the west.

It’s time to expand the base.

On the web application side, it is getting easier and easier to develop robust applications. Twitter, a very successful social application was developed with Ruby on Rails, a full stack web application framework which was released by 37 Signals, a Chicago-based design firm.

The significance of this is that web applications can now be designed by designers who are more focused on user experience than software engineers who are focused on features (many of which are of dubious value). One thing I have noticed among many Ruby on Rails deployments: narrower focus. Instead of trying to do everything, these applications focus on doing a few tasks very well. Good examples are the online project management tools put out by 37 Signals and which I use to manage my business.

Wouldn’t it be great if these web applications were made available to a Chinese audience?

As for myself, I’m sharing my feeds on Google Reader. You can find them through Google Talk and Gmail by contacting me. You can reach me at paul dot denlinger [at] gmail dot com.

I’d like to see yours too; let’s start sharing in 2008!

The Big Hole in Chinese Productivity Apps

November 4th, 2007

When I look at web apps and ideas in China today, practically everything I see has to do with the retail consumer. Popular fields are gaming, because it proven and China has a large gaming population, not to mention the success of the major players including Shanda and The9, and music and search.

The result has been a plethora of startups in these fields. After all, they have a demonstrated and successful business model based on advertising. God knows that there are huge amounts of advertising dollars just looking for half-decent excuses to be spent in China. VCs can use these as references in their decision-making and in valuation, which is good.

But the real money is always made when a new company breaks out in a field which was considered dead or dying. Right now, I think that field in China is web productivity apps.

There is a big hole between Office (Word, Excel, Powerpoint) and the web. In the US and Europe, this area is occupied by Oracle, SAP and Salesforce. There are Chinese competitors such as Yongyou and Kingdee. Google has made some significant headway with Google Docs, but there is still a long ways to go.

So far though, none of them have passed my Internet cafe test. This means that I have not seen anyone sitting on a computer in an Internet cafe using any of their apps. They are all playing games or chatting away.

This creates a chicken and egg situation; VCs fund companies which get the eyeballs, and hold back on those productivity apps which do not get the attention, but are far more meaningful and productive. And the companies which are making productivity apps, which take far longer to develop and mature, have trouble getting funding. The investment cycle gets shorter and shorter, but it takes longer to develop meaningful apps. As a result, the productivity apps market gets starved.

Something has got to change, and I hope that it isn’t too far away… Sometime soon, people will have to start earning money to play those games.