Together also extends beyond the celebs: Retail + E-commerce, Gap + Taobao. A series of partnerships for brands to reach Chinese shoppers.

Today marks the splashy launch of the American fashion brand Gap in China. Gap’s first four stores (in Beijing and Shanghai) are accompanied by its e-commerce website, Gap.cn, as well as a storefront on the Taobao Mall. There’s also a star-studded social media campaign, with a famous Chinese actress (周迅), bloggers, and photography by the renowned Annie Leibovitz. Gap’s aggressive ‘day one’ e-commerce demonstrates the rising importance of reaching Chinese consumers online: B2C fashion e-commerce has grown by over 100% for the last 3 years. And beyond sales, it’s critical for brand image, customer discovery, and extending reach beyond retail outlets.

A number of pioneering Chinese players are focusing exclusively on e-commerce. VANCL is an online-only brand that offers decent quality apparel at low prices, capturing 28% of online B2C garment sales in China according to iResearch (excludes Taobao). VANCL is plastering the Chinese internet with its viral and performance-based advertising—it’s the largest advertiser on RenRen, one of China’s largest social networks. Another prime example is Mecox Lane (M18), which recently raised $129 million in its IPO on NASDAQ and surged up another 57% the next day. Another China B2C e-commerce player, DangDang, intends to launch this month. E-commerce should overtake gaming as the largest industry on the Chinese internet in the next few years.

Gap launches e-commerce on day one. 你好China.

The 800-pound gorilla in China e-commerce is Taobao, which started as C2C but is now also aggressively promoting its B2C Tmall. 33 apparel and accessories brands currently have official shops on the mall, including Nike, Adidas, Puma, UNIQLO, Jack & Jones, ESPRIT, and ONLY. Taobao is the online destination of choice for most Chinese shoppers, so it is essential for brands to a presence. Brands that fail to introduce themselves via e-commerce and Taobao are missing the China market.

BloggerInsight has just released a new report entitled Establishing E-Commerce in China: Apparel Edition, that features in-depth interviews with 62 experts at apparel brands, 3rd party retailers, logistics firms, and consulting firms.

E-commerce in China has traditionally been dominated by consumer-to-consumer (C2C), but business-to-consumer (B2C) is now booming. Apparel B2C has grown at 100% per year for the last 3 years.

BloggerInsight conducted in-depth interviews with 62 experts at apparel brands, 3rd party retailers, logistics firms, and consulting firms.

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1. 暴风冯鑫 is CEO of Baofeng, a Beijing based company that produces a popular media player. He writes about books he reads, how to manage one’s own business and how to be a excellent leader. He also shares his life with friends, taking Weibo chats with friends seriously.
   
2. 邵亦波, a General Partner with Matrix Partners, writes about the ways to run a business but in the most cases he likes to share his own experiences.  He describes what happened to his wife when she moved from Taiwan to Shanghai. Popular topics are democracy and politics.
   
3. 易观于扬 as Chairman of Analysys International uses Weibo to introduce conferences hosted by his company and their latest news.  He recommends books he reads and from time to time he discusses what happened in his life.
   
4. 杨曦沦 is an expert on brand valuation. He uses his Weibo to share his views about e-commerce and brand management.
   
5. 老郭007 works in the internet industry and likes to discuss popular industry events. Most of his updates are responses to others’ posts but he often makes very thought provoking comments.  He shares thoughts on life as well.
   

Bonus: 金山安全王欣 is CEO of Kingsoft Internet Security and perhaps the only female Weibo’er in the Internet industy with great influence. Her initial Weibo popularity was because of the war amongst security software providers. She used Weibo as a platform to clarify the events as quickly as possible. Following this issue she seldom talks about the security market in China. Instead, she  enjoys forwarding Weibo posts from other users in different industries.

As always, if you have other suggestions please share them in the comments!

Sina Weibo is a Chinese micro-blog network like Twitter. It has the nickname “scarf” because “weibo” which means microblog also has the same Chinese pronounciation as “scarf”. According to the research from SIG, the number of  the registered accounts reached 15 million to 20 million in the first half of 2010.

