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 :)