Full Version of ReadWriteWeb Interview on Beijing’s Tech Scene

+8* Interviews ThoughtsPublished February 4, 2010 at 12:27 pm No Comments

Here is the full version of the interview we had with ReadWriteWeb on China’s “Silicon Valley”. The ReadWriteWeb piece quoting us is here.

1. What’s the funding scene like in China and where are some of the incubators and resources Chinese entrepreneurs can look to?

Early stage and incubator funding is not great. This is probably why ex-Google China CEO Kai-Fu Lee saw an opportunity and started an incubator named Innovation Works. Also, there are not many successful serial entrepreneurs or old-timers, so the angel investment scene is also under-developed and the overall support system for entrepreneurs is far from being as developed as in Silicon Valley.

Like elsewhere, VCs that did not manage to raise a new fund or had to rebalance the PE/VC ratio are stranded, while those who did raise before the crisis or managed to do it after have less competition.
Overall, China remains the most attractive non-US destination for VC investment. Some more info on this Deloitte survey.

2. How did the technology scene in China emerge and who are the leaders?

For Internet, it followed the US in terms of service concepts – from portals (Sina, Sohu) to ecommerce (Eachnet then Taobao) to search (Baidu), then branched out to follow Korea for online games, then mutated some of the service and business models to eventually stumble upon very successful ones. The fact that many established industries in the West such as music, cinema are video games are in the making in China allows them to leapfrog to digital revenue models without being slowed down by heavy legacy models.

One way to look at this evolution is the successful process of mutation and natural selection, or “Techno-Darwinism“. More about this in our column on How China Innovates and Why Foreign Companies Fail.

Today’s leading Internet companies are without doubt:

(a) Tencent

China’s leading IM / community / games / all-around portal. It is like AOL done right. Revenue for 2009 will be North of $1.5 bln with 40% net profit. Its market cap over $38 bln makes it possibly the 3rd largest Internet company in the world (after Google and Amazon, but ahead of eBay, AOL, etc.).

It does not really have a Western equivalent, but several companies in developing markets such as Russia, Brazil, Vietnam aim at becoming the “Tencent” of their country. We published a detailed report on this company which sold to such clients worldwide. There is also a lot to learn for Western companies as Tencent mastered many aspects of managing a virtual goods economy.

(b) Alibaba Group

It is like eBay, Paypal, Skype and Amazon all in one – with a successful integration of all services.
It also have interesting indigenous innovations such as its Alimama ad exchange marketplace, its social commerce SNS called Taojianghu and the micro-retail service Taoker. The only market-listed asset so far is its B2B marketplace Alibaba.com. We will be releasing our new “Inside Alibaba” report in the coming weeks.

(c) The online gaming guys

The online gaming market is STILL booming despite being already very large. There are 9 such companies listed on NASDAQ and HK stock exchanges, including Tencent. The total market valuation is $52 bln, $38 bln of which is Tencent alone. See slide 103 on this presentation.

Several of those companies are eyeing or already entering overseas markets with huge operational experience,
though culturizing products and operating in foreign countries remains a challenge. Some social gaming companies are also doing well in China and abroad though on a different scale than the larger MMO guys. It shows how China-based development can serve the world – China makes already over 80% of the world’s offline toys, why not digital ones?

(d) The portals & search guys

Sina, Sohu, Baidu. Nothing much original there, though Baidu keeps adding interesting sub-features with Wikipedia+Q&A-style service, etc.

(e) The classic verticals

Jobs, Travel and real estate.
Several are already market-listed. Their model is sometimes different in terms of revenue model or service process. For instance, the travel site eLong sells mostly via its call center. Some other verticals are growing such as food & beverage, sports, finance, matchmaking, automotive.

3. In your opinion, who are the up and coming web-based startup companies in China to watch out for?

Several verticals will likely become viable.

One that is particularly interesting in the matchmaking space is Zhenai.com, which re-engineered the revenue model and service concept of Match.com and eHarmony and came up with its original blend – involving a service center with “account managers” for your matchmaking needs. It could now be re-adapted as an original service.

Several focused or vertical online communities might also work out:
P1 is a SNS focused on the affluent class with original recruiting processes and business models. The business SNS market is yet to take – Xing retreated and LinkedIn hasn’t made strong moves toward China. It is likely a similar service and business model re-engineering is needed for China.

Being in the social gaming space as well, I look closely at cross-border developments.
Some like Rekoo, 5 Minutes and ELEX are already doing well. A couple of others such as Vojo World and Cmune (largest FPS game on Facebook) are also growing nicely from their China HQ.

4. How have Chinese politics and culture scene shaped the types of startups emerging?

The government focus on the country’s social stability during those years of major economical changes has a strong impact on all media, including Internet. This is true for all sorts of services that involve public content.
That being said, most Internet content is rather a-political and focused on entertainment, since China’s netizens are mostly below 30 (versus US netizens, who are mostly above 30) and might be more concerned about their career than bringing more uncertainty in their life with major political changes.

As such, startups are focused on entertainment and communication, and include active content moderation as part of their service. Youth culture in music, arts, fashion, games is also influencing strongly the Internet – possibly (though measuring is probably hard to do) more so than on the comparatively more geek-focused US scene.

5. What government resources are available for entrepreneurs?

There is support for returning entrepreneurs with free office space, low or delayed tax, and a number of science tech parks offering such services. Other than that, the market is active enough and most companies do without other support.

6. Other than Mobile Monday Beijing, where can Chinese entrepreneurs go for China-specific events and news?

Mobile Monday Beijing is a good orientation camp for mobile entrepreneurs but there are a few Chinese language-only events, such as the events of the Mobile Internet Great Wall Club and the Mobile 2.0 Salon for mobile. For Internet, there are a number of conferences but not many grassroots events so far – BarCamps took place episodically. Among larger conferences are those done by consulting firms such as Analysys and iResearch, as well as the yearly ChinaICT, a bridge between Chinese and foreign IT businesses. Some more events take place occasionally.

7. Can you make a case for moving or keeping your startup in China?

If you have a global strategy, China is quite a good place to gather local and international talent, with so far a reasonable cost compared to running a startup in Silicon Valley.

The startup I am involved with, Cmune, is developing real-time 3D social apps in China for the rest of the world. It combines expertise the local expertise on gaming and virtual goods with advanced tech and Western distribution mechanisms via social networks, etc.

Some other social gaming companies, such as Playfish, are leveraging China for development but also operation base for foreign markets. So for both Playfish and Cmune, it’s “made from China“. In that case you don’t suffer much from the local regulations since your market is overseas.

+8* | Plus Eight Star gets you out of your echo chamber to see how Asian companies can be ahead of the curve. We are also on Twitter!