Similar to Twitter there is a 140 character limit on Weibo but when using Chinese characters this allows for a bit more content. Users can also share photos, videos and music in posts. The background can be customized and users can add up to 10 phrases as their tags, through which they can find friends with same hobbies or interests.

Weibo updates can be displayed on several blog sites (Sina blog, NetEase blog, Qzone, WordPress, Blogbus). In addition, users can also tie Sina Microblog with instant messengers like MSN, Gtalk, UC and QQ.  Recently Sina Microblog has cooperated with Kaixin001 and 139.com, which means Weibo posts can be synchronized withKaixin001 and 139.com.

Top 5 Weibo Must-follows:

1. Yao Chen, a famous actress, became the first Weibo user to have more than 1 million followers on February 10, 2010. It is interesting that Yao Chen is not the top actress in China but she is very popular among Chinese young netizen. Her posts center around her daily life and fans perhaps like her so much because she interactions a lot with normal users.
2. 小S, A top hostess in Taiwan, is famous for her bold talk. Now she and her older sister 大S are both the top Weibo’ers. People like to watch her interact with other actors and actresses.
3. Zhao Wei, Another famous actress, became the second user with more than 1 million fans on March 10, 2010. She is a frank person which is why people follow her.
4. Cai kangyong is a top host in Taiwan. His TV show with 小S is really very popular. People follow him not only because his interaction between 大S and 小S, but also because he always write something about love and society, which ease people’s heart.
      

5. 黄健翔 is one of the best-known sports commentators. Huang Jian Xiang is the first media star on Sina Weibo and has posted a lot. At one point because he forwarded (retweeted) too many items, many people complained he was a photocopier and even stopped his Sina Microblogger for a while. Recently he’s become popular again.
   

BONUS:  Li kaifu is the first business user who has fans more than 1 million followers. He announced news that he would leave Google and set up his own business, which gave Sina Weibo a lot of press.

In order to give the audience a grasp the Chinese Internet culture in a short time, we selected some of the typical online slang. Now let’s take a quick look at the Top 3 phrases.

-杯具Bēi Jù – Cup: The literal meaning is a collective term of cups. Because it is homophone with the Chinese word for “tragedy” (they sound the same), people like to use this word to say that something bad has happened.  For example, “Today I’m such a tragedy!”.  Now the image of a cup can also indicate the same meaning.

-打酱油dǎ jiàng yóu – Getting soy sauce:  Originally from a CCTV news interview. A man on the street was asked about his opinion towards Edison Chen photo scandal, he replied, “It’s none of my business. I’m just on my way to get some soy sauce.” Now people use it to express an attitude that they don’t care about some boring stuff, like “that gossip is boring, I’m just getting some soy sauce”.

-囧Jiǒng – Brightness: It shows vividly a downcast face. Although the original meaning is brightness, people like the amusing image very much. When people get embarrassed or shocked, they use the word to “show” others their facial expression. Now the word can be seen almost everywhere, in ads, in books, in art & design, etc.  ”I’m so embarrassed JIONG!”

If you have any question about this topic or you want to share your favorite netizen speak, please feel free to leave a comment.

BloggerInsight works with expert bloggers to provide market intelligence to the hottest web businesses in China. Our global clients (China, US, Germany, Vietnam, Russia, Australia, etc.) include fashion brands, social game developers, social networks, universities, and venture capital firms.

Our team is young and international, with American, Austrian, and Chinese co-founders. If you seek a fun and entrepreneurial work environment, please apply to join us!

Requirements:

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• Strong computer skills
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• Available to work full-time starting immediately

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• Chinese Tech Researcher
• The first 3 months will be a trial period. If the position is a mutual fit, we will continue working together.
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1. English cover letter explaining why you’re interested in joining BloggerInsight. Please review our website first: http://www.bloggerinsight.com
2. English resume, which includes your internet and social media experience. If you have a blog or microblog (twitter or 微博), please link to it.
3. E-Mail these two documents to kai (at) bloggerinsight.com

There is no single dominant network, no Facebook for all of China. The actual Facebook.com is blocked by government censors (Chinese sites all obediently and quickly remove “objectionable” content). No single social network will conquer the China market in the immediate future, least of all a foreign one.

