Overview of China's mobile/internet market, best practices, made for seminar organized by Frankfurt Book Fair

1. “Chinnovations” on new media
Learning from China’s new media
BO Yiqun, Vice President & Co-Founder | Great Wall Club | www.thegreatwallclub.com
Frankfurt Book Fair Seminar | Shanghai | August 2010

2. 薄益群
BO Yiqun
Clément

3. www.thegreatwallclub.com

4. Biz platform for global mobile
internet executives
China  Asia  West

5. GMIC: #1 mobile internet conference
in China
+800 attendees, ~40% internationals, 18 countries, +50% executives

6. Monthly event Monday Dinner
GTrip Consulting

7. Agenda
1. Why look at China?
2. What does new media bring to China?
3. What are the local innovations?
4. Case study: Tencent
5. Where are the innovations from?
6. Why foreign internet leaders fail in China?

8. 1. Why look at China?

9. #1 market in terms of users
Internet users 420 238
(MM) (Jun 2010) (2009)
Mobile users 805 286
(MM) (Jun 2010) (2009)
Source: MIIT, Morgan Stanley, Wikipedia

10. Higher margins than global players
Company Operating Margin Company Operating Margin
Chinese American
NetEase 60% eBay 16.7%
Alibaba 27.7% Google 35%
Tencent 48.6% Yahoo! 6%
Sohu 39.6% Amazon 4.6%
Shanda 38.9% EA -19.6%
Baidu 36%
Sina 10.4%
Ctrip 35%
51job 16%
Source: Company reports

11. High potential
Internet users 32% 77%
(MM) (Jun 2010) (2009)
Mobile users 60% 92%
(MM) (Jun 2010) (2009)
Over 50% additional
users from rural market
= Actively expanded
“Blue Ocean”
Source: MIIT, Morgan Stanley, Wikipedia, GWC

12. China’s media market is catching
up with the west
Year 2008 US China
(source: Plus Eight Star, 2009.4)
Ad market (bln USD) 293.3 29.5
Ad market YoY growth 3% 15.9%
Online ad market (bln USD) 25.8 2.5
Online ad market YoY growth 21.7% 60.4%
Online ad / Total ad market 8.8% 8.4%

13. Mobile Internet taking off (1)
• Fixed-line For many users and
SMEs, Internet will
• Mobile only be mobile
70
Penetration rate %
60 Mobile = 60%
50
40
30
20 Fixed-line = 23%
10
0
Source: MIIT

14. Mobile Internet taking off (2)
277MM mobile internet users, 49MM connect Internet
only via mobile
Cost of laptop
Traffic pricing
Netbook, 3G, Smart phone, Apps
We expect Mobile Internet market is going to boom
next year
Source: CNNIC, GWC, Aug 2009

15. No dominant yet
Mobile
operator
Service &
Handset
App
maker
provider

16. Part 1 Conclusion
Why look at China?
China has the world’s largest online
population and is catching up with the West,
sometimes even leading!

17. 2. What does online media
bring to China?

18. 9% 49%
GDP Internet

19. China Internet/Media:
Enjoying the Highest Margins
Average operating margin (2008E)
Note: e = Morgan Stanley Research estimates
Source: Morgan Stanley Research, 2008

20. “Mice Love Rice”

21. Enjoy the Olympics online
Time: 19:56
PV: 2,601,435
Replies: 2,649
Quote: “I am so excited about the drummers,
the view is so grand that I cannot type.”

22. Grey websites and no
entertainment for Mourning Day

25. Part 2 Conclusion
2. What does new media bring
to China?
Internet not only creates heroes, but is largely
impacting the China’s society as well!

26. 3. What are the local
innovations?

27. Low cost of handset making
• Low price Price of fake iPhone in RMB
• Short time-to-
market
125~142 USD
• Over 90% of
functions are
directly onto
the MTK chip
Source: an e-commerce site, Jan 2010

28. “Obama” Endorses Chinese
“BlockBerry”
• “BlockBerry” made by HAFF-COMM
Source: The Wall Street Journal Blogs, Jun 2009

29. Low cost creates variety
Shaver phone
Cigarette case shaped
Barbie dressing case phone
PSP shaped, popular
games preinstalled
Watch phone
Car shaped
Solar power rechargeable
Super lens attachable
handset

