Last Thursday, through the invitation on Facebook, I participated my first Web Entrepreneurs @ Haidian Base Event. Although more than half the participants were Chinese, the official communication language was English.
Besides the organizer and several other people, most of the attendees were new to this party. Everybody introduced himself, a guy from US just arrived in Beijing 3 days ago and was brought here through a friend, actually I also brought my friend Frank to this party, he just started a company working on web page games. Nearly 70%+ attendees were entrepreneurs. There’re also people from the VC community, for example a girl named Angela was from SIG VC. When I was introducing myself as the Emerging Business Team lead in China for Microsoft and I was a evangelist, someone in the corner echoed that he worked with EBT in US and was familiar with Don Dodge and Dan’l Lewin. Later I found out that he was Adam Smith, the founder and CTO of Xobni, whose products is an organizer plug-in for Microsoft Outlook email and brings social networking and Web2.0 features to Outlook email. Adam was on a tripl in east Asia and would fly back to US the day after. It’s the first time in China that I met an entrepreneur from US who worked closely with EBT. I think some time later, there’ll be entrepreneurs showing up in US who have worked with me in China.
In the afternoon of 2008/6/2 (Beijing Time), the M&A process of the carriers in China started. China Telecom acquired the CDMA network asset for RMB66.2B and the CDMA business & user for RMB43.8B from China Unicom. The total value was RMB110B (about $15.7B). At the same time, the GSM business of China Unicom merged with CNC to form the new China Unicom, the trading value was over HK$430B (about $55.1B).
This was the first action to the carriers M&A announcement on 2008/5/23 which was intend to increase the competition in the telecommunication market and drive the speed to move to 3G. The M&A chart is as below, before the M&A there were 6 carries, 3 of them had landline network (China Telecom, CNC and China TieTong), 2 of them had mobile network (China Mobile and China Unicom which had both CDMA and GSM network), China Satcom has satellite communication. After the M&A, 3 big carries remain (new China Mobile, new China Unicom and new China Telecom), each of them have both landline and mobile network. The government will distribute each of them a 3G license after the M&A is settled down.
From a legal perspective, it will take at least 4 months for this M&A, it will take even longer for the whole consolidation. Since each carrier both has landline and mobile network, the competition will increase and the communication cost will go down, which will benefit the customers.
After this M&A, the rest 3 carriers will upgrade their network after they receive 3G licenses from the government later. Consumers and service providers have been waited so long for the 3G, finally it will come on the way after this M&A.
As the number of the mobile users is still growing fast and the requirement for high speed network service is also increasing. In the next decade, the carriers will invest huge money to upgrade their networks. In the long term, network device manufactures and client device manufactures, such as Alcatel-Lucent, Nokia-Siemens Networks, Huawei, ZTE, Datang and etc., especially QualComm will benefit tremendously for Chinese mobile users will purchase a large amount of 3G mobile phones with 3G chips containing IP from QualComm.
China as the biggest telecom market will attract even more capital from around the globe. At 2.28 PM on 12th May 2008, I was at the Suzhou (Jiansu province in east China) train station buying a train ticket to Shanghai as my next stop of my business trip, at the same time a 7.8 Richter Scale earthquake attacked Wenchuan County in southwest China's Sichuan Province. Windows Live China team took actions quickly this time, you can get the latest information with map label at Live Search Map. I feel so lucky that I still alive while more than 10 thousand people lost of their lives, wish every survivor could be rescued with 72 hours after the quake. On 29 December, 2007, Regulations for Audio and Video Service on Internet was co-announced by MII (Ministry of Information Industry) and SARFT (the State Administration of Radio Film and Television) which required those companies that provide such video/audio service over internet must be SOE (State Owned Enterprise) or majorly hold by SOE. Later, a black list was created, 25 websites were asked to shutdown and 32 websites were warned including Tudou and other top video sharing websites. This regulation created a license headache for those websites and their VC investors. However, at late night of 2008/2/3, MII and SARFT announced a new policy which made clear that for those websites that were in business before the announcement of the regulation (2007/12/29), if they hadn’t conducted any illegal behavior, they could re-register and go on with their business. It’s so dramatic, as from hell to heaven. In fact, the regulation plus the policy created an entrance barrier for those newly created websites. In the following one year, only several big video sharing websites will be left among 100+ peer websites. VCs already invested a lot continued to put in more money to secure that they will be last winner. So far 23 websites got the license, Tudou announced getting $50M+ D-series investment on 2008/4/22, it was said that Youku got about $30M and 56.com got about $25M. In 2008, there will be plenty of M&A among video sharing websites and only a few large ones will share the whole market. Regulations for Audio and Video Service on Internet> was co-announced by MII (Ministry of Information Industry) and SARFT (the State Administration of Radio Film and Television) and will take effect on 2008/1/31. The object of this regulation is to control the audio and video content on website in China, it’s crucial for Chinese government especially during the year of Olympic Games when the eyes of the world are focusing on China. Since a cell phone with a camera can make each single person a journalist, the government need to control and prevent negative content on the internet. Item 8 of this new regulation requires the juridical person of those enterprise who provide audio or video service on internet must be state owned or state controlled organization. This item brings great trouble to those YouTube style video sharing website and VCs put their money in them; if the regulation means that the VC investment is not compatible with the local laws and regulations, can the VC withdraw its investment? Originally, 2008 was deemed as the year to differentiate out the