Friday, September 30, 2005

Some old Data

Baidu Becomes Largest Web Business Platform

On June 3, 2005, CCIDnet (the most reliable IT research firm in China) released a research report which includes 18 of the most developed large citis in China. It reported that 50.14% businesses have or in the process of purchasing Baidu's paid search ranking services. Google came in at 24.13%, thus pushed Baidu into the top spot as a web business platform.

CCID reported, among Chinese companies with online sales, 84.5% of them are using paid search, 6.69% are using listings on web portals, and 3.8% are using emails as a way to expand their web businesses. Most acceptable way of web expansion also ranked search engines at top with 75.3%.

In the last few years, web site construction was the first step. However, to attract new customers, they must expand the reach of their web sites. The best way is to join the search engines. According to the report, expanding online sales through paid search is also the most favored way for businesses.

The main two services provided by paid search are auctioned rankings as well fixed-price rankings. Auctioned rankings based on purchased keywords through search engines. When users typed in the keywords, the paid web sites will appear. And the fees are usually based on clickthroughs. Businesses can bid on keywords to be listed in ranks. The service providers are Baidu, Google and Yahoo.China.

The fixed-priced rankings can be purchase using monthly or annual payments. Companies can buy their fixed position in the ranks. When users search the keywords, the paid content will appear at the fixed positon in the ranks. The service providers are Sina, Sohu, HC360, Alibaba as well as 3721(merged into Yahoo.China).

According CNNIC's data, currently, there are about 660,000 web sites. There is clearly a surging trend on using paid search to expand online sales.

Pei Yuan

Wednesday, September 28, 2005

Put Numbers in Perspective

Company Baidu

* Total revenues increased to $8.4 million, representing a 52.6% growth from the previous quarter and a 188.6% growth from the corresponding year in year earlier.

* Net income increased to $1.5 million, representing a 381.8% growth from the previous quarter and a 625.5% growth from the corresponding period in Year earlier.

* The number of active online marketing customers increased to 41,248, representing a 29.8% growth from the previous quarter and a 142.6% growth from the corresponding period in year earlier.

Economy is still growing at an average of 9% per year.

Company Baby Yahoo:

* Total revenues increased to $5.5 million,representing a 68% growth from the previous quarter.

* Net loss for the quarter was $1.1 million, comparing with net loss of previous quarter of 1.4 million.

* The number of active online advertisers increased to 340, up from the previous quarter of 230.

Economy has been growing at an average of < 3% per year for the next 9 years.

During the following quarter, Company Yahoo reported following results (a big holiday quarter):

*Total revenue increased to $8,551,000 for the fourth quarter, a 55% increase over revenues of $5,515,000 reported in the third quarter.

*Net income for the quarter was $96,000 or $0.00 per share, compared to a net loss of $1,145,000 or $0.04 per share in the third quarter.

*Advertiser base increased to 550, compared to 340 advertisers in the previous quarter.

Company Yahoo's stock started taking off after this report and ran up 100 fold or 10,000% in the next three years on average of 460% annual return

Let's watch how company Baidu will do a quarter following next!

Monday, September 26, 2005

Baidu Watch

10/16 Update

10/9 What does a Chinese do when they finished the week-long vocation of National Day Holiday? The answer is Baidu YiXia (or to Baidu). From data, Baidu saw a huge surge in traffic volume which broke the highest mark of the year. A surge in volume was also seen in the days before the holiday when people were happy to see the Baidu.maps beta just available right before the holidays started.

10/8 Baidu and Industrial and Commercial Bank of China signged broad agreement on co-development in on-line payment system and many aspects of e-commerce.

10/8 Baidu sponsored Search Behavior Research Lab in Peking University.

10/2 Baidu's map service is a big hit. Baidu's map beta service are now only available in several large cities, but the impact has been tremendous. This week, China is celebrating national day with a week-long national holidays. Since the long vocations worked well in the past to stimulate domestic spending especially in area such as tourism and shoppings, it has been called "golden week".

From the Alexa's data which are followed closely in China, Baidu has seen it's traffic surge during last few days while other portals as well as online gaming giants have seen their traffic slowed down. One analyst attribute Baidu's gain mainly on the timely release of it's beta map services. Though Google's bendi also provides map service in China, it has clearly designed by foreigners.

The reason is that the sequence of Chinese characters that composed into phrases are often running opposite to the way English composed. For regular users, they have found that Bendi is too tricky to search for a place unless you know how to input the whole official name. Baidu has done a very good job at guessing the most popular places for users when they input some simplified keywords. Several other features in Baidu's map is also favored by local users such as the connection between point A and point B with distance measurement. For sophisticated users, and the wider availabilities, has gained about equal acceptance with many saying they don't have clear preference for which one to use.

9/28 Yesterday, Baidu successfully completed a week-long mission. The "Construction of an enterprise with good market sense and increased competitiveness" seminar series were held around six large cities. It is the largest mission for Baidu's enterprise software division. Baidu held the seminars together with partners in Beijing, Shanghai, Chengdu, Dalian, Shenzhen, and Guangzhou to introduce search applications to businesses.

Nearly one thousand medium to large companies, medical equipment manufactures, and government agencies were gethered togethered. Baidu introduced them search applications, products and development trends, as well case studies of competitive intelligence products. The seminars were very well received with many expressed purchasing intentions on the spot.

9/26 Baidu's CEO, Robin Li attended the opening ceremony for Baidu's Guangzhou subsidiary.

According to Ministry of Information Industry, Guangzhou ranked number one in commercial usage of internet nationwide. 89% of businesses in Guangdong province have used internet for sales and marketing purposes. In Beijing, usage of online sales is around 70%. While in Shanghai, it is around 85%.

9/27 Court hearing started at Beijing Municipal Intermediate Court. Seven companies include Global, and Warner Music are sueing Baidu for providing illegal music download services to internet users. Baidu insists it does not provide such service besides providing links resulted from user's MP3 search on Baidu.

9/27 The comparison of Baidu's beta version of map service with Google's Bendi service is currently a hot topic around many websites in China. The preliminary results is that Baidu again has beaten Google on this front with it's better understanding of user inputs of keywords as well as more user friendly vision effect of connections between point A and point B. Some commentary pointed out that as long as Baidu stays as focused as they are doing now, It will be hard for Google to beat them.

However, there is a good chance that Google still could buyout Baidu since if Baidu purchased by a Google's competitor, such as eBay or Microsoft, it could totally ruin Google's chance in China.

9/27 After suffering a big drop in traffic ranking due to Alexa's readjustment of ranking criterions, traffic to Baidu's search site has roared back and again reached number 4 ranking on Monday. The continue surge in Baidu's usage among Chinese users has more than offset the drawback surrounding Baidu's contraversial MP3 service.

An analyst in Beijing also downplayed the threat of a possible withdrawal of MP3 on Baidu's business, saying the voluntary withdrawal of similar service from Netease has not produced any significant negative impact.

Related Articles

Baidu's Amazing 72 Hours (9/9/05)

Google Lost Ground To Baidu

Baidu Report From China Sources(9/10/05)

Search Engine: Facilitator of E-Commerce

Baidu's Six Years(Part 1) (9/11/05)

Baidu's Six Years(Part 2) (9/12/05)

Baidu's Six Years(3)

Baidu's Six Years(4)

Baidu Becomes Largest Web Business Platform

Baidu's Price To Surpass Google's?(9/12/05)

Baidu: Not Just "China's Google" (9/12/05)

Google Plans to Buy Baidu?

Deep Impact - Google collide with Baidu in Chinese Market (1)

Deep Impact - Google collide with Baidu in Chinese Market (2)

Shanda Exposed it's Ambition with Microsoft Connection

Taking advantages of Microsoft, Sina, and Changhong, Shanda intended to unite web, TV, and games

(9/27) Yesterday, CEO of Shanda, Tianqiao Chen openly admitted that they are in negotiation with Microsoft on "collaboration on XBOX". The attempt to acquire Sina is just a "sideshow" from the Microsoft relationship. The rumored third party behind Shanda is also exposed.

Chen revealed his ambition to build an entertainment empire that combines web, TV, as well as games.

"Shanda is moving into the living room. As to the detailed means, whether it's a set-top box, or an IPTV is not important. For me, it's just PC, internet, and digital games. Shanda is the strongest player in digital games as well as the largest and most competitive content provider. And these are enough. " Chen explained the direction of his grand plan.

Data showed that by the end of 2004, there are about 100 million PCs and 300 million mobile phones in use in China. There are also 370 million TV sets in use. Though the strong growth trend in online advertising, the combined advertisement revenue from the top three portals is only about a few hunderd million dollars. Even you count in mobile, games, and other revenue together, it is only about serveral billion dollars. However, according to conservative analysis from State Bureau of Broadcasting, with the users approaching 100 million, advertisement alone can achieve a market capacity as big as $12.5 billion.

