GeeksOnAPlane Briefing On The Chinese Tech Industry At Startonomics Beijing

This past Thursday, the GeeksOnAPlane group of traveling techies had the opportunity to attend Startonomics Beijing and learn about broad swaths of the Chinese web industry. The speakers, who represented companies such as Google China, Kong Zhong, Five Minutes and ChinaNetCloud, discussed topics such as gaming, social networking, network infrastructure and internet cafes. Overall, we were impressed not only by how massive the Chinese market for computing-related services is, but how fast it’s still growing as well.

According to Georg Godula, whose company Web2Asia helps internet companies get off the ground in East Asian countries, there are currently about 350 million internet users in China, many of which are very new. In 2008 alone, the internet population grew by approximately 80 million people. That’s an astonishing 220,000 per day, or 9,000 per hour. Most of these users are quite young, with a distribution centering around 18-24 years old. Since the number of users outstrips the number of computers, Chinese youth spends much of its time browsing the web and playing games in Internet cafes, particularly in less dense parts of the country where few alternative entertainment options exist.

Perhaps the most refreshing presentation of the day came from Dr. Kai-Fu Lee, President of Google China, who admitted that Google has had a difficult time breaking into the Chinese market and competing against Baidu, the dominant search engine here. He attributed the slow advances in their marketshare to patience and humility, explaining that Google has had to carefully learn about the market and how it differs from those in the West.

This was a trend that appeared throughout many of the presentations. Foreign companies who try to localize for China are often outgunned by Chinese competitors who know the culture and business environment here better. They also tend to suffer from a litany of other missteps, such as entering China too late, failing to set up a local development team, getting blocked by complex local legislation, and simply being outwitted by local competitors with better ideas.

Lee gave an overview of how Chinese internet usage differs from what we see in the United States. According to studies, the Chinese read news and conduct searches at a similar level to their American counterparts. But they read and write email a lower frequency, preferring other communication methods like instant messaging (Twitter, for that reason, has the potential to take off here…if numerous other clones like Digu, Fanfou or Zuosa don’t take the wind out of its sails first). The Chinese also consume a lot more music, almost all of which is pirated or provided by free by companies like Google. Gaming and blogging are also two popular activities, while ecommerce still plays a comparatively smaller role in the web industry.

Kaiser Kuo, a technology commentator in Beijing, presented the Startonomics crowd with a balanced view of how censorship works in China. On the one hand, it poses a definite human rights issue that needs to be solved over time. On the other hand, reports of censorship in China are often over-exaggerated, especially when they affect Western services like Twitter (which is only used by a very, very small fraction of the population here).

He was keen on pointing out that the Chinese government isn’t like a bogeyman always lurking around the corner ready to crush out any and all vocalized signs of dissent. Instead, it tends to focus on preventing organized resistance, while leaving most individuals who air their grievances online alone. If anything, censorship plays out indirectly, with the government putting pressure on web companies to patrol their own users’ content. Pornography, for example, is strictly banned here, so companies need to police their services vigilantly or suffer penalties.

The biggest trend we saw throughout the presentations was just how big gaming is for Chinese youth. While mobile technologies aren’t as big here as in Japan, the Chinese spend a lot of time and money on casual games, especially in internet cafes. The industry is lucrative, with a fraction of wealthy gamers (~10%) willing to shell out lots of money for virtual goods. It’s no surprise then that 6 of the biggest 10 internet companies are game publishers.

World of Warcraft is unusually popular, given that it’s made by a Western company (Blizzard), although legacy games such as Starcraft and Counterstrike also make the rounds via piracy. Other big players include the Chinese companies Perfect World, Netease, Shanda, Giant Interactive (who among other titles developed Zhengtu Online), Kingsoft and the9. While there’s been a shift from console to browser-based games in the last few years, the impulse has remained the same: Chinese youth play games not particularly because of the challenge or entertainment, but rather because they are lonely bored lonely and have few other recreational options.

Steve Mushero of ChinaNetCloud, an internet service provider, gave a detailed overview of how fractured the internet infrastructure is here. Unlike the mesh of networks that carry data across the United States, data served up in China tends to stay on the network of one monopoly. Unfortunately, these monopolies tend to be region-specific, making it difficult and costly to send data across the country latency-free. The Chinese also don’t apply standard internet protocols such as BGP, complicating life for system admins who already have to deal with data centers that vary widely in quality and price. While bandwidth is a big business here and readily available, connections in and out of the country are flaky – here one day, gone the next.

There’s a perception in the West that Chinese web companies clone Western services instead of coming up with their own ideas. My impression has been that this is certainly the case, although not exclusively. There are also web companies trying new things, or at least copying Western services and then remolding them for China; they just tend to get drowned out by the clones, which actually affect Chinese companies as well. The popular social network Kaixin (at, for example, was cloned by competitor Xiaonei after the latter company bought the domain Overall, the industry is like the Wild West. There are a slew of startups (unlike what we saw in Japan), many of which are going after the same markets and creating an intense competitive environment for foreign and local companies alike.

Slides from Startonomics Beijing can be found on SlideShare. Dr. Kai-Fu Lee’s presentation is embedded below.

I’d also like to take this opportunity to thank Founders Fund and BlueRun Ventures for helping make this trip possible for the entire GeeksOnAPlane group.