30. Apple “peel”
From iTouch to iPhone
From iPad to laptop

31. B2C instead of B2B
Company Operating Margin Online Ad / Total
rev.
NetEase 60% 13%
Tencent 48.6% 8%
Sohu 39.6% 34% Sohu’s online gaming biz lists in Apr 2009
Shanda 38.9% <4% with a market cap over 1.8 bln USD.  1st
IPO on Nasdaq since Nov 2008

32. Virtual goods
• Extremely advanced in China, lead by Tencent, 723MM USD, or 70% total
revenue, from virtual goods in 2008
Where? What?
Avatar for IM, Apparel, decoration (ear ring, bracelet, necklace, eyeglasses), background
SNS, game (building, car, sea, house, etc.), express/emotion, etc.
Pet - Virtual • Food for feeding
word • Shampoo, body shampoo
• Study at school
• Work for earning money
• Play in the world for entertainment
Social network • Decoration of personal page and mini-home (background, navigator,
animation, etc.)
• Background music (music, player)
Social game • Depends on the game, same concept with the ones in social network
Online game, • Depends on the game, for example, a powerful car or an accelerator in
mobile game Racing Car game
Available for both PC Internet and mobile
Source: GWC, Jan 2010

33. Online payment popular in a
country with low-trust
Low trust E-commerce booming
• Few credit card • 142MM online shopping
– 2.3% of Chinese own credit users by June 2010
card – vs. 114MM for Amazon.com
and 90MM for eBay
• Bad credit system • Taobao GMV: $29B in 2009,
– Huge population
up 2x Y/Y
– Unbalanced economic
– accounting for 1.5-2% of
development
China’s overall retail sales
Alipay’s (brother company of Taobao) online escrow system helps both buyer and seller
build trust between each other, and largely accelerated online shopping market.
Source: Morgan Stanley, CNNIC

34. 4. Case study: Tencent

36. Tencent vs Facebook
Year 2009
Subscribers +500MM actives 612MMmln
actives, Q2
Revenue $635MM $1,800MM 270 mln USD
(2009E) (2009) from mobile
Net profit Loosing money 40%
Market Cap ~$30B $35B Real market
cap
Source: Tencent, Inside Facebook

37. #1 social network in China
Search
QB: Virtual $
Online shopping Entertainment
Email Multi-person chat
QQ buddy list SMS/MMS
Weather File transfer
Online disk Voice chat
Video chat
Wireless service
Mini portal Ad
Music
Chatting with friend
Game
friend’s QQ Show
Interaction Take a group photo
Panel admin with friend’s QQ Show
Making friends Friend’s QZone
E-magazine Background
Screen shoot
Online video Send pic
Stock info
Address list Font
Group list Smiley
Last contacts Animated smiley
Input area
SMS
Main menu
My QQ Show
History
Tencent browser IPTV
QQ Pet
Find friend QQ Music
Source: Plus Eight Star, 2009

38. #3 internet company in the world
• Market cap: $35B, Aug 16, 2010
• #3 Internet company, after Google and Amazon, in the world
Tencent
5 years comparison
Google
NASDAQ
Composite
Source: Yahoo! Finance, Aug 16, 2010

39. B2C instead of B2B
Virtual goods: 77%
Wireless: 15% 97% revenue from Ads
Ads :8%
92% of $1.8B in 2009
were directly from users

40. 5. Where are the innovations
from?
5CTM of Chinese innovation
Source: 5CTM is created by Plus Eight Star

41. Copy
5CTM of Chinese innovation

42. “Benchmarking”
“Inspiration”
“Best practice”
“If I have seen farther it is only by standing on
the shoulders of Giants.”
(Isaac Newton)

43. A quick look at Germany …
Source: Web2Asia

44. Rest of Europe …
Largest SNS in France
Largest SNS in Spain
Most popular website and SNS in Poland/
Most popular website and
Search Engine in Czech Republic
Largest SNS in Finland
Largest SNS in the Netherlands
Source: Web2Asia

45. China
5CTM of Chinese innovation

46. China is learning from the West
2009| +100,000 students abroad back to China

47. China’s local features
• Unbalance of development
– 1st tier cities vs. 2nd / 3rd tiers
– Urban vs. rural
• Single child policy
• Internet café
• Entertainment-centric

49. Attention threshold
=
1 billion dollars?

51. Combination
5CTM of Chinese innovation

52. Will it blend?
$1.8B rev. in 2009
40% net profit
92% of rev. from users
Source: Plus Eight Star, 2009

53. e-commerce + IM = Taobao

54. Competition
5CTM of Chinese innovation

55. What happens when you have
20 YouTube
10 MySpace
5 Match.com
4 Facebook
5 Yahoo
…
5 Twitter

56. Constraints
5CTM of Chinese innovation

58. Low GDP/capita
Small transactions / making MMs from cents

59. Limited advertising
Alternative business models / B2B toB2C

60. Few credit cards, Low trust
Alternative payment systems, escrow system,
mobile, virtual currencies

61. 6. Why foreign internet leaders
fail in China?