"Many people have forseen this market earlier", Chen said. Microsoft started the "Venus plan"(a failed Microsoft strategic plan designed for China) and XBOX as early as 1999, and has been making continous efforts. Shanda's goal is is to combine games with television. In other words, whenever you turn on your TV set, you will be connected with 350 Million registered Shanda users through internet.

Shanda, Microsoft, Sina, and Changhong

Chen knows that Shanda can never own this market. It is just impossible. "Shanda's advantage is in providing digital entertainment. Anything else is other people's job", said Chen. "Such as movie and music, we can collaborate with the related groups. We can collaborate with Tencent on VoIP, and Baidu on Search, and we can also colloborate with Sina on news.

Chen's grand plan is that: Intel making chips, Microsoft making operation systems, Changhong making set-top boxes, and Shanda providing digital entertainment, Radio and TV stations providing movie and VOD, Sina providing news coverage as well as advertisement. All these things are then integrated into a small box and connected to Shanda's huge and well organized sales and marketing platform. Can you imagine how big an impact it will bring?

In yesterday's conversation with the media, Chen admitted first time Shanda and Microsoft "are discussing collaborations related to XBOX". At the same time, he admitted that he indeed said he "was going to have coffee with Bill Gates during a trip to the US close to the holiday season". He also said that: "Shanda has been communicating with Microsoft on strategic collaborations. I can't exclude the possibility that both sides can further our collaborations on XBOX and MidiaCenter".

"As to the set-top boxes, Shanda has no plan to make them ourselve", Chen said. "It is just a box, we can leave them to more specialized partners such as Changhong, TCL, Konka or Haier to make them."

Wu Peng

Sunday, September 25, 2005

Baidu's Six Years(4)

Just passed the Spring Festival(Chinese New Year) of 2005, Baidu again became media focus. This time it is not some shocking moves in the market place. It is an interesting move in the executive front.

Dong Liang, an anchor from the PhoenixTV in Hongkong suddenly jumped ship to Baidu and becoming it's vice-president responsible for marketing and public relatioship.

Inviting Liang to join Baidu has been on Robin Li's mind for a long time.

As Baidu growing rapidly, Li realized the importance of urgent need for public relationship and market development.

Robin Li met Dong Liang the first time on a bus where they were on the way to a party of the media organizations. They started talk to each other and had a big argument on how to build an internet brand. Li found that Liang had special insights on many questions and the idea of inviting Liang to help in marketing development was born at that time.

In Dec. 2004, Robin Li went to Hongkong with general manager of Baidu's Shenzhen subsidiary Jiping Liu on a business trip. In a cafeteria in Grand Hyatt Hotel at Hongkong, Li had another long conversation with Liang.

During the conversation, Li put many of Baidu's problems in develpment process on the table. Liang gave each one a very candid personal view. The conversation confirmed Li's opinion on Dong Liang. He immediately invited the then super hot TV anchor to join Baidu.

Dong Liang did not giva a straight answer. Instead, he told Robin Li that he needed time to think about it.

Robin did not push him either. Through Jiping Liu, he continue to discuss many questions with Liang and the discussions gradually brought the two closer.

In Feb. 2005, Liu called in: "Robin, Dong Liang agreed!".

Liang's onboard gave people a great feeling of diversity at Baidu. Another story about Baidu's senior scientist Tao Hong also demonstrated the attraction of a Chinese born internet company.

Before joining Baidu, Tao Hong has worked for 15 years in the US. He was a senior scientist at ID Analytics.

In Jan. 2005, Hong came home for a visit. Being a shoolmate at SUNY-Buffalo, Robin Li invited him to visit Baidu.

Standing in front of the glass wall on the 12th floor of Ideal International Plaza, which located at Beijing's Loop4 north, Hong looked out. The familiar campus of his former shool Beida(Peking University) is clearly in the view.

The similar working environment as Silicon Valley combined with the rich culture of Beida moved him deeply.

Hong asked himself: Isn't it the place of his Chinese roots and Beijing dream?

Returned to the US, Tao Hong spent only one month to quit job and to pack. When many friends persuade him to stay, He said: "I'm going to China's Google."

Later, Hong "complained" to Robin that it was an understatement. Baidu's future must be even better than Google's.

In March 2005, Baidu operations for preparation of going public formally started. It is the begining of another high point in Baidu's legendary six years.

Investor relationship became the busiest place in the company: prospectus compiling and revising; training for Robin Li on speeches with the public relationship consultants; collection of opinions from media and investment firms. . . General manager of IR, Kun He and her collegues became powerful motors, generating continous energy for the operations.

The process of selection for underwriters also took a toll.

The majority opinion was to go with GoldmanSachs. Many Chinese internet firms have used GoldmanSachs as underwriter such as Shanda. Some also suggested Swiss First Boston who was underwritter for Google's IPO.

Robin Li made an surprising decision to have them both. Even more surprising, these two big investment banking rivalries agreed to jointly underwrite Baidu's IPO. That was also historical.

On July 19, Robin Li left Beijing with his team to start global roadshow.

In Hongkong, It was very successful. Requests for the stock quickly passed the total number of shares to be issued from the IPO.

It was a very good sign. Li thought so too.

The lunch time roadshow in New York also broke the record. There were 94 seats reserved for fund managers. 140 came. General manager of the IT business from Swiss First Boston came to calm Robin down and told him not be too nervous. Li smiled, "Don't worry, the more people come, the happier I am".

Once started, Robin Li was very relaxed. His special Chinese humor broght many laughters from the group of fund managers many of them are managing tens of billions of dollars.

It is without question that his excellent English, which he learned in the US as a student as well as a IT worker, combining with his Chinese humor has made the roadshow very fruitful.

On Aug. 4, Roadshow was on it's last leg. Robin Li and Baidu's CFO Shawn Wang and other executives held the last meeting. Two hours later, IPO was prices at $27 per share.

On Aug. 5, 11:40 AM Eastern time, trading started for Baidu's stocks. The opening price jumped to $66, broke $150 at one time, and closed at $120 per share. Baidu achieved a Chinese style victory in the US.

The colletion of $109 million also created many multi-millionaires and millionaires at the same time. For Robin Li, the young Baida student from Shanxi finally realized his dream of miracules.

"Open your arms, you will have the world" is a quatation from the classical "Hidden dragon and Crouching tigers".

To Robin Li and Baidu, their search service is the best interpretation--Use simplicity to cover everything, in all things together to find individual characteristics.

Baidu's legend is not over. China's internet legends are not over. Accompany with these legends, the powerful waves of the Chinese IT industries are moving forward.

Peng Cheng

Deep Impact - Google collide with Baidu in Chinese Market (2)

Using own strength to attack enemy's weakness

Simply comparing Baidu and Google, the difference in quality of search technology is clear. Google's technological strength is above Baidu's. However, Baidu's sharp focus on Chinese search is also hard for Google to catch up in a short time. More critically, their understanding of the search habits of Chinese users are very different.

There are over 100 million internet users in China, second only to the US. But this is a very different market than the one in the US. The Research Center from the Chinese Academy of Social Development published a survey result of "Questionaire on the usage of internet and it's social impact" recently. They found that the most visited area by net surfers is in the news. General browsing came the second. Games, music downloading, finding entertainment information makes up for the top five. At the same time, most of the news they are looking at are also related to entertainment, then local news followed by international news. Besides surfing, as high as 62.2% of internet users play games online, second only to news reading and general browsing. This ratio is much higher than that in the developed countries such as US, Britain, and Germany, etc.

In the US and Britain, the major task to go online is to check emails for over 90% of the internet users. The survey found less than half (44.8%) of Chinese internet users check their emails regularly. This at least indicates that Chinese users access internet as an entertainment medium instead of as an commercial channel. So the search needs of users are very different from that of the US.

Understandably, for many Baidu users, searching for free MP3 files are their most favorite service. But as Baidu's fame went up with it's IPO, this advantage is dissipating quickly. According to a lawyer from international music group EMI, there are five companies have brought lawsuits against Baidu during this summer. A Beijing court has ordered Baidu to halt its music downloading service last week though Baidu has claimed that It never offered downloading service besides search and would appeal the decision. Clearly, the free lunch could be over soon and instead Baidu would have to pay for the service.

There were some rumor came out last week that Baidu has admitted that they reached agreement with international and domestic music organizations. In that agreement, Baidu will point all search results of downloading service to legitimate sites begining October. And Baidu will try to gradually remove all the illegitimate sites in six months. Then Baidu will negotiate with all music rights owners and download service provider to share the revenues. Some estimates that, from downloading music tones alone, Baidu could earn $2.5 million each year. However, that might not be true. Other news report indicated that last week's meeting sponsored by Baidu was basically boycotted by the major players in the music industry.

For Baidu, this could be a two edged-sword. "If all Baidu search point to fee-based adresses, it will reduce the traffic dramatically", One industry analyst explained. Xiaoqun Sun, who is in charge of Google's strategic partnership and business development, mentioned the same problem on Sept. 3 on a meeting cosponsored with China Enterprise. In the global scale, Google provides 53% of all the searches. However in Chinese market, Baidu is the largest search engine. Because copyright concerns, Google does not provide MP3 service while Baidu does. So, if MP3 service is excluded, Google is also number one in the Chinese market. "As Google starts it's research and development center in China, Google will provide new products spcifically designed for Chinese users", said Sun. is an example.