Instead, there is fierce competition between the top four:

• RenRen (formerly Xiaonei) copied the Facebook model: it started with students and has since opened to all.
• Kaixin001 attracted white-collar office workers by focusing on fun, addictive social games.
• Qzone gained young teens and rural users via cross-promotional traffic from QQ Messenger.
• 51.com started strong in lower tier cities, but growth has since slowed.

This post will assess market share, profile the top four, and boldly predict the future.

In addition, there is a long tail of social networks in China, which will be covered in part 2 of this series. Most Chinese are members of multiple SNS, on average 2.8, according to the Chinese Internet Network Information Center. A number of smaller SNS target niche demographics: the elite, females, techies, etc. The Chinese social network scene is crowded and competitive, though clear separation exists between the top four and ‘the rest’ in terms of mass-market viability.

Market Share: Lies, Damned Lies, and Statistics

There is no trustworthy data on users or revenues. Every social network in China claims to be the largest: Qzone, RenRen, Kaixin001, and 51.com. The short and sweet is this: Qzone has the most users, RenRen has the most active users, and Kaixin001 has the most highly active users. 51.com user’s are the most rural.

In addition to the rankings from Alexa and China Rank, the Chinese Internet Network Information Center conducted 3007 telephone interviews on SNS with respondents across China in July 2009. It found that Qzone has 22% market share of social network users, RenRen has 17%, Kaixin001 12%, and 51.com 12%.

Kaixin001’s users are highly active. It averages 34 pageviews and 33 minutes spent on the site per user, numbers that are about twice as high as the competition. Kaixin001’s white-collars love surfing the site at work, and occasionally in their free time too.

As scant as the user data is, that on revenues is even worse. The little data that the networks do release is questionable. Only rough snapshots are available of the positioning in China’s social network race.

Renren (formerly Xiaonei)

Renren’s design and business model are copied from Facebook. RenRen beat out a number of competitors at China’s elite universities and spread from there. It is aggressively courting the mass market.

Users: The majority of users are students, although RenRen strives to retain those users after graduation. In the fall of 2009, it launched a massive advertising campaign—both traditional and digital—urging Chinese to reconnect with old friends and classmates. The emphasis is on connecting with real-life friends online, just as on Facebook. As RenRen grows, it is encroaching on the turf of its rivals: teens (Qzone), white-collars (Kaixin001), and lower-tier cities (51.com).

User Interface: The user interface is nearly identical to Facebook (though it has not copied Facebook’s latest redesign). It has a few unique features, such as a “footprint” of who last visited your page and recently added game mechanics or ‘funware’ so that users can reach ‘higher levels’ for interacting on the site. It also allows custom skins, though the majority of users stay with the basic theme.

Platform: The application programming interface is open to 3rd parties, but revenue share is a capped at 56%. It boasts about 250 applications (almost all games) and is China’s most popular open platform. Foreign game developers are just starting to test the approval process, with FooMojo, RockYou, and PopCap leading the way. Access for foreign developers is certain to be a hot topic at the upcoming 2010 China Social Games Summit.

Games: RenRen has the most and best games, in large part due to its open platform. But RenRen also develops games in-house, leading to concerns that RenRen will favor its own games over those of outside developers. Other networks often copy the most popular games on RenRen.

Financing: Softbank purchased 35% of RenRen for $430 million, valuing the company at $1.2 billion. The company intends to hold an initial public offering as soon as 2011.

RenRen’s parent company is Oak Pacific Interactive, which also owns Mop, a smaller Chinese social network, forum, and humor site.

Revenues: Annual revenue was over 100 million RMB ($15 million) in 2009, according to one source from the company. The primary revenue channel is advertising (brands, games, and e-commerce).

Analysis: RenRen is the most popular, most open, and best-financed social network in China. Its management team is also the smartest and fastest-moving. It is actively developing advertising, gaming, and e-commerce revenues. Its user growth is impressive, in large part due to its aggressive marketing campaigns. The August 2009 name switch from Xiaonei (inside-campus) to RenRen (people’s web) signaled its ambition to become China’s dominant popular social network. By comparison, China’s other social networks are asleep at the wheel.

