2007 China’s Web and Wireless Sector In Review

Written by Tangos on January 2, 2008
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2007 is a meaningful year for China’s Internet and wireless industry. In 2007, Alibaba celebrated a recorded successful IPO, while Tom Online had to been taken private for poor performance; Baidu and Tencent’s profits and stock prices keep soaring, while wireless SPs were struggling for deteriorating financial results and stock prices; video sharing sites have raised big sum of money but may face potential regulation risks, while many other web startups have felt the slowdown of VC investment in Internet.

2007 is a big year for Chinese Internet companies to go IPO, esp. for online gaming companies. In 2007, we see four MMO game companies went IPO, i.e. Perfect World (Nasdaq: PRWD), Net Dragon (HKG:8288), KingSoft (HKG:3888) and Giant Interactive (NYSE:GA). Together with Shanda, Netease and The9 Limited, there are totally 7 Chinese online gaming public companies already. China is leading the development and business model of online gaming industry in the world, we expect to see more innovations from these companies in the future, though some innovations are not so pleasant.

Among all Chinese tech IPOs in 2007, the most outstanding one is Alibaba’s IPO in October in Hong Kong, which raised $1.5 billion and made it the second largest tech IPO since Google. Alibaba’s share price almost tripled in its debut. The successful IPO of Alibaba and Netsun, which is listed in Shenzhen Stock Exchange since 2006, will undoubtedly stimulate more investments in China’s B2B e-commerce service.

Actually not only B2B e-commerce sites, B2C e-commerce websites also attracts many attentions in 2007. RedBaby, one of China’s largest online maternity and baby products retailers, has raised another $25 million in 2007, its net profits for 2007 is expected to be doubled to RMB 60 million. YesPPG, online shirt retailer backed by KPCB, TDF and JAFCO Asia, became a new star in China’s B2C e-commerce field, in later 2007, we suddenly found dozens of online shirt retailer to compete with each other in China, some of them are newly-launched startups, some of them are backed by traditional men’s garment manufacturers.

2007 is a really bad year for Chinese wireless value-added service providers (SPs). Since China Mobile continued tightening the regulation policies, the golden age for SPs has ended. Their revenue and margin kept decreasing and they became to lose money. Therefore, we saw consolidations in the market: Tom Group decided to take Tom Online private, Hurray merged with Enlight Media and an Indonesian media company will become majority shareholder of Linktone. However, for mobile Internet startups, though the poor industry environment makes it more difficult for them to raise money, it is good for them to put efforts into innovation and finding healthy business models.

Baidu further strengthened its leading position in China’s search market in 2007, even though Tencent’s Soso.com and Netease’s Yodao.com also entered this market. Besides several vertical search services, such as game search, video search and book search, the most important strategy of Baidu in 2007 is that Baidu is starting to build content channel by itself, which makes Baidu to evolve into a content portal rather than a pure search engine. In November 2007, Baidu launched finance channel, and Baidu entertainment channel will go online in January 2007. Baidu also launched Beijing Olympic Games channel to compete eyeballs with Sohu and Sina. Another big news for Baidu is that Baidu announced its plan to enter C2C e-commerce market in 2008, which will compete directly with Taobao.com of Alibaba Group.

In 2007, we continues to see many copycats in the market, for instance, Twitter-like services as Taotao, Fanfou and Jiwai.de, Facebook-style websites as Hainei.com and virtual world services as Hipihi and Novoking. Among various kinds of copycats, those Youtube wannabes are most favored by venture capitals with about $100 million investment in video sharing sites in 2007. However, because of the new regulation co-issued by Ministry of Information Industry and State Administration of Radio, Film and Television, which require online audio and video services to be majority state-owned companies, may impose potential regulation risks on operation of those video sharing websites, but it is still possible that they will work out some solutions to work around the regulation.

Video is not only the sectors which Chinese government wants to regulate. Thanks to development of web 2.0, more and more people began to use Internet or wireless tools to express themselves, so we saw Xiamen PX chemical factory demonstrations and grassroot reports on Chongqing nail house. The development of Internet also made government to block more foreign websites, including Feedburner, Flickr and Youtube, they even shut down IDCs to force them to self-censor the hosted BBS and blogs.

Some Chinese websites have started to seek opportunities in global market in 2007. Baidu launched its web, image and video search services in Japan market. Tencent partnered with AOL to provide casual game service for AIM users. Alibaba rolled out a Japan version, its Alipay service also entered Taiwan and US market. Not only big Internet companies, small Chinese startups can also develop services which are well received by overseas users, EditGrid is a good example.

2007 also saw a more open Internet in China. More startups embraced OpenID, rolled out open APIs, and benefit from APIs. More important, the Sohu Blog Open Widget platform made a good starting point for Chinese big Internet companies to build an open ecosystem rather than a walled garden. We wish more API from either startups or big companies as Baidu and Tencent in 2008, we also wish a more open Internet will then encourage more web innovation in China.

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7 Responses to “2007 China’s Web and Wireless Sector In Review”

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  3. Peter on January 3rd, 2008 1:00 pm

    Thanks for the overview regarding China’s Web and Wireless Sector. What is your view regarding the potential for China government to open up the dominance by China Mobile and enable companies like China Unicom and China Netcom to become more competitive in the wireless sector in 2008?

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