62. Mountainview, Jan 14, 2010
Restaurant of Google

63. Compared to Google, Baidu has no advantage in
capital, brand or technology, even for Chinese language.
Despite these disadvantages, Baidu matches better
local people’s needs.
The performance of Google, Amazon, Microsoft in
China depends totally on their localization work.
ZHOU Hongyi
Angel Investor
Former CEO of Yahoo! China

64. • Without attention to the masses, it is difficult to be a
Top 3 website
• Local players don’t care about sounding good or
making mistakes. The worst for them is to be
forgotten.
• ‘objective is all’ and don’t care about anything else.
That creates efficiency.
• Different taste on design
• Better to communicate in the Chinese language and
to understand the Chinese way

65. About Great Wall Club

66. About Great Wall Club
• GWC, Global Mobile Internet CEO Club!
– Presently 73 members from China, Japan, Korea, Russia and Europe
– Headquartered in Beijing, having subsidiaries in Japan and Singapore
• Vision, Mission and Target
– To be a leading global business platform for mobile internet
– Friendship, Cooperation and Globalization

67. What We Do
• Build a worldwide CEO-level network in the mobile internet
industry
• Organize annual event: GMIC (Global Mobile Internet
Conference)
• Organize monthly events
– GWC Salon
– Internal Communication Meeting
– Monday Dinner
– Study Trip
– Summit
• Market research: Gport Weekly, other market reports

68. Our Members (partly)
Leilei WANG David WEI Xiaofeng SHAO Gaofei WANG Ke DING Renfei DAI Tao SONG
KongZhong, CEO Alibaba Inc., CEO Alipay, President Sina Wireless, GM Tencent Wireless GM China Unicom Newspace, GM Sky-Mobi, CEO
Xiangdong ZHANG Shuang LIU Bin LIU Yongfu YU Joshua MA Haila WANG Jerry LI
3g.cn, President Phoenix New Media, CEO Yicha, CEO UCWEB, CEO MadHouse, CEO Orange Beijing, CEO PP.cn, CEO
Yilong LAI Rong MU Zhihao ZHANG Song CHEN Jianwu ZHU Xi WANG Dongwan PU
Labox, CEO Bedo, CEO 12580, CEO Byread, CEO Lexun, CEO Easou, CEO Xunjie Network, CEO
Alex LIANG Xinyu LI Yongquan XIAO Gang WU Weiguo ZHAO Yongzhe JIN Yu LIN
PICA, CEO Talkweb, President d.cn, President 3GV8, CEO CEYUAN Ventures, President Senior VP, SKT China NetQin, CEO

69. Our Members
Europe
Kirill Pctrov Evgeny Kosolapov Jari P. PauI Asel Rune Bundesen
i-Free United Fun Traders Finland Investment Bureau Nokia Growth Partners NeoConsult
CEO CEO Senior BD Director Managing Director CEO
Japan
Akio Tanaka Masanori Sugiyama Hirokazu Mashita Masahiro Irie Hoshuyama Takayuki
Infinity Venture Partners ZAPPALLAS Hikari Tsushin Group, Yicha Japan D2Communications COO
Co-Founder CEO Chairman CEO
Korea
Jin Ho Hur Chongsik Kim Jeong Ho Kim Young il Lee James Song
Neowiz Internet INNOACE / KWISA NHN, Hangame Com2us GameVIL
CEO CEO CEO CEO & CTO CEO

70. Next GMIC
April 27-28, 2010, Beijing

71. Contact us
www.thegreatwallclub.com
Tel: +86 10 5167 2880
Fax: +86 10 5167 2887
yiqun@thegreatwallclub.com
Address:
Room 0709-0711, Jing
boyiqun Liang Building
No.16 East 3rd Ring
Middle Road
www.linkedin.com/in/boyiqun Chaoyang District
Beijing, China, 100022
http://www.slideshare.net/greatwallclub

72. Thanks