Kaixin001

While RenRen was still concentrated on students, the upstart Kaixin001 was able to attract white-collar workers (in large part via spam).

Its social games got entire offices addicted to parking cars, stealing crops, and other top games. Its white-collar workers are the richest and most monetizable demographic of social network users. Kaixin001’s critical battle is ensuring that the next generation of students “graduate” to its site upon entering the workforce, rather than remaining with RenRen.

Users: White-collar workers who can secretly farm crops and check friends’ photos from their office desk. Its users spend twice as much time on site, as compared to users on the other social networks.

User Interface: The interface is clean and very simple—Kaixin001 is a pared-down version of Facebook. It eases first-time users into social network: the most popular applications, like the popular “Buying a House,” even come pre-installed. Advertising is minimal.

Platform: Kainxin001 is a closed platform, although insiders say that it will eventually open up. It has about 50 applications, the majority of which are games.

Games: Kaixin001 launched the social games craze in China and its users are game-crazy. But its games now lag behind RenRen in quantity and quality, because it’s attempting to develop everything in-house. For instance, it took Kaixin001’s developers 6 months (an eternity in social game years) to copy a popular restaurant game on RenRen. That will damage Kaixin001 as it aims to attract new users and retain and monetize its existing users.

Financing: Kaixin001 has received a total of $23 million through two funding rounds. Investors include Sina, Qiming Ventures, and Northern Light Venture Capital.

Revenues: Kaixin001 has reached monthly revenues of 7 million RMB ($1 million), but is not yet profitable. Advertisers at ad:tech Beijing told BloggerInsight that Kaixin001 is the hottest site.

Analysis: Kaixin001 has seen rapid growth and has captured a desirable demographic of white-collar workers (appealing to advertisers), who spend tons of time on the site. But its management team is far more conservative and slow-moving than RenRen. It’s far behind in terms of its advertising and monetization channels. Its site design has changed little and its application programming interface remains closed. If Kaixin001 fails to innovate or at least keep up with the curve, it will lose out. Sudents will stick with RenRen rather than “graduate” to Kaixin001.

Qzone

Qzone draws traffic from QQ Messenger, which boasts 523 million active users and is also owned by Tencent. Qzone targets teens, rural, and casual users and claims a whopping 388 million active users, a highly suspect number. Tencent’s internet services, QQ Messenger, QQ Show, QQ Games, QQ Pet, and Qzone, do connect a huge number of Chinese people.

But the classification of Qzone as a social network is questionable. It has tons of dormant, skeleton profiles that are pulled from QQ Messenger. In that regard, it’s similar to MSN Spaces, which also has a ton of “users,” but low value and retention rates. Qzone users often use nicknames or aliases rather than real-life names.

Given Tencent’s awesome advantages and synergies in social networks, Tencent’s forays into “real-identity” social networking should be seen as a squandered opportunity.

Users: Teens and rural users. Qzone is attempting to funnel its older users towards its other social network, Xiaoyou (classmates), with limited success. It already failed with an earlier attempt called QQ Campus.

User Interface: Qzone is a lousy website: it’s ugly, unintuitive, and buggy. The site is very basic (for a social network), but not in a user-friendly way (like Kaixin001).

Platform: Qzone is a closed platform, though it is experimenting with licensing. It has about 50 applications (mainly games). Benjamin Joffe, Tencent expert and CEO of internet market research firm +8*, comments: “Applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as instant messaging or massive multi-player online games and there is a learning curve – even for Tencent.”

Games: Although Qzone should have a natural advantage (Tencent also owns QQ Games), the games, like much else on the site, are of low quality. Qzone develops in-house copies of popular games, but it lags way behind and prohibits users from adding games without paying at certain times. Perhaps Qzone’s comparatively young and rural users are so naïve that they pay Qzone when they can play the same—or better—games for free on the other networks. But it’s doubtful that this a successful business strategy in the long run.

Financing: Tencent, Qzone’s parent company, is massively profitable and can employ incredible resources should it so desire.

Revenues: No public figures are released. There is a lack of advertising and quality games, so virtually all revenues must come from Qzone “Yellow Diamond” memberships. It is difficult to estimate that revenue stream, but it’s hard to imagine that too many Chinese users will stay loyal to Qzone in the long-run if they continue to offer lousy services.

