Web 2.0 in China

Stephen DeAngelis

February 9, 2007

In my blog on Connectivity in China, I noted that Richard Ji, a Morgan Stanley analyst, claims the primary use of the Internet in China is entertainment, as opposed to the United States where the principal use of the Internet is gathering information. A BusinessWeek article by Bruce Einhorn supports Ji’s claim — noting that Chinese youngsters are flocking to indigenous versions of MySpace and YouTube [“China: Falling Hard for Web 2.0, 15 January 2007]. As you may know, Web 1.0 is the World Wide Web that developed in the early 1990s. Web 2.0 is the “mash up” version of the Web, where one site (such as an apartment rental site) uses the content of another (such as a Mapquest map) to better inform the reader of what is being presented. Web 2.0 is also the social networking version of the Web, which is what Einhorn’s article is about. He begins his article with how a Chinese social networking site, Yoqoo — which is pronounced “yo ku” and means “good” and “cool” in Chinese — received uninvited attention from the government after a famous Chinese actress posted (discretely edited) film of her casting couch auditions. Einhorn writes:

“The episode shows the promise and the peril of user-generated content and social networking in China: You can get monster traffic with the right video, but you could get in big trouble for showing it. Still, the mainland remains fertile ground for so-called Web 2.0 startups. The country has more than 130 million Internet users, up 30% in 2006. To serve them, China has sprouted scores of homegrown companies hoping to become the next MySpace, YouTube, or Digg. Soon they’ll be joined by the real thing. News Corp.’s MySpace is in negotiations to set up a Chinese-language version of the social-networking phenomenon. And Google is taking a stake in video-sharing site Xunlei.”

Einhorn claims that Chinese youth are not exactly captivated by government-sponsored media offerings, which makes them ripe for Web 2.0 entertainment sites.

Chinese teens and twentysomethings, brought up on the bland fare doled out by state-controlled media, are flocking to these sites. … [A] desire for self-expression has spurred the explosion of sites specializing in sharing music, videos, pictures, and writing. U.S. investors like the sites, too. Greenwich (Conn.)-based General Atlantic last March plowed $48 million into Oak Pacific Interactive, the Beijing holding company that operates Mop.com, China’s most popular social-networking site. Qihoo, which specializes in searches of blog postings, got $25 million in November from Sequoia Capital, Redpoint Ventures, and Highland Capital Partners. MySpace co-founder Brad Greenspan has invested in or formed partnerships with more than 20 Chinese sites through his company, BroadWebAsia.com. A big reason for the interest: Web 2.0 startups don’t have to spend a lot of money developing expensive content that pirates could rip off, says Bill Tai, a partner in Menlo Park, Calif., with Charles River Ventures, which has backed WangYou, a Beijing startup. … But as locals and foreigners alike quickly learn, there are still plenty of risks to Web 2.0 operations in China. In the U.S. a naughty video might anger a few parents or religious groups; in China, a far tamer clip could spur censors to shut down your company. While YouTube monitors videos for pornography and violations of intellectual property, in China the self-censorship goes much further. For instance, WangYou gets about 6,000 video files a day, and the company can’t afford to let a single one go live without checking it first. … Like other companies, WangYou has various ways of keeping the peace with the authorities. Users must pledge to abide by its rules, which include bans on pornographic and anti-government materials. A team of about two dozen in-house censors screens videos 24/7, and users who flag problematic clips posted by others are rewarded with points that can be redeemed for goodies such as ringtones. But for many, the reward is simply the ability to continue posting to the site.”

Einhorn notes that many of the Web 2.0 companies are also looking to connect with China’s cell phone users (because there are four times as many as Web users) in order to boost their profits — which to date have been hard to find for most. Pony Ma, founder of Tencent and the subject of the post I noted at the beginning of this blog, is the exception.

The uncomfortable dance being performed by Web providers and the Chinese government is likely to last a few more years. If, however, Chinese Web users continue to grow at the rate of 30 percent a year, the dance will simply be impossible to sustain because of the sheer size of the data that will need to be screened. When that happens, the Chinese government will be forced to change its policy and underlying approach to how it deals with information. That will be a good thing. History has repeatedly demonstrated that economic change precedes political change and technology always outpaces policy. Web 2.0 growth shows that China is on the right vector and that change will inevitably follow — only the timing is unknown.