But in Yanhong Li's eyes, Google's new products do not have advantages in China at all. "In China, net citizens have their own communities. They think they belong to certain communities. When net users search information, they will naturally choose Baidu. It is not only because Baidu is the biggest Chinese search engine, but also because they can find many people who share the same interests." In Dec. 2003, Baidu started the "poster cafe" bulletin board services. "They can ask questions, exchange experiences, and they feel like at where they belong. It is a very efficient supplement to traditional search services." Li thinks it has become a major competitive edge for Baidu. In June, Baidu started another community service - "Baidu Knows". A place questions can be asked and answered. Person that gives a good answer earns points that can be accumulated. "The service looks very promising."

"Even Google is a very powerful company, it still can't achieve a market share in the 70-80% range. In contrary, Yahoo still have chance to beat them." Faced with Google's quick moves in China, Li is not that much concerned. "Yahoo entered China in 1998. After trials of so many years, they are still not number one in China. In fact, after they bought 3721 net, they have spent much more on purchasing servers and broadband than Baidu. But in the same period, Baidu's market share have not dropped, but actually gone up."

"To enter China, for a multinational giant such as Google, I can't predict exactly how many years it would take for them to learn. The hurdles lying in front of them may not be that small as they have imagined. It's not that easy!" Li smiled very confidently.

According to estimate, the search market in China reached $120 million last year. This year it probably will reach $210 million. By 2006, it could reach $320 million. The annual growth rate could be around 80%. Anyway, in this high growth, intensely competitive market, Baidu faces tremendous pressure. Currently, Baidu's stock has fallen back to around $80 per share after gained unbelievable 354% on the IPO debut. But it is still 2000 times of Baidu's net profit. To support this high stock price, Baidu can do absolutely nothing wrong.

translated from an article on with minor modifications by Hua Tong.

Baidu's Six Years(3)

"Know ourselves, build our strength, cut our weakness, improve and improve!"

In Baidu's internal magazine, the above quotation from Robin Li is on the top page.

Like what is written, in the operations of the company, Li cares very much about the influence of the traditional Chinese culture on employees as well as the whole company. That is also why he named all the offices in the company with words from the poems of poet Qiji Xing of Song Dynasty.

For the same reason, Li also cares Baidu's position as a Chinese internet company.

For him, whether it was the "lightning plan" of 2002, or the Nasdaq IPO of 2005, Baidu is not just represent himself and the thouand employees, but also represent a Chinese internet enterprise born and grown in China.

"As citizens of Chinese enterprises, we should know our heavy burden and we must win". Li said that. And he did that too.

After they succeeded in defeat Google with the "Lightning plan", Baidu did not see face to face with the big rivalry for quite some time.

In April, 2004, the silence was broken. This time, Google knocked on the door. They did not come for a fight, but for making a deal.

On a Friday morning, Li just came to the office when the phone rang. It was from a senior officer of DFJ (Draper Fisher Jurvetson).

"Robin, Google wants to talk to you for a deal!"

It was hard even to imaging that Google would choose to collaborate with Baidu. The first response from many people would be "Google wants to buy Baidu". But the smart Li knew it was not that simple.

And he soon found out that Google's request was not related to acquisition. At that time, the search giant was on a road show for it's nasdaq IPO preparation. Google easily deflected many tough questions from the investors except one of them: Why Baidu basically owns the Chinese market, why Google hasn't done much in China?

To avoid this question from becoming an obstacle for Google's IPO, Google's board decided to purchase part of Baidu's stocks to show that they have had at least some achievements in China.

Robin Li instantly refused. He could not see any benefit from Google's joining as shareholder would bring to Baidu at that time.

Two months later, IPO was closer, and Google again asked for buying shares of Baidu.

This time, Li took long time to think it over.

Comparing with two months ago, the situation has changed quite a bit.

The enthusiasm surrounding Google's IPO had increased quickly among market analysts and investors. Bidding prices had been adjusted up again and again. Li saw an opportunity there. Because Baidu's Nasdaq listing has been put up on agenda, if they could get the world's largest search engine provider be part of Baidu's ownership, it definitely helps Baidu's IPO by boosting foreign investors' confidence.

"Yes, let them in", Li decided in a meeting of top executives.

But when negotiation started, Robin Li made three clear conditions: One, Google's ownership can not exceed 20%; two, Google can not take a seat on the board; three, Baidu would not obligated to provide detailed ownership structure, change in management as well as detailed financial reports.

Deeply influenced by the conservative Chinese culture, Li did not want "to let the wolf in".

see update - Google Plans to Buy Baidu?

On Jun. 15, Google formally announced that they have bought a 2.1% stack in Baidu.

When rumors spreading that Baidu might be bought by Google, Robin Li saw the light. He knew that Baidu was another step closer to Nasdaq.

Before Baidu bought it, Hao123 has been a partner of Baidu for some time.

"It is a typical defensive move", said a senior person at Baidu who was involved in the deal.

In June 2004, an intelligence report from marketing department was submitted to Li. The analysis clearly showed that the traffic on Hao123 had surpassed the combined total traffic of Sina, Yahoo.China, and Sohu. In the ranking(which is followed by Chinese firms extensively for marketing purpose), Hao123 was ranked the number 25 around the world.

At the same time, many Chinese web portals such as, Eachnet(now joined eBay), and were all having long-term collaborations with Hao123. Baidu was also one of them.

We must acquire Hao123 before it fell to other people's hands, Robin Li got the instincts.

Immediately, Baidu called XingPing Li of Hao123: "We'd like to acquire Hao123, Let's talk about it".

The previous good relationship played a positive role. For quite some time, Baidu has provided server and broadband support to Hao123 for free. And Baidu has been paying Hao123's share of clickthroughs on time. All these things has made Xingping Li felt friendly.

$1.3 million made the deal. There was not much bargain and negotiation at all.

When Baidu announced the news on Aug. 31, it was a bombshell in the industry. When a reporter asked Robin Li why would Baidu spent so much to buy an website where there are only links without much fancy stuff? Li smiled without an answer. In Li's opinion, to make Baidu the number one visited Chinese website on Alexa ranking is much more important than "potential commercial value".

"Today, failure does not equal to an valuable learning experience. It means failure, period. So Baidu must succeed", Li says it all the time.

-->Part 4

Saturday, September 24, 2005

There is no bubble

Interview with the "Queen of Internet": There is no bubble in Chinese internet market

Q: Baidu's IPO success has made many people suspicious that there is a bubble brewing in the Chinese internet market, do you agree?

Meeker: The success of Baidu's IPO indeed surprised many. But it is also quite understandable. Baidu has the famous title of "China's Google". The combination of China and Internet concepts made Baidu's IPO very attractive to many investors. Besides, the number of shares Baidu has issued is very small and could not meet the demands of all the investors. With above factors, Baidu's jump on the first day of trading is totally a normal market behavior. I think, Baidu's price will fall back to a more normal level. But this does not indicate there is a bubble in Chinese internet market.

Q: Why do investors pay so much attention to Chinese internet market?

Meeker: China is the largest internet market in the world and it has been growing very fast. The combination of these two factors is enough to attract investors attentions. Of course, from investors' point of view, if a market is full of opportunities and bright future, there must be many risks too. It is a double-sided sword. If you count the number of users, China is already the second largest internet market. It is expected to be number one in two to five years. According to our estimate, China has the world's biggest number of internet users younger than 30 years old.

Q: What impact might be from these young users(about 70 million) on the development of Chinese internet market?

Meeker: Technological innovations are often come from those markets where there are more young users and young engineers. So far, there are not many innovations in global technologies or global products from China yet. Many are using similar commercial models existed in other markets, such as portal, online advertisement, and search. But in our opinion, in the next three to five years, there will be quite many innovations in technology as well as products born in Chinese internet market.

Q: Such as?

Meeker: I can't predict exactly. However, think about that more and more Chinese users are interested in innovative internet technologies. And there is no shortage of excellent young engineers in China. It is just a matter of time when innovative technologies and products will appear. Looking back at the history of development in American IT businesses, whether it was MIT's mini-computer or IBM's super-computer, they all experienced similar development stages.

Q: Which Chinese companies are potential innovators?

Meeker: We have already found many standouts in Chinese market. For example, in instant news area, Tencent is capable of elevating products and benefiting from them. It is such a company that could join the global leaders.

Q: How different are the roles that internet has played between US and China?

Meeker: It is can be seen from the ways that internet has changed US and China. Ten years ago, there are very limited ways that Chinese can access to information and entertainment. Thus young Chinese are more willing to accept internet as ways of communications now.

Q: Any changes in last few years?