Analysis: Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist (in instant messaging) that can thrive despite a terrible product and lack of vision. Tencent is still massively profitable: 2009 revenues were $1.8 billion, about three times Facebook’s estimated revenues. It’s unclear how much of that is attributable to the Qzone social network though.

Benjamin Joffe comments, “Tencent is definitely not the best in terms of products or innovation – similar to Zynga in that sense – but their ability to deliver a “good enough” mass market service and integrating it within their ecosystem is impressive.”

It holds the teen demographic, but poor site design and management have cost it ground against its competitors. Qzone is shut out of the market for older students and white-collar workers, and RenRen is now encroaching on its core demographic of teens. Qzone could still turn things around though, as its parent company Tencent is an 800-pound gorilla in the Chinese internet.

51.com

51.com was an early favorite with significant backing, but is now struggling. Growth has slowed and it has the lowest traffic rankings of the top four. In early January, the site was briefly blocked for “objectionable” content, so management is trying to clean itself of lewd users and content (it’s rumored to be a platform for the world’s oldest profession). Its Chief Strategy Officer recently resigned, citing illness.

51.com is a borderline mass-market contender at best. Urban and educated demographics have all turned to its competitors. It’s now in the precarious position of defending its core user base in lower tier cities.

Users: Users from lower tier cities.

User Interface: 51.com is a simple social network. It’s far more functional than elegant. Several popular applications are pre-installed and the skins are customizable.

Platform: 51.com offers an open platform. It has attracted about 50 applications (mostly games). It is expected to offer more favorable revenue share terms than RenRen.

Games: The games on 51.com are decent, though not as numerous or high-quality as on RenRen. 51.com also develops its own games in-house: it’s investing $15 million in a gaming portal, in an attempt to reduce its reliance on advertising and value-added services. It will also soon connect into the gaming platform from Giant Interactive, one of its investors.

Financing: Giant Interactive, a publicly-listed Chinese massive multiplayer online gaming company, invested $51 million for a 25% stake. Earlier backers include venture capital firms Sequia Capital, SIG, Redpoint Ventures, and Intel Capital. In early 2007 there was premature talk of an IPO in 2010, but nothing has been heard since.

Revenues: 51.com claims to have turned a profit in 2009, with advertising revenues of about 200 million RMB ($29 million). Its open platform generated roughly 12 million RMB ($1.8 million) in revenues.

Analysis: 51.com was likely doomed to the mass-market by its rural roots. Its lower tier cities approach initially allowed for quick user growth, but the site now has a low-brow reputation and is scorned by more sophisticated netizens. RenRen’s approach of starting with the elite students at China’s top universities, BeiDa and Tsinghua, and then spreading outward (copied from Facebook), appears to have been far more successful.

Second tier social networks worldwide are falling to Facebook. Will China’s more “sophisticated” networks push into 51.com’s territory? BloggerInsight is inclined to think so. 51.com’s stagnation in user growth relative to other networks is not a good sign; spreading outward from elite users has been successful for social networks worldwide and for RenRen in China too.

There are certainly differing opinions though. Beijing-based internet guru Kaiser Kuo told BloggerInsight, “I wouldn’t write them off at all: They’ve got a real hold in sub-secondary cities and with their tie-up to a major game company (Giant Interactive), they’ve got plenty of cash, and as far as I know, loads of traffic. It’s also been cleaned up quite a bit within the last year, from what I’ve heard.”

51.com may or may not hold its ground in lower tier cities. But one thing’s for certain: 51.com stands little chance in China’s top-tier cities.

Future Predictions: One RenRen to Rule them All?

The competition is open and fierce between the top four networks, but BloggerInsight’s bold crystal ball sees RenRen’s on the rise in the future. Its management team is nimbler and more aggressive than its competitors. Where other networks are dabbling (licensing games), RenRen is blazing ahead (open application programming interface).

