China’s Facebook gets US-grade amount of money – but who are they?

As reported by TechCrunch, Ogilvy China Digital Watch and PacificEpoch, Softbank is leading a round raising 430 million USD for 40% of Oak Pacific Interactive (OPI), a holding company controlling Xiaonei, China’s most loyal Facebook copycat.

Sounds like great financial engineering for OPI

This story is a great example of what you get when you combine Facebook karma, Alexa ranking and US-educated Chinese execs who know how to raise money. If we go back in time:

In March 2006, OPI raises 48 million USD apparently mostly thanks to the pageviews they managed to gather on mop.com, a sort of glorified BBS put under they managed to list under the holy “social networking” umbrella word. Its main attraction is the “big hodgepodge” which is not unlike Japan’s 2channel.

In October, they buy Xiaonei with part of this money. Not too long later, they fire most of the staff from the video service UUmee, another of their acquisitions back in 2005, at which time they were planning a NASDAQ listing in 2006.

In November 2006 at Japan’s New Industry Leaders Summit, a Japanese invitation-only C-level mobile/Internet conference, James Liu, Co-COO of OPI presents the company as China’s “YouTube + Facebook + MySpace” combined. Cute. At that point, there was certainly VC money in the bank but likely very little revenues aside from Mop’s tasteful banner ads.

Whatever happens to Mop, DoNews and UUmee (which is not listed anymore in their online properties), it seems that OPI’s financial acumen made them acquire one of the possible winners in the Chinese market, at a time when US contenders like MySpace.cn (launched in April 2007) and Facebook are making efforts to penetrate the market (Facebook crowdsourced its localization a few weeks ago).

Taking some distance

When you look at it from a distance, it seems that OPI’s main success was to raise money, buy Xiaonei with it, then raise more money. Funny enough, they also inherited the original criticism for being complete knock-offs. There are not many white doves in China’s Internet scene.

Finding where is the limit between “inspiration” and “blatant copy” is left to the reader, with a reminder that Facebook did not invent alumni networks, nor application platforms.

Will Xiaonei make money? Where is the next exit?

One of our clients in the online community space with over 9 million registered users said a while ago “it is almost impossible to make money with online communities in China”. 9 million registered users usually puts a SNS or community on the map (Japan’s leading SNS Mixi has 14 million and over 2 billion USD market cap), but not in China.

QQ made 500 million USD last year, mostly with personalization functions and 300 million active IM accounts – Xiaonei is still very far from that and the online entertainment/communication mindshare is already taken. The online advertising market in China is in the 1bln USD range, about 20 times smaller than the US market, so there is no way Xiaonei reached Facebook’s 150 million USD or MySpace 800+ million in revenues anytime soon. Now, the money they are raising certainly buys them a lot of time.

It is likely OPI will look for a pleasant NASDAQ or even Japan listing as it will likely take a long time to reach a decent revenue phase.

Another possibility that sounds very Softbankish

This other possibility is that Softbank might be interested to leverage Xiaonei’s know-how to launch their own Facebook copycat in the Japanese market, which is still largely open as local competitors Mixi and Gree offer a very closed and non-customizable offering.