Meeker: Five years ago, many venture capitals are critical on the lacking of innovations and less mature managements from the Chinese IT firms. Even last year, there are still similar problems. But five years later, these problems will be solved effectively.

Q: What caused the changes?

Meeker: It depends on the quality of the teams. From some aspect, team is the real resource of innovations. Perhaps in the near future, there will be China's Steve Jobs and Bil Gates. So far, the Chinese Universities have not played their roles in IT innovations. But it is quietly evolving. In the next five years, most of the tech innovations will still coming from the US, but there will be more coming from China and Europe.

Q: What do you think about the AYa deal that Yahoo bought 40% of the B2B company Alibaba with $1 billion?

Meeker: Yahoo has entered China long time ago. Their growth has fallen behind local competitors. If you want to gain the market quickly, acquisition is very good shortcut. Since both the regulations and user consumption patterns are different from other countries, many foreign internet companies could not get accustom to. So many of them are turning their efforts toward buying local companies. It is unquestionable that there is certain risk with the deal. However, since Japan's softbank is a major investor of Alibaba, and there is also an excellent management team at Alibaba, Yahoo can expect to benefit from the deal.

Q: What about the price then?

Meeker: I think Yahoo paid slightly too high. But it isn't a big problem for Yahoo. So I won't increase or decrease Yahoo's earning estimate. Relatively, I like the deal between eBay and Skype better. That deal will prove to be more valuable in the next two years than the Yahoo-Alibaba deal.

Q: Which company do you think will likely be succed in Chinese market?

Meeker: In the next few years, I think they are Google and eBay. Google's goal is to become the gate of global infromation, while eBay will let Chinese users access to global products and services. Recent data shows that 15% of all deals on eBay are from cross border trades.

Q: In China, Google's rival is Baidu. And eBay's rival is Taobao. So you think these two have no way to beat the other two?

Meeker: Currently, China's search market is still based on locals. Many e-commerce firms are doing the same. Google is creating a global information platform. eBay is also a global trading platform. On this respect, Baidu and Taobao are not comparable. Of course, it probably takes three to five years for Chinese users to totally accept Google and eBay.

Q: How Yahoo and Google can do that without maintaining servers in China?

Meeker: If they do not maintain servers in China, foreign internet companies will not be able to expand their businesses in Chinese market very well. Right now, many Chinese users are having better experiences with Chinese websites than non-Chinese websites because the Chinese sites have faster connections. For web users, speed is the most critical factor.

Q: What's your view on Google's expansion in China?

Meeker: In the next few years, Google continue has to deal with Chinese government. Many of Google's products and technologies can not put into use without the support of Chinese government. Google is working on instant translation tools. With that product, the English pages from user's search result can be translated into Chinese instantly. However, Google's instant translator won't be smoothly sailing in Chinese market.


footnote: an instant translator? now I start to hate Google :)

Friday, September 23, 2005

Deep Impact - Google collide with Baidu in Chinese Market (1)

On Sept. 5, Google made an anouncement at Mountain View in California that they have released a new search service for Chinese users - the search. The new service let Chinese users to search listings of local businesses, maps and related local information. Such as the nearby restaurants and coffee shops.

This is the second time Google has released services specially tailored for Chinese users. Earlier in June, Google released college search service right after the national college entrance exams to help users find related information from Chinese colleges.

In fact, the real milestone of Google's entrance into China was achieved early in September. They quietly broke the regulatory restriction, sailed smoothly onto the the CERNET, the Chinese educational and research internet network. At the same time, they have partnered four Chinese channel resalers: China Enterprise, Shanghai Hotsales, Xiamen ZZY, and Dong Wan Moveage. The total number of salespersons is already surpassed 10,000. Though they were still tangled in the messy law suit with Kai-Fu Lee's former employer, Microsoft, Google's China march has not slowed down a little bit.

Every move by Google is now a media focus in China. At the same time, Google's rivalry Baidu is also become a media star after it's IPO. The previously low-keyed CEO of Baidu, Yanhong Li rode on the frenzy by appearing on TV, interviews with newspaper, online media which both directly and indirectly increased Baidu's brand awareness. The American investors admired "Chinese Google" is ready for the battle against Google's challenge.

According to latest CNNIC report on internet usage around Beijing area, Chinese search market is basically dominated by two players. The top two are way ahead of the others. Number one Baidu owns 51.5%, number two Google owns 32.9%, number three Sougou owns 4.6%. Baidu and Google take a combined 84.4% market share for first search choice. How to distance itself from it's competitor has become a major challenge facing Baidu, not to mention the competition comes from the world search power, Google.

Collision in the Channels

Yizhuang Economic Development Zone is only a few miles outside Beijing. One of Google's channel partner, China Enterprise has its headquarter here. This is a company with more than 60 subsidiaries nationwide and have a sales team of over 6000 people specializing in IT services for small and medium businesses. They have access to over 20,000 business customers. "Google chose us for our customer resources, technical competence, as well as our operational capabilities". Vice-president of China Enterprise, Fang Yu said.

On Sept. 3, China Enterprise held a sales pitch in Shanghai. China Enterprise and Google tried very hard to give the several hundred small and medium business audiences a "brain wash". They tried to gain their acceptance for the Adwords auctioned ranking system. This kind of meeting is common sales technique for channel resalers. China Enterprise has already co-sponsored a similar sales meeting with Google at Beijing earlier. They intend to have similar meetings nationwide.

"Unquestionably, Google hopes our 20, 000 Chinese business customers to become their resources." Fang Yu said. "For our part, we hope to further collaborate with Google on the technology aspect." In charge of China Enterprise's strategic plan, he hopes the collaboration will increase the technological level in their own product offerings.

Auctioned ranking system is the major income source for both Baidu and Google. But for small and medium business owners in China, it is hard to understand this kind of advertisement. "you can't explain to them in 10 minutes." Fang Yu said. So, China Enterprise incorporated Adwords into their small and medium business service platform and then sell them as a package. "We are kind of like insurance salespeople. Customer give us a bid price, we give them a solution."

Similarly, Google's other three partners are also using different methods to achieve sales goal. However, these resalers are all nationwide representatives. In regional market, it may cause friction among these partners when they compete for the same customer in the same province. Although the partners saying the market is bigger enough for all to share, there still worries. "Google's authorization lasts only one year usually. So by next spring, the landscape of Google's authorizations in China could change dramatically. Now, everyone is under pressure", said one resaler.

Contrast with Google's nationwide channels, Baidu is using regional channels and direct sales. They currently have more than 50 primary partners. Earlier this year, they even bought one channel partner in Shanghai and then change it into Baidu's Shanghai subsidiary. One common nature of these regional channels is that Baidu trains them in their own hands and share growth with them. In this way, Baidu gained stronger control over them. And these partners are more dependent on Baidu too.

"The channels chosen by Baidu are usually small startups with a few dozens of people. Many grew up to several hundreds through collaborations with Baidu. Currently, the biggest Baidu channel partner has only slightly over 300 people. And besides Baidu's product, they don't have many other service offerings." said Baidu's marketing chief Xun Shu.

On the aspect of sales channels, local internet companies are clearly more experienced. Since "overlapping regional competition" occurs , after some difficult experiences, Baidu quickly changed the nationwide channel model. Instead, they started using local channel partners and establishing regional subsidiaries as a more specialized channel system. "Google probably has to pay more tuitions to learn here" Xun Shu said.

The senior analyst from Analysys, Liling Sun has different opinion. He thinks in the early stage of Google's entry into China, nationwide channel partners are still the best choices. Using nationwide partners costs less. More importantly, they are already mature and can penetrate the market quickly. From long term view, local channels have their own limitations such as the small scale and can be overpowered in competition.

Google's sales team come down like a torrid rain. According to one of Baidu's manager, many Baidu's autioned ranking services was in monopoly in many regions. Now there are already trends of distribution. Especially, many small and medium businesses have yet used Baidu's products. They are likely to access directly to Google's auctioned ranking services.

Managers from China Enterprise have confirmed that, on the same day they signed deal with Google, they have received countless phone calls inquiring about the service. Among them are also many smaller channels willing to be secondary partners.

Baidu isn't stay still though. Start at begining of this year, Baidu has significantly increased investment in supporting channels, marketing enhancement, customer service as well as in operations. In the first half, the recently established branches of business marketing and sales operations will be deeply involved in guiding regional marketing and sales models, and in training channel partners. "Our current focus will be on standardizing of sales flow and value enhancement of services", Shu said. They also grabbed Feng Zhou from Dell Computer to be their general manager of sales operations.

The purpose of this huge effort on the channels is to make the auctioned ranking services a standard model and procedure, and replicate itself among the regional channel resalers. Further spreading the services will help Baidu put their fate in their own hands.

(to be continued) -->Part 2

Monday, September 19, 2005

Baby Google or Baby Monster?

Is this baby Google or baby Monster?

A rapid growing internet search engine specilized in jobs.

Frankly, I don't like the logo design. Many users have confused the logo with Google's and thought it was Google's job search site.