Because of its high value, RenRen is starting to push outward from university students into both younger and older demographics. As teens become savvier on the internet at younger ages, they will start to abandon Qzone for RenRen. As students move into the workplace they should remain loyal to RenRen, encroaching upon Kaixin001. 51.com, meanwhile, faces a difficult fight to retain its users in 2nd and 3rd tier cities and rural areas. China’s social network universe, though fractured by different demographics for now, may gradually coalesce around RenRen.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

Originally posted at VentureBeat

Tencent, a Chinese internet giant in instant messaging, social networks, and mobile, posted $1.8 billion in 2009 revenues, an increase of 74% from a year ago. For the record, that’s about three times Facebook’s estimated $600-700 million in 2009 revenues.

Tencent’s flagship product, QQ Messenger (with a cute penguin logo), is the first introduction to the internet for most Chinese teens. It claims a whopping 523 million active users. Tencent then cross-promotes its other online offerings: QQ Show, QQ Game, QQ Music, QQ Pets, and its social network, Qzone.

Tencent is the undisputed world leader in micropayments. Each QQ service is connected to a “diamond membership” of a different color, that offers free and exclusive virtual goods. For instance, the “red diamond” membership helps you dress up your avatar for face-offs against other online fashionistas in QQ Show. About 10% of Tencent’s active users pay for such memberships, which cost around $1.50 per month. Over 75% of total revenues come from these “internet value-added services,” which grew 94% in 2009.

By comparison, Facebook generated under 2% of revenues from virtual goods according to an estimate from Inside Facebook, though that number should rise with the full-fledged introduction of Facebook Credits in 2010. Facebook could learn from Tencent that monthly memberships work better than relying solely upon one-off purchases of credits.

Tencent also probed international waters in 2009, including the Facebook platform. It launched a puzzle game, called Treasure Hunter, as a “market research project” to test the Facebook market for synchronous casual games.

Richard Peng, vice-president of corporate development at Tencent, comments, “Tencent is expanding globally, but we are being very cautious. We want to do this the right way, using proper planning and methodology, and we are circumspect about making big mistakes that could kill our business. Because of our cultural sensitivity and sophistication, we are starting off in places that are culturally very close to China – such as Vietnam and Southeast Asia. Once we develop a certain level of experience there, we’ll see about entering the U.S.”

There are however indications that Tencent is losing its innovative edge. It spotted the social networking trend early, but failed to expand beyond its core demographic of teens, a long-standing objective for the company. Instead, its competitors, social networks Kaixin001, RenRen, and 51.com, are starting to encroach upon its territory.

Benjamin Joffe, CEO of internet market research firm +8*, told BloggerInsight: “Tencent is definitely not the best in terms of products or innovation – similar to Zynga in that sense – but their ability to deliver a ‘good enough’ mass market service and integrating it within their ecosystem is impressive.”

Qzone, “the largest social network in China,” and Tencent’s other SNS (QQ Campus and Xiaoyou), are failures for three reasons:

1. Squandered Opportunity: Chinese internet giant Tencent was enviously positioned to dominate social networking, but blew its chance. QQ Campus failed. Xiaoyou is far behind the competition. Qzone does not reach any new demographics.
2. The Site’s Design and Features are Lousy: The Qzone website is an unintuitive eyesore. Its applications are of poor quality and frequently inaccessible.
3. Is Qzone Really No. 1? Tencent’s claim of 305 million active users is highly suspect; even its classification as an SNS is questionable. Its competitors are encroaching upon its core user base of young teens.

Does this mean Tencent will soon collapse? Absolutely not.

Qzone is Tencent’s “Windows Vista”

Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist that thrives despite a terrible product and lack of vision.

Do prosperous companies still produce failures? Absolutely yes.

Microsoft remains massively profitable despite releasing a terrible OS and missing out on all the new innovations (mobile, mp3 players, search, and social networking) that its competitors have seized upon (Apple, Google, and Facebook). Microsoft suffered from a stifling, dysfunctional corporate culture.

Benjamin Joffe, Tencent expert and CEO of internet market research firm +8*, told China Social Games:

Tencent is definitely not the best in terms of products or innovation – similar to Zynga in that sense – but their ability to deliver a ‘good enough’ mass market service and integrating it within their ecosystem is impressive.

