Mixi enters China: heading for a hard time

There has been several stories running since Mixi announced they were entering China (see Kaiser Kuo on Ogilvy Digital Watch). Mixi is Japan’s leading SNS with:

• 2 billion USD market cap
• 13.3 million users
• 100 million revenues in 2007 (vs. 150 million for Facebook and 400 million for QQ)
• 35 million USD profit in 2007 (vs. 50 million loss for Facebook and ~180 million profit for QQ)

We think Mixi is likely to have big troubles in China.

Here is why:

• Cultural hostility (as pointed out by Kaiser)
• No China experience
• Ad-based business model. This works in Japan because Mixi dominates and the online ad market is large. It is unlikely to do well in China as most ad dollars go to 1st tier properties. But this is talking about revenues – a metric most Internet ventures don’t care about.
• The fact that Mixi is strong on mobile pageviews is mostly because Japan has 3G and 3G+ with flat-rate, and because you typically need to see 4-5 pages on mobile to see the same amount of content you see on PC. So figures are higher. It does not mean revenues come from there.
• Also, language differences are more tricky than one might think: grammar is totally different between Japanese and Chinese – which is also a likely reason why Baidu will suffer in Japan.

Maybe they will do the same as Cyworld: organize events with big stars to try to get some people to register. This makes the acquisition cost super high.

As for rumors “they should do well in neighboring countries”, I would be glad to hear some successful names in the Internet/mobile space (in exchange, I can give several names of costly failures by Japanese mobile companies in China). So far, only Alibaba might stand a chance in Japan as they get support from Softbank (Asia’s largest Internet company).