It might be exactly the intentions of the company. But a copycat does not have a long life. Only innovations will prosper! However, I heard that their hohojobs sesearch tool is quite cool.

Search a job in China?

Unfortunately, I couldn't find a janitor, neither a nanny :(

While I was trying to translate their basic information into English, I found out they already had a news release, coincidently on the same date of Sept 19.

The Second Generation of Online Job Applications Start in China

BEIJING, Sep. 19 /PRNewswire/ --

BEIJING, Sept. 19 /Xinhua-PRNewswire/ -- On August 5, 2005, silently made itself publicly known in China. Without the need of huge marketing campaigns, it showed its advantages quickly. First, its ALEXA rank rose from a position of more than one million to just over 4000 in around two months. Furthermore, among personnel websites, it raised its rank to 12, and stood out quickly from other homogeneous sites. Due to its distinctive way of collecting information on personnel and jobs, the number of registered users increased rapidly. Effective resumes broke through the 10,000,000 marker, and are increasing by a speed of 30 to 40 percent. The website is quickly changing the history of online job applications in China, saying goodbye to the disordered and divided situation of the job application market.

Recently, the size of the global online job application market has rose from 2.8 billion US dollars in 2001 to 7.9 billion US dollars in 2004, and may reach over 11 billion US dollars in 2005. Among them, the American online job application market takes the leading place, accounting for 80 percent of the total talent market of the United States. Every small action of the American market will affect the nerve of the world's Internet. A previously completely new idea of providing one station shopping services to applicants, allowing them to enjoy the simplest application and recruitment processes, was raised by and Their job search engines spread throughout the nation; they brought the professional search engine into the field of the job market, and started a real revolution in the online talent market. This July, Yahoo! purchased Hot Jobs at a huge cost, which helped speed up the reformation of online job application sites and marked the real coming of second-generation online job applications. detected this tiny change quickly. Having launched services based on the Hot Jobs and models, it also released the Chinese job-seeking engine according to the characteristics of the Chinese market, and then expended the search area to include other external web pages. The view of searching without fighting created the Internet entrance of the talent websites and the plan to establish a union for all talent websites is being accepted and supported by more and more talent sites, and the regrouping of online application sites in China is carrying on silently.

At the same time, has already applied the technique of RSS directly on the order of information of jobs and applications, and the client terminal hohojob2.0, which was brought out simultaneously, also has the RSS reading function. You can directly get the ordered information of jobs and talents when you open your computer. brings in the content of a friends group and individual experience, realizes the function of delivering resumes to several websites, while only writing on one website, and brings out the client terminal called HOHOJOB2.0 with double functions of individual service and job order and resume delivering by itself.

After Google started the period of search engines and Baidu really brought it into China, professional search is becoming a common trend. The big change of online application modes and the regrouping of the online talent market will become one important issue of the Internet in future, while brings this hot issue into China.

About is the uniform entrance of jobs searches on the Internet. Through combining numerous search types it is creating the world's best Chinese upright search engine for positions and information integration. You can use it to search all big national covered websites, recruiting pages of corporate websites and professional BBS all over the country. At the same time, the website also provides users with a series of convenient and efficient services like resume writing and sending on one website while delivering to several websites and RSS position subscription services.

For more information, please contact: Mao Fuli of Tel: +86-10-8847-0768 x23 Fax: +86-10-8844-9071 x26 Email: Web: http://WWW.GLOBEHR.COM

CONTACT: Mao Fuli of, +86-10-8847-0768 x23, or fax,
+86-10-8844-9071 x26, or

Web site: http://WWW.GLOBEHR.COM/

Link is here

"Queen of Internet" Making Calls For China's Internet Stocks

MorganStanley's famed analyst, Mary Meeker was branded "Queen of Internet" in the 90s of last century. She has attracted many investor followers during the internet golden rush.

Yesterday, the "Queen of Internet" and another MorganStanley analyst Weidong Ji, gave their positive comments on China's internet stocks. In recent months, China's fast economic growth is gaining worldwide attentions. The internet stocks are also very hot. More and more American investors are begining to look outside on China and other countries for higher returns.

Mary thinks China's internet stocks have huge potentials. The reason is that China has the largest consumer population in the world. Internet can cover more of the large consumer population in China, and make it far superior than other industries. As the fastest growing economy of the world, China's GDP has grown 4.9 times(the original quote of 19 times, probably was a mistake) in last 20 years. The internet has been China's fastest growing sector. Mary pointed out that, there are several trends that investors need to pay attention to:

First, the growth of China's internet has been very dynamic. The number of internet users is ranked number two worldwide. The number of users younger than 30 is bigger than any other countries. Owning so many young users means China's internet services will continue to innovate to meet the appertize of these young people.

Second, different from other countries, China's internet are mainly mobile connected instead of desktop connected. China has 360 million mobile users which is 3.6 times of the number of internet users. That is equivalent to the number from the three countries followed combined. Mobile value-added services added $700-800 million on to internet companies' revenues. It is two times as much as online gaming revenue and three times as much as online advertisement.

Third, foreign capitals are increasingly interested in China's internet. World's internet giants are rushing into China too. The merger and acquisition activities are also heating up n China.

Besides that, some leaders in China's internet sector have achieved very good financial results. Mary says that, the more focused firms will bring large market shares. But no leader can stay up in front with one leap without contineous efforts.

Mary also pointed out, the profit margin from China's internet companies are much higher than their global peers. This is because China has plenty supply of labor and very low living expenses. On the other hand, many Chinese internet companies follow a model of combined "online" and "offline" businesses. For an online company, offline businesses help gain customers and increase product sales.

For example, ctrip has 1,300 telephone operators working on airticket sales and hotel reservations. Baidu also has salespeople all over the nation to promote sales to small and medium companies. Shanda sells prepaid cards in as many as 300,000 retail sites. Mary also thinks that the actual incomes from China's internet companies are much higher than what they reported publically.

If comparing China's internet stocks with global peers, the valuation of China's internet stocks can be seen much lower than the valuation of the others. The average PE ratio of the top five Chinese internet company is around 15-20, while the top five US interent companies commands a 40-50 PE ratio. Mary thinks there are several reasons: The worry whether the high profit margin from the China internet companies will continue; the intense competition can cause leadership switch faster than other countries; unfamiliar with Chinese companies' business operation models; as well as the worry for changes in profit sharing with mobile operators and changes in government policies regarding cleanup in contents.

Mary thinks, for current Chinese internet companies, the contents are gaining importance. Providers are having say on prices and become more and more "kings of contents". To gain the rights of wireless music sales, Tom online is paying 40-50% revenue to music companies. Kongzhong net is paying 5 times as much as what they would pay two years ago for rights to view major movie releases on mobiles. At the same time, the available of new types of wireless and broadband services also increased the demands for high quality contents. The number of users of color-picture ringtones from China Mobile are growing at 90% pace quarter over quarter. The most popular song "mouse likes rice" was downloaded 5 million times with potential income near as much as the best selling CD, and MTV. Some content providers will make more money from mobile value-added services than from cable TV serivces in a few years.

The challenges facing the China's internet companies, as pointed out by Mary, mainly depends on whether a soft-landing can be achieved in Chinese economy. While there are cyclical factors affect online advertisement and high end mobile value-added businesses, the online gaming and basic mobile value-added businesses(such as SMS) are less likely be affected. Other challenges include whether mobile operator will change profit sharing, or whether managements pay enough attention to long term value as well as short term profitability.

Mary says, to pick a stock in internet sector, investor should mainly pay attention to the business model, the market size, the strong growth and high barrier of entry, core competitiveness, and the strength of management team. Many management talents like to change ship in China's internet companies. But a stable management is critical for sustainable growth.

Mary Meeker predicted that there will be more internet companies listed on Nasdaq. "Especially mobile and broadband service companies will have even big performances."

Morgan Stanley's report also revealed their first picks of Chinese internet stocks. Ctrip, Netease and Tencent are the lucky ones.

The report indicated that, Ctrip will be the main beneficiary of stronger consumption and increased travel interests of Chinese. Ctrip's strong focus on customers, it's large scale platform and outstanding capability both online and offline will make Ctrip a dominant player in the service intensive travel industry.

Netease has become an innovative leader in the fast growing online gaming market in China. MorganStanley thinks that Netease's knowledge on the market, focus on innovations, and the strong management team surrounding William Ding will keep Netease up in the front.

And Tencent, a strong power in the fast growing instant communication market in China, owns a 60% share of all the users. The report said that, by using the networking effect and high barrier of entry, Tencent created a strong community. The company succeded in growing income in the area of internet value-added business mobile value-added businesses. The company also intends to make money in the online gaming and online advertisement services.

Foreign Net Companies Increased Merger And Acquisition Activities

The report showes, the other trend in China's internet is that, besides internal integration activities, foreign capitals have dramatically increased their interests in Chinese companies. After bought 3721 net, Yahoo again spent $1 billion to buy 40% stack in Alibaba. Soon after, on the international stage, eBay also bought net phone service provide Skype with $2.6 billion.