Tencent is certainly massively profitable: 2009 revenues, just announced, were 1.82 bn USD, though it’s unclear what portion of the “internet value-added services” is attributable to Qzone.

Like Microsoft, Tencent will continue to profit in spite of the junk it produces. But Qzone does dampen Tencent’s star, opens the door for its SNS competitors (RenRen and Kaixin001), and questions its corporate culture.

#1 Squandered Opportunity

Tencent’s had awesome resources for building a social network:

1. Instant user base. QQ Messenger has 485 million active users, which Tencent uses to cross-promote new services, like Qzone, on young Chinese netizens.
2. High brand awareness. QQ is the first introduction to the internet for most Chinese.
3. Many complementary sites. QQ Games, for instance, could be beautifully integrated with Qzone, but is instead poorly slapped together.
4. Regulatory environment experience. As an early internet giant, Tencent knows how to reach the right government contacts and manage user-generated content.
5. Financial capital. Tencent has deep, deep pockets.

In addition, Tencent had long aimed to expand from its core demographic of young teens to include a more mature audience. Social networking was clearly the perfect chance to do so.

Despite all these advantages, Tencent squandered the opportunity. Qzone never gained an audience beyond young teens. Instead, RenRen, which completely copied Facebook (as Tencent also could have done), attracted the student demographic. Kaixin001 has snapped up the valuable white-collar demographic with a simple, user-friendly site.

Most damningly, even users who start on Qzone almost all “graduate” to the other networks. In September of 2008, Tencent finally tried to retain users with QQ Campus, which failed and is now shut down.

In June 2008, Tencent finally responded with the SNS Xiaoyou (classmates), but the site has virtually the same lousy interface as Qzone, except with a decent skin. The apps and games are even fewer and lesser than those on Qzone. The first five times I tried to join Xiaoyou, I was rejected because “The system is busy, please try again later.” Competent websites optimize splash pages to convert users; Tencent is clearly not concerned with such trivialities. It’s a fitting illustration of the embarrassingly poor quality of Tencent’s SNS properties.

“The system is busy, please try again later.” A warm welcome to Tencent’s Xiaoyou SNS.

In addition to Tencent’s failure to expand, anecdotal evidence suggests RenRen is encroaching upon young teens, Tencent’s traditional turf.

Tencent saw the social networking trend coming from across the Pacific Ocean, but still blew its chance. Tencent had all the advantages in the world, so resources were not the issue. The problem was Tencent’s poor execution and strategy.

Most Chinese internet experts likely disagree with my assessment of Qzone as a “failure” though, or at least with the degree of disappointment. Benjamin Joffe comments, “Considering Tencent is already reaching everybody with its IM service and Qzone started off as a blogging service, its revamping into a social network does not seem that bad… I am not sure what you would measure Qzone’s success or failure against, but in terms of reach it seems fine to me.”

#2 The Site’s Design and Features are Lousy

Qzone is a lousy website: it’s ugly, unintuitive, and buggy. The site is simply unattractive to the Western and Chinese eyes in our office. Nor is the site truly customizable like MySpace, though the superficial skin can be changed for a fee. The site is very basic (for a social network), but not in a user-friendly way (like Kaixin001).

Qzone is a lousy, juvenile version of MySpace

Instead, Qzone relies upon tons of small text for explanation. Finally, the pages and pop-up boxes are often jumbled after loading and the homepage is inconsistent. Qzone is a lousy, juvenile version of MySpace.

Qzone is a closed platform and its apps are of poor quality. Of China’s big three social networks, Qzone’s apps are by far the worst: it offers the fewest, the ugliest, and the least innovative. Bizarrely, even Treasure Hunter, Tencent’s first game on Facebook, has higher production values than any of its games on Qzone.

Qzone’s apps: poor selection, poor quality, high price.

Benjamin Joffe comments,

Applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as IM or MMOs and there is a learning curve – even for Tencent.

Moreover, Qzone apps are frequently inaccessible to users. Upon installing, a Qzone user is often told, “This application is full as too many users have already entered today. Please try again tomorrow or become a yellow diamond member.” This pay-to-play model on social games is surely a loser.