top players of video sharing websites in China (also including those P2P websites), YouKu, and 56 each got VC investment over $20M in the second half year of 2007. Now those VCs who invested in this area need think hard to find a way to cash out. Although the regulation will take effect by 1/31, there’s no detailed explanation about this regulation from the government. Everyone is looking forward to the first case of a video sharing website who transfer the ownership to a state owned enterprise. It’s by accident that just one day before the announcement of the regulation, there is a little accident happened on the Olympics Channel Unveiling Ceremony, this is an example of what the regulation wants to control. With nearly 500M users, the number of the cellphone users almost triples the number of the internet users in China. Although about only 10% of the cellphone users are using “Smart Phone”, 50M is still a big number, and plenty of startups in China are building software applications and services for those cellphone users to better use their smart client. 7B short messages were delivered during the Chinese Lunar New Year holidays in 2007 in China, this number is expected to be doubled in 2008 (just 5 weeks away). Besides the tremendous usage of short message, more and more people are using cellphone to receive emails, to download software, pictures or videos from the web, to listen to music online, to browse and search on the internet—move as many functions of the desktop PC to the cellphone as possible. Datuu is such a startup to make this come true. Its client application supports multiple email accounts, blocks out ads and shows text and pictures in split window while browsing the web, compresses and plays the music while downloading it. To support Web2.0, Datuu also allows users to upload photos to forums on the internet. MICAT provides similar functions to upload multimedia to different online spaces such as Windows Live Space, Baidu Space, Sina Blogs, Sohu Blogs and etc., and what’s more, MICAT is the first company to solve the problem of backingup address books and short messages online and restoring them to cellphones of different brands and models. MICAT also solves the problem of 100K limit of multimedia short message. Due to the huge wireless application market based on the huge cellphone users, there’s a big space for plenty of innovative startups in China. I attended In-Stat China 2008 last Friday (2007/11/9) in Shenzhen. Eric Chang (Director of ATC) is one the speakers of the panel “New Technology and Market Summit-Converged Device”, he shared the views of Microsoft about “M-Phone” which means future phone should be Multi-Network, Multi-Modal and Multi-Functional. In-Stat China 2008 is a close-door conference with about 40 attendees from carriers such as China Mobile and Orange, mobile phone manufactures such as Nokia and Sony Ericson, telecom equipment manufacturers such as UT Starcom and Huawei, silicon vendors, Intel, Tencent and etc. Eric and I are from Microsoft, but I found 3 ex-Microsoft employees there. Jason Yin, Managing Director of In-Stat China used work in Microsoft (China)as License Manager; Peter Zhang – Director of Education Business Program of Nokia and Bruce Zhou – Solution Center Director of Motorola (China) also have working experience in Microsoft (China). Fancy meeting so many Microsoft related friends in this meeting. This conference has 4 panels, Digital Media, Broadband, Converged Device and Wireless Internet. In this emerging market, 3 big players are taking the lead on the stage. Putting consumers as its core and innovating on technologies for better user experience, all of them take the model of Device + Connected Services. iPhone of Apple compete with Nokia which has more than 300M units sold; Service & Software of Nokia go to the area of Google; will gPhone be more exciting than iPhone? 
Making Windows Mobile more consumer-oriented (WM is more business-oriented) and with Microsoft’s Software + Service strategy, Microsoft will also do well in this rapid change market. So far in this year, 4 online game companies in China IPOed in HKSE, Nasdaq and NYSE, several other online game companies such as 9You and OurGame are on their way for IPO, 2007 is a milestone for the Chinese online game industry. [:)] Below is a table of the 4 online game companies that IPOed in 2007 so far. After Shanda and The9 were listed on Nasdaq almost 3 years ago, the capital market keep a little bit quite on China online game industry. Below is a table of those Chinese online game companies which were IPOed 3 years ago or even earlier. | Name | IPO Time | Stock Market | | The9 | 2004/12/15 | Nasdaq | | Shanda | 2004/5/13 | Nasdaq | | Netease | 2000/6/30 | Nasdaq | It's Shanda who changed the business model to "free-to-play, pay for virtual merchandise", making itself an online game operator, Shanda worked with online game content providers and hosting dozens of online games. However, in this high-growth market, Shanda and Netease failed to deliver new games fast enough, this made space for new comers like Perfect World and Giant. And the venture capital increased their investment in online game more and more, in 2005 only 3 online game companies got investment from venture capital, in 2006 the number grew to 5 and the total amount is $21M, in 2007 so far about $80M has been invested in this area. "free-to-play, pay for virtual merchandise" is common in China online game market, according to iResearch, from 2007 to 2010 the online game virtual merchandise trade will keep growing at 30% YOY. As I can remember, this kind of prosperity happened in Mobile Service Provider several years before, lots of money invested and a bunch of SPs listed in Nasdaq. But after the government strengthened the controlling, those SPs such as Tom and KongZhong suffer a lot. Hope this won't happen in the Chinese online game market. | View in Web Browser | /_layouts/images/ichtmxls.gif | /Blogs/China/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsx | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /Blogs/China/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsb | 255 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /Blogs/China/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsx | 256 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /Blogs/China/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsb | 256 |
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Featured Startup
The BizSpark startup of the day is Avetrium, based in Canada. You will find below an interview with Tim Smith, COO of Avetrium. All the best to them and congrats for being the startup of the day!
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