"According to our estimate, this kind of merger and acquistion will trend down next year but will further increase the year after. We predict increased activity by the foreign internet companies in China because we have seen many signs of these activities." Mary Meeker said.

She pointed out that , the new stretegies are probably resulted in their contineous difficult encounters: eBay/Eachnet has lost market share due to competition from Alibaba/Taobaonet. Amazon/Joyo has yield it's top-visited title to; NHN/ also lost to Tencent in the entertainement games.

"There are several reasons", MorganStanley's vice-president Weidong Ji said, "First on covering their bases, local companies have stronger management capabilities; Second, due the multi-layer structure, decision making of foreign companies are less efficient; and also on localization, such as producing local contents, there are gaps both on meeting the local needs as well as community development."

To face the difficult situation of competition with local firms, many multi-nationals will wave the weapons of capital, to take local companies under their control. "From the engagement with Alibaba, Yahoo in fact admitted their Chinese strategy was not successful." Mary Meeker said.

She further pointed out that, facing the similar situation with not very high market share in China, Google needs to solve the problem of lacking a nationwide network. Google's model requires it to establish good relationship with small and medium businesess. China has about 25 million of them, but only 8% of them using internet. So Google needs to establish a sales network. "Even going door by door, you still needs this kind of sales network".

How much venture capitals are there in China? Nobody knows

Ji said, there are certainly many venture capitals around China, and are still heating up. In a recent summit of venture capitals hosted by An Yong Accounting, many reported meetings with venture capitalists from Silicon Valley with eyes on IT companies with fast growth potential.

"Thre is unquestionable venture investment wave. Today's pouring venture capitals are also different from past", said Chaoyong Wang, who is chairman of XingZhongLi Investments. "In the past, it kind of like fashion. People just trying to position themselves. Now, they are looking for real returns. A deal like Alibaba with $1 billion involved is very significant even in the US. American investors are more confident. They think China will produce such oppertunities. so, now it is no longer the question of whether to invest, but the question of investing how much and investing in who."

Under this environment, China does lack capital as indicated in MorganStanley's report. What really missing are good ideas.

Mary Meeker indicated that, there are large amount of private capitals available in China. Unfortunately, many lost their money at the end. Some succeded but only with 10 to 1 ratio. "The critical thing is the lacking of many good ideas".

It is because the imbalanced situation that have made the values of companies with good ideas multiplied. Ji said that the companies with ideas are demanding higher prices from venture capitals now. Even though, it is still hard to find high quality companies to put money in.

In fact, one big worry from venture capitals is the lack of innovation in Chinese companies. Similar models will getting harder to attractive high level investments. "The Chinese are seeing this, and are making efforts. But there is long way to go. Besides, companies also lack management skills, such as stability of core management team also can affet the attractiveness to venture capitals." Ji said.

As regard to whether large investment banks such as MorganStanley will invest in China's internet, Mary Meeker said that they will continue watch from the sideline. "From the research respect, MorganStanley always pay attention to those innovative companies with good management teams."

Netease Looking for Another Great Quarter

Netease's blockbuster, MHXY, a 3-D online interactive multiple players game, continue doing super in the Chinese online gaming market. Currently voted number 2 in national competition, the MHXY broke record again last weekend.

The online games (MMORPG) are usually ranked by their peak activities. MHXY reached 713,000 players at a moment on Aug. 8, and then 788,000 a week ago.

The game reached another new high on Chinese Moon Festival holiday with a breathtaking 802,000 players joined at the same time.

The MMORPG games, stands for massive multiple online rule player games, are great businesses in China as well as some other Asian countries such as Korea. With continued update and innovations, the games can have quite a long life.

The online games are not simply games. They are accomplished with today's high technologies of internet such as powerful client server technologies, broadband technologies, instant messangers, and are basically full blown portals. they often associated with many communities and clubs on line. Associated e-commerce potential with these "captured" audiences is huge.

The fee based games are garnering fat margins of over 90% for these companies. One commentary says it all : You pay to play, pay more to win!

Sunday, September 18, 2005

Seeking the Next Baidu

Perfect World - 1

(report under progress, with updated details coming soon)

It had been a hot topic in the media on who's going to be next Google.

Baidu splashed out on the Nasdaq on the first day of trading. It is believed to be the next Google due to it's undisputed title "China's Google".

With a dynamic economy and the sprouting of high tech companies started by smart and well-educated entrepreneurs in China, Venture capitals and other investment money have been pouring into China's internet industry.

With dramatically increased businesses from large international banks and brokerages as well as Nasdaq market, there are many more companies will try to get listed on Nasdaq which will give American investors chances to invest in an economy that grows more than twice faster than that of the US.

With the astonishing success of Baidu's IPO debut, you may ask who will be the next Baidu?

One obvious answer would be Alibaba with whom one magical word of "saseme" would open up a ton of treasures hidden behind the door.

After Alibaba bought Yahoo.China and Yahoo bought 40% of Alibaba with $1 billion cash, Alibaba suddenly become the largest internet giant in China. Now with China's Ebay combined with China's Yahoo, you have an internet wonder in the making. It could soon come to Nasdaq after it's reorganization under wrap.

But here, I predict another company will perform as well as Baidu if not better when it comes to Nasdaq.

The company is the Perfect World(

In the ongoing national competition of online games, they virtuely exploded like a volcano with the "Perfect World", leading in three categories from all the "most expected" online games. But that's not the whole story, they are not just leading, but garnering an unbelievable 73% of all the votes!

Tuesday will be a historic day for China's online gaming industry. The online game(MMORPG) "Perfect World" will be up for public beta-testing. There is already a frenzy going on from online game players and the media. There are also many communites and clubs set up already waiting to participate in the game.

The company is almost unknown a few months ago, but it's predecessor and it's founder were not just well known but already celebrities in China.

HongEn Software was one of the leading educational software developer for K12 shcools and is still well-known in China. They have owned about 17% of the total education software market in China in 2002.

The Chairman of the company, Yufeng Ci is also a young celebrity. He won the national "Chinese Young Prodigy Award" of software industry and was the youngest among the 10 winners in 2001.

In 2002, He won the"Top Ten Entrepreneur Of Zhongguancun" award. His name is inscripted on the "Star Wall" in Zhounguancun, a high tech zone in Beijing famed as China's Silicon Valley.

In the same year, He also won the "Outstanding Young Entrepreneur" award from City of Beijing.

The educational software market has slowed down since 2003. Last year, Ci decided to make a major shift from educational software developer to online game developer.

The new company named Perfect World in anticipation of the release of their major product "Perfect World".

HongEn Software is no stranger to the online gaming society. Their development team has produced the "Freedom and Glory" which was also well-received in Korea. And the other major gaming product "The Great Qin Warriors", a 3-D interactive game was also well received and has also been sold to Korea and US.

The development team has been quiet for last three years and for a good reason.

We know both Shanda and Netease are doing quite well on Nasdaq due to the popularity of their online games. The great business part of these companies is the fat margin of 90% in online gaming.

The goal of Perfect World is to develop online games that rich in Chinese culture and they intend to be a major player in world's online gaming stages. They also intend to develop e-commerce around their player communities which will partially based on game-associated merchandizes.

Here is their front page in Chinese.
(more details to come)

see Perfect World - 2

Happy Moon Festival

From Google's logo to mind of localization

Today is moon festival - "Grand Old" Chinese traditional holiday! Many people even call the Moon Festival and Spring Festival as China Festivals because they are the most touching moments of the year.

Though I have not cared too much about holidays since I was young, I am always curious to look around to see how these web sites doing during holidays. To make it simple, I want to see whether their logos have any feeling of holidays.

Surfed around\\, nothing has changed. It's pretty normal though because most of the portals only change their look on Spring Festival in the past. Nothing unusual here.

Then what I care the most are the major search engines.
The above is Google's logo
This one is from Sogou
And this is from Zhongsou
Come to TechWeb, "Tiger" is indeed smarter than others, the logo has been changed early and full of holiday tastes, Thumb up!

The others: Baidu, IASK, Yishou have not changed their logos.

Here I have to praise Google for their "mind of local". As a foreign company, I think it is essential to give local people a feeling of touch and passion. Whatever you do the rest is next, neither to say Google has done very well in many aspects as a tech-starter. The fact that they pushed out the product recently explained it all.

What happened at Baidu then? It's on Sunday, so nobody at work? Or there is no need to make the change at all? Maybe Baidu thinks they do want to appease people by superficial vision? Perhaps because they have already landed on Nasdaq and became a son-in-law of foreigners, there is no more need to care about own parents? Nobody knows the answer. Though it isn't such a big deal, but it left many questions.

We don't have to talk about Yisou. It's alien stuff. Who cares? Although Yahoo.China has married Yun Ma(ceo of Alibaba), Yun Ma himself, and his compay, is not much a pure "Chinese Man" anyway.

