What’s The Meaning of SoftBank’s Investment in Oak Pacific?

Lots of discussion on the news that Masayoshi Son’s Softbank will lead an investment totaling $430 million for approximately 35% stake of Oak Pacific Interactive (OPI), whose main asset currently is Xiaonei.com, a Facebook clone, can be found on the blogosphere already, such as on Techcrunch, VentureBeat and DigitalWatch.

Honestly, I was surprised by the news when I first heard it on Twitter, though there was rumor in early this year already. What does the investment mean to China’s web sector?

At first, what will happen to Xiaonei.com? According to Communication Information, Xiaonei had 22 million registered users and 12.7 million daily users by March. With enough money, they will enhance the promotion to expand into non-student market, bringing more fierce competition for some small startups as Hainei.com and Yiqi.com. Xiaonei will likely launch a developer platform as Facebook did. Most important, the money will allow Xiaonei to have much more time to find its viable business model.

Secondly, Joseph Chen, CEO of OPI, having more money on hand, will possibly make more acquisitions in China’s web sector. As Benjamin Joffe said “OPI’s main success was to raise money, buy Xiaonei with it, then raise more money”. OPI has a history of acquiring promising online assets and trying to package together to have a better valuation, however, OPI also has a reputation of bad management of acquired assets, such as Donews, UUme and even MOP. Benjamin Joffe reviewed part of its history:

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 UUme, another of their acquisitions back in 2005, at which time they were planning a NASDAQ listing in 2006.

In November 2006, James Liu, Co-COO of OPI presents the company as China’s “YouTube + Facebook + MySpace” combined.

Thirdly, the investment may help SNS sector regain attentions of venture capitalists, esp. when Kaiser Kuo said there is rumor on “a very large investment in 51.com, a social network that’s immensely popular in lower-tier Chinese cities”.

Since late last year, we witnessed some promising development in China’s social networking sector, including the launch of new Facebook wannabes - Hainei.com and Yiqi.com, the appearance of new social networks with some innovative features - CityIn.com, the release of free social networking tools for you to build your own Facebook - Ucenter Home by Comesenz. The big investment news will inspire venture capitalist to pay more attention on China’s social networking sector, that’s good news for social networking startups. And thanks to the availability of convenient social networking development tool, such as Ucenter Home, I believe that there will be many facebook-like small social networks in China in short time.

At last, what’s the effects of the investment on “copy to China” model? It may further strengthen the idea of “copy to China”(C2C), either for investors and startups. Most investors are cautious on innovative ideas from China, and of course, copying proved model to China will make them more comfortable. For startups, they might think copy is a easy short-cut to success as what Xiaonei did and proved by Softbank’s investment. Even though C2C is not as simple as it looks like, it is possible that more startups will hope they can find quick money from “copy to China”.

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