China is now the largest Internet market in the world. We’re pleased to report that Beijing-based entrepreneur Tom Melcher will be writing an occasional post for us about what’s happening there.
Tom has a unique background: after graduating from Yale and HBS and working for McKinsey, Tom entered the “interactive multimedia” industry in 1992, based in Palo Alto. Over the next 12 years, he was involved with 5 high-profile Internet startups there. In 2004 he moved to Beijing so his kids could learn Chinese (he had studied Chinese at Yale). Once there, he started Internet company number 6, and then sold it two years later. He’s now incubating a set of new Internet-related companies. – HB
The Internet was invented in the US, American Internet companies dominate the headlines, and the major Internet governance bodies are based in the US. So it’s not surprising that many people think of the “internet” as an American-dominated industry.
However, that’s a mistake. In fact, over the past few years Internet usage in China has exploded, making China now the world’s largest internet market as measured by users.
And don’t forget that the Chinese market is still in its early growth stages, with Internet usage at 22% of the population, versus 75% for the US.
The common rejoinder is that these millions of Chinese online users don’t spend much money, and that advertisers aren’t willing to spend money to reach them.
As measured by revenue or market cap, Chinese companies are serious players. The current leader is Tencent (better known as QQ) with 2008 revenue of US$1 Billion and a current market cap of US$24 Billion (bigger than Yahoo, almost as big as eBay). Close behind is Baidu, China’s leading search engine, which accounts for 60% of China’s searches, versus 30% from Google China. Most analysts concur that Baidu is on track to US$1 Billion in revenue this year.
In short, if you want to talk about “The Internet”, you need to understand China. Do you know how Tencent makes money? Any idea about why Baidu keeps beating the otherwise-invincible Google? Most Americans don’t.
Closer to home, why has almost every American Internet company failed to translate its dominance to China: Google, Yahoo, eBay, Amazon, Facebook, and Expedia?
Some say the reason for the success of local Chinese companies, and the failures of American entrants, is due to Chinese government protectionism. To some extent that’s true, but it’s certainly not the whole story. After living inside the Chinese Internet industry for the last 5 years, I think the most-important answer is that American Internet companies are simply too convinced of their hegemony. Simply put, we Americans are arrogant.
So if you want to succeed in China (and no self-respecting Internet company can afford to ignore the world’s largest, and fastest-growing market), then step one is easy. Admit that you don’t know anything about it, and that applying the “lessons” from the US are probably a first step in the wrong direction.
Once you’ve realised that you have a lot to learn, stop assuming that the US (or your company) is the natural leader. Instead, start actively tracking interesting Chinese websites. Then, hire smart Chinese-speaking colleagues. Finally, listen to them, even if what they are proposing “won’t work (in the US).” Chances are they’re right and you’re not.
Finally, don’t be surprised when Chinese internet companies start buying American ones, and when China starts insisting that Internet-related policy no longer proceed with an assumptive American approach. Though it may hurt to admit it, it’s time for the American Internet industry to start making room at the top.
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