IASK, a product from It's normal not to switch here. Nothing to talk about . . .

More or less, I just want to say final words: I take control of my hometurf, but whose hometurf is the Chinese market?

Random thoughts from TWGeek

Saturday, September 17, 2005

Netease Beta-testing the Next Big Hit

Netease created it's biggest hit in Menghuan Xiyou(dreaming journey to the west) based on the ancient Chinese novel "Journey to the West". At one time, there were over 580, 000 players playing the multiple-player interactive online game at the same time.

Here is the underwater ocean scene of the game. The game also sprouts out many online clubs, and makings of souvenirs and toys. In a recent holiday, one episode again broke the record, attracted 788,000 online players at one moment.

Dahua Xiyou II also based on the novel "Journey to the West" and a Hongkong movie series proved to be another huge hit. The DHXY II hits more than 510,000 online players at one time.

Now, Netease has started public testing of the next big hit Datang (The Superpower of Tang Dynasty)

It has already produced a frenzy among online game players in China. Netease hope to have formal beta-testing in the middle of next month. It will be another huge holiday release near Chinese New Year for Netease, many expected.

Netease has earned almost 90% of their bottom line from the online gaming services. The online games also had a huge gross margin of slightly over 90% in last quarter. The company's stock is listed on Nasdaq Market. It has taken off since the begining of 2002 and has doubled in value in last 12 months. It continues to climb in recent days on speculation that Google may pursue the company using cash from their latest secondary offering.
This is another captured scene in Menghuanxiyou showing splendid 3D graphics and real time actions played by online game lovers.

Thursday, September 15, 2005

Google Plans to Buy Baidu?

Baidu says we were not and will not be for sale

( Yesterday, Google successfully issued secondary stock offerings. It collected $4.18 billion, and increased it's cash on hand to $7 billion. CEO Eric Schmidt and founder Sergey Brin held a lunch party at St. Regis hotel in New York where they revealed Google's acquistion and products plan. Fund manager from Gabelli, Howard Ward said that many contents of the talks are related to China. Investment manager from Morgan Stanley, David Schiller pointed out directly, that the best case is that Google could buy some search company and online gaming company from China.

Google is still focusing on its core business of search. They are very interested in expansion into the Chinese market. It's dare challenge to Microsoft in court is a good example. The biggest Chinese search engine Baidu owns 37% of the market. Yahoo spent $1 billion to purchase shares in China's largest e-commerce company Alibaba last month. Ranked second with 23% of Chinese search market share, Google is facing very formidable competitions in China.

One side, there is a rush to expand Chinese service. On the othe hand, there is the intensified competitions. It could become a costly battle. Many American companies like to go around to reducing risks. Merger and acquisition are commonly used tools as well as short cuts.

Google's CEO Eric Schmidt said in July this year, that Google has two choices in China: First is that Google simply stays as a shareholder of Baidu; Second is that both sides further develop collaborations, and Google will purchase more Baidu shares, even as a joint company. The second choice can lead to a final takeover of Baidu by Google to make Baidu the Chinese subsidiary of Google. With the fresh obtained $4.18 billion, Google again signaled that they want to "purchase search engine and online gaming companies from China". Google already owns 3% of Baidu, and the coincidence with the sharp falling of Baidu's market price to make it very likely that Google will buy Baidu to gain the lead in the Chinese search market.

As to the news that Google possibly will buy Baidu, how Baidu looks at this? A senior executive said that it was not likely. Baidu never been and will not be for sale. Baidu's goal is to make a Chinese brand and will go outside to the whole world to establish the brand.

To sum it up, the ambitiously expanding Google is keen on the Chinese market. Even they cannot use other means to gain the control of Baidu, they can still find another target on other Chinese search engines.

Translated From Yihao's Chinese Version

Wednesday, September 14, 2005

Google vs Microsoft or Baidu?

Court Documents Revealed Google's China Strategy - Target Right On Baidu

According to the court documents from Kai-Fu Lee's case, Google plans to establish a research and development center in China in three to six months. It will try to push out two "killer" programs. Possibly in the field of mobile, e-commerce, as well as entertainment.

Google plans on Chinese search, MP3 search, and mobility as their future focal points. All of those are the main advantages Baidu possesses in the Chinese market. Google plans to establish the research center in China in the fourth quarter of this year. Kai-Fu Lee's case of employment-agreement violation is still ongoing. Both of the IT giants, Microsoft and Google are involved in the case. Though many documents and emails submitted to the court are redacted to protect confidential information, the leftover portion still revealed some basic aspects of Google's China strategy.

In one email from Google's Asian search products manager James Mi, wrote on July, 27th: "In the Chinese market, quality of search is our first priority. We have fallen behind of Baidu in Chinese indexing. We also need to improve our anti-spam technology in emails". The court documents indicate that, Google has realized that they are falling behind Baidu(read story on how Baidu has beaten Google with their "Ligntning Plan" ) in many areas, such as that Google still has no MP3 search function, news content search, and pingying-input(methods of english spelling for Chinese characters) search function.

Mobile search is also Google's future focus. Kai-Fu Lee replied to a candidate with background in mobile technologies in an email: "We are very interested in you. We will be very active in the mobile market and the Chinese market". In a separate email, Lee wrote to Google: " I am very happy to go to work in China. The Chinese market has huge unpenetrated market, such as mobile communications and games".

Many documents regarding Google's near term investment plan are redacted. But one document revealed that Google is planning for a research and development facility in Beijing that can host 30 to 50 engineers.

The court documents also revealed Google's merger and acquisition strategy in China. From implications in the documents, Google is still willing to open discussions with Baidu and Currently, Google owns 2.6% of Baidu's stocks.

(Tianwai from

footnote: is a fast growing e-commerce portal in China with several business lines similar to One of the line specialize on advertisement and could be what Google is looking at.

Nasdaq Forum on China (9/13/05)

Nasdaq Forum on China scheduled on 26th, will be exclusive internet media provider

Sina Tech report- Nasdaq Forum on China is scheduled on Sept. 26th in Beijing. The sponsors are Nasdaq Market and China International Financial Forum. will exclusively provide internet media services for the meeting.

Brief introduction to the Nasdaq China Forum:

1. Organizations:

Sponsors: Nasdaq Market, China International Financial Forum

Participants: China Entrepreneur Magazine, China Securities Journal, Securities Daily

Exclusive Media Provider:

Host: WorldCN (International Financial Conference & Exhibition)

2. Background:

The strong market performance of Google again brings a strong wave of internet investment in the world. Baidu successfully listed on Nasdaq with a $4 billion market value and became the best IPO in the US in last five years. Alibaba has bought the whole China businesses of Yahoo. The China concept has again become the hottest investments in the world capital market.

During 2004 to 2005, reforms of China's large government owned enterprises have entered a critical phase. Many successfully reformed medium-to-large government owned companies, especially in the financial services area, such as Bank of China, Construction Bank, will soon enter mainstream internal capital markets.

The Nasdaq Market sponsored, Reform Committee of State Council, Hongyu Group, China Entrepreneur Magazine, and jointly supported, Nasdaq China Forum will be held in Beijing on Sept. 26, 2005. Excutives from over one hundred of high tech companies, private high growth companies as well as medium and large government owned enterprises will attend this meeting.

3. Briefs

Time: Sept. 26, 2006(Monday), Beijing Xinhewan, Beijing, China
Theme: Discussion forum for listing on Nasdaq, the crib for China's new wealth
Size: About 150 people
Who: Top executives and media representatives

4. Schedule (omitted)

Special guests will include:

Lawrence Pan, President of China Operations of Nasdaq Market
Robin Li, CEO of Baidu
Tianqiao Chen, CEO of Shanda
William Ding, Chief Architect of Netease
Yan Wang, CEO of
Yan Yen, President of Softbank

and representative from prospective IPO candidates.

Baidu Movie Has A New Face (9/12/05)

Baidu Movie has "makeover", targeting the overall internet video service market.

As the moon festival(Sep. 18) getting closer, as a gift to new and old loyal customers, the world's largest Chinese search engine, Baidu has formally introduced it's new user interface of online. It is an much improved interactive interface. According to sources, the introduction of this new interface is the first strategic step of Baidu's series of video services. The final goal is to be the top brand in internet video service.

As one of the very few paid services from Baidu, it has attracted people's attention since it's announcement. The evergrowing list of video content providers, and optimization of broadcasting effects have been a daily "bodybuilding". Serious effort on scientific research of user experiences provided reliable data for this upgrade.

The general manager of Baidu's user feedback group said: "A customer friendly product must go through continuous improvements and innovations. I think there are basically three categories: Commercial innovations, technical innovations as well as user experience innovations. As one of the step toward imporving user experience, we have totally renewed the user interface and overall package. We are working hard to provide the best interactive interface for our users."


At current time, there is almost nowhere to find a movie theater in many small and medium cities in China. TV and DVDs has replaced theaters for long time.