The online game market has shown time and time again that freemium works far better: get users hooked first and then charge for virtual goods. In fact, that’s Tencent’s own model when it comes to virtually all of its other services: QQ Show, QQ Messenger, etc. Perhaps Qzone’s comparatively young and rural users are so extremely naïve that they pay Qzone when they can play the same—or better—games for free on the other networks. But is this a successful business strategy in the long run?

“Please try again tomorrow or become a yellow diamond member.” Where all other SNS do freemium, Qzone pushes pay-to-play. Successful in the long run? That’s doubtful.

#3 Is Qzone Really No. 1?

Every SNS in China claims to be the largest: Qzone, RenRen, Kaixin001, and 51.com. There is simply no trustworthy data on users or revenues.

The short and sweet is this: Qzone has the most users, RenRen has the most active users, and Kaixin001 has the most highly active users. 51.com user’s are the most rural. This picture is supported by the Alexa and ChinaRank rankings, as well as a survey by the Chinese Internet Network Information Center.

Tencent’s official numbers are ludicrous. Qzone claims 305m active user accounts. China has 384m internet users, which makes this claim highly suspect. Qzone likely takes an extremely “liberal” approach to defining both “active” and “user.”

Benamin Joffe says,

Tencent’s number are no more suspect than others – at least Tencent is a market-listed company and they’d better not throw out too much exaggerations. What I suspect however is that many users might not even know they have a Qzone page, that would come with their IM account – or that any abandoned page is counted. We’re not talking about active users here since all SNS want to show off their highest number to claim to be #1.

The majority of Qzone users are extremely casual. Qzone attracts a comparatively young and rural demographic and requires only minimal sign-up: one account can be used across multiple QQ services.

Even the classification of Qzone as an SNS is questionable. It has tons of dormant, skeleton profiles that are pulled from QQ Messenger. In that regard, it’s similar to MSN Spaces, which also has a ton of “users,” but has low value and retention rates.

Another wildly-circulated sham is that “QQ Farm may reach 50m RMB in monthly revenues.” The source is a so-called “analysis” by MainFirst Securities HK, which also includes the patently false claim that Five Minute’s Happy Game was “licensed to Kaixin001 with revenue shares.” When China Social Games contacted the analyst whose name is on the report, he replied, “I don’t confirm anything the writing in there.” Much of the Qzone story is coming from fiction writers and spin doctors.

Despite Tencent being a publicly listed company, no one knows how much revenue Qzone brings in. Benjamin Joffe comments:

The business side of things is a bit more tricky. As far as I understand, the revenue model with Qzone is avatar (QQ Show), social games and ads – they drive a huge number of pageviews in a way that advertisers are used to count (it’s harder with IM) but their huge inventory also devaluates the potential in CPM.

The split of their SNS targeting different demographics is to focus the value and address market betters – similar to what RenRen does within its service at signup.

Second Chances: Can Qzone Still Conquer the Mass Market?

Second or Third Chances for Internet Giants?

Qzone could still turn it around; China’s social network wars are far from over. Microsoft’s vast resources means that it often gets a second or third chance to make up for past mistakes: Vista became Windows 7. MSN Search became Windows Live Search which became Bing.

But barriers to entry are higher in social networks though; once your friends are all on Facebook (or RenRen or Kaixin001), why switch to a network with fewer users?

Nonetheless, Tencent should not be dismissed lightly. Marc van der Chijs, a Chinese internet entrepreneur and CEO of Spil Games Asia, told China Social Games:

Tencent is the ’800-pound gorilla’ lurking in the shadows, they have so much traffic because of their QQ messenger that they can theoretically take over this whole market if they wanted to. Not sure if it’s because of a lack of vision, or because they are comfortable with growing their current business.

They are making tons of money with virtual items, so there is no real need to go head-to-head with the competition in the SNS market. They can afford to wait and then either take over a competitor or enter with a fully-developed product.

Don’t underestimate them. They are smart guys who know what they are doing.

Tencent’s smart guys may swoop in and turn Qzone around one day. But given Tencent’s tremendous resource advantage to start with, it’s been a failure thus far.

Kai Lukoff is an editor on China Social Games and analyst at BloggerInsight. Follow Kai on Twitter @klukoff.

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