Baidu: Not Just "China's Google" (9/12/05)

What's the leading search engine in China? If you said Google, you're showing your Western bias. It's actually, whose stock debuted on the Nasdaq exchange on August 5, raising some $87 million for the startup.

Companies like Baidu are now riding a wave of investor expectations that Internet searching will become a big business in China--and that local search companies may understand how to reach Chinese consumers better than outsiders like Google.

Those new consumers are, of course, much poorer on average than U.S. or European shoppers. But there are 1.3 billion of them, and the Chinese economy continues to grow at about 9 percent per year, spawning a middle class with real spending power, especially in coastal cities such as Shanghai and Guangzhou.

"There are already about 30 million [Chinese] who can afford to buy luxury goods," says William Bao Bean, a vice-president at Deutsche Bank in Hong Kong. "That should grow to 100 million in three years. China is set to eclipse Japan in spending on luxury goods by the end of the decade."

An increasing number of Chinese consumers will be finding those goods on the Web, and both Chinese and international search companies—such as Baidu, Sohu, Sina, Google, and Yahoo—are scrambling for a piece of the pie.

For the moment, Baidu and Google are in the lead. A recent survey by the government-controlled China Internet Network Information Center, showed Baidu with an average market share of 47.8 percent in China's three largest cities, compared with 33.0 percent for Google. All other competitors lagged far behind.

While Baidu's revenues are relatively slender--$8.4 million for the second quarter of 2005, compared with $1.38 billion at Google--it remains the world's most visited Chinese language website, according to statistics collected by Alexa Internet.

It also earns a far greater share of Chinese advertising dollars than Google, according Jim Sun, an Internet industry analyst with Evolution Securities in Shanghai. Indeed, that may be why Google itself bought a minority stake in Baidu in June. (The size of the deal was not disclosed.)

The company's local connections and home-grown business practices are what give it an advantage over rivals, according to Sun. For example, Baidu doesn't require clients to use a credit card to pay for their ads, as Google does.

"Google's revenues [in China] last year were below 50 million RMB [US$6.1 million]...because people have to pay Google through credit card, and Chinese clients seldom use credit cards," says Sun.

Baidu also offers an appealing product to advertisers that Google doesn't: paid search placement, or the selling of search engine results for particular keywords to the highest bidder.

In a Baidu search on the word "Beijing," for example, the top four results appear to be paid links to travel agents and other businesses. These links are indistinguishable from the normal, unpaid results on Baidu. Chinese Web surfers don't seem to mind; indeed, paid placement is the primary source of Baidu's revenues. But it's a strategy Google has adamantly refused to consider.

Finally, Internet companies operating in China are more accustomed than Western firms to dealing with censorship. As has been reported widely in the global press, politically sensitive keywords are banned on Chinese search engines. Searching for "Tiananmen" on Google's Chinese edition, for instance, brings up a few Web pages mentioning the Chinese government's infamous crackdown in that Beijing square in 1989. On Baidu, those sites simply don't appear.

Savvy Chinese Internet users, who seem more focused on business than politics, simply work around this censorship, and Baidu's practices "will not have a serious impact on public opinion," in Sun's words. But when Western companies operating websites in China bow to the same government policies, they catch flak back home. (U.S. bloggers criticized Microsoft earlier this summer, for example, for blocking banned words in the titles of blogs created by Chinese users of its MSN Spaces service.)

Foreign companies like Google need to adapt to local conditions if they are to have any chance of success in China, says Caroline Straathof, senior director of Investor Relations and Corporate Communications at the popular Chinese Internet portal Sohu. "Spending a lot of money is not the solution," Straathof says.

Google has begun to learn: in recent months, says Sun, it has imitated Baidu by signing up several local distributors who handle ad sales on commission, and can accept payment from customers without credit cards. "I think those companies will develop Google's business in China very quickly," says Sun. "So I believe Google will gain very big revenue share within the next few quarters." If it wants to expand even faster, Sun notes, there's always one more option: use some of its billions buy the rest of Baidu.

Simon Burns is a freelance science and technology writer based in Taipei, Taiwan. He has contributed to the Wall Street Journal, the Financial Times, the Far Eastern Economic Review, Wired News, and numerous other publications in Europe, the United States, and Asia.

Simon Burns from
Baidu's Six Years(Part 2) (9/12/05)

The formal start of Baidu was in March, 2000. Besides the few working in treausre, accounting and adminstration area, all the employees were from technical background. Yanhong Li and Yong Xu also carry the burden of sales. There were only five full time employees. The rest were part-time students from the prestigious Peking University and Tsinghua University. Yanhong Li recalled the then situation in China. He said he wanted to hire many technical staff but there were just not many people who understood search technology at all. So they have to do everything themselves and train others at the same time.

Li's new company chose to rent offices in the Ziyuan Building owned by Peking University. It is very close to Peking Univeristy. The Zhongguanchun high tech zone as well as the the Loop4 highway are also within sight. It's an ideal place for a high tech startup. He selected the location based on his Silicon Valley experience. Many companies are built around the Stanford University in the Silicon Valley. It's very convenient to have professors and students taking on part-time projects.

They were lucky to get the last two available rooms in the Ziyuan Building. Room 420 is near the corner. It is a bigger room good for technical development. Room 406 is right in the middle of the hall way and only as big as about 200 square feet. Yanhong set up the finance and administration in the smaller room. He set up his desk next to the window in Room 420. From there he could see clearly the Beida(Chinese name for Peking University)' Dormitory 43 where he spent his college years. In the evening, the lights from Dorm 43 often refreshed his memory of his college years.

Ziyuan Building was surronded by many trees. The big scholar tree was at least 30 years old. That summer, cicadas were singing all night long on the tree. Seems like they were having an endless discussion. The lights were on all night in Room 420. Someone got too tired and fell asleep on the chair. Others went to restroom and washed their sleepiness away with cold water before coming back to work more in front of their monitors. The "smoking citizen" were having a better way to fight the darkness by sitting in the open hallway next to the restroom. They clouded the air while listening to cicada's singing.

Baidu was born like a campus folktale. In two years, they have captured 80% of the Chinese search market. At the begining of 2002, the company moved to a much larger place in the High Technology Building.

After the Chinese new year of 2002, Baidu started second round expansion. This time it is all because of Google.

Google has started it's Chinese version of search for about two years. It was spreading quickly through the word of mouth among Chinese internet surfers. A pressure started to build up on Yanhong Li and that made him unsettled - One one side, Baidu was occupying 80% of the Chinese search market. One the other side, Google has become the main stream search engine around the world. And Google has started it's ascend like a giant search engine killer. It quickly defeated Infoseek and Yahoo. Yanhong got motivated. He said to himself, in other parts of the world, Google may have won many battles easily. but in China, Yanghong would fight to the end.

Starting in March, 2002, Yanhong Li started to build their special tech forces. They spent heavy incentives to hire research talents. They wanted to chase and surpass Google's technical advantages. Yanhong named this tightly-lipped move as "Lightning Plan".

According to Yanhong Li's instructions, the members of the "Lightning Plan" tech team must catch up the overall level of search technologies at Google; increase the daily pageviews by ten-fold, surpass Google's daily download content by 30%; cut the responding time to as short as Google's; and make content refresh rate faster than Google's . . .

That summer was extremely hot.

The "Lightning Plan" team were focusing their effort on technical innovations. At break time, they also made a small but unusual innovation. They bought a remotely controlled toy car. The disks are put on the car and were sent to whoever needs them. That have saved them quite some time. Someone also brought in a skateboard and riding on it to the treasurer's office to get a fast reimbursement. "Lightling Plan" took fun from the burning maddness.

By August 2002, Yanhong Li was not satisfied with the progress of the "Lightning Plan". He took over and named himself the head of the team and worked together with the team members. With his accumlated knowledges in search engine technology and his good understanding of the leading technologies in the world, his participation sped up "Lightning Plan" dramatically. By December of 2002, the last leaf on the old scholar tree next to where they used to live had fallen. The "Lighting Plan" in the new building is finally finished. The dusts have settled down from the long busy period.

The result of "Lightning Plan" was tremendous. Inside Baidu, many quietly removed their Google links. They started using Baidu themselves with confidence. Among the net surfers, Baidu's praises were catching up Google's. When Yanhong met his friend, he was still too shy to "Baidunize" them. So the marketing chief, Sheng Bi helped him out: "Baidu is better than Google now!" he told Yanhong's friends. It is known now that many of these "Baidunized" friends, no one has felt they were "cheated" to Baidu. Many independent critics have said that since then, "Baidu is as good as Google in the area of search in Chinese".

It is clear, "Lightning Plan" has succeded. It is not only beat back it's largest competitor, but also greatly expanded Baidu's market share. It also greatly strengthened Baidu's research and development. The research team had grown bigger. There were no "victory celebration". Yanhong took the team for a couple of hiking trips in the suburb to thank everyone.

The road ahead for Baidu is long and treacherous. Compare to collegues in the Silicon Valley, Yanhong is only knowing the Chinese way better.

-->Part 3