Mobile Point View by Paul Ruppert

$430 Million into Chinese Facebook--Xiaonei.com

Oak Pacific Interactive (OPI) owner of Xiaonei.com, one of the leading Web 2.0 social networking services in China, announced March 30th that Japanese Softbank Corp. is leading an investment totaling US$430 million for 35% of Xiaonei.com.  The investment funds will be used to further build the leadership and growth needs of Xiaonei.com, one of the leading social networking sites in China.

Xiaonei.com is a full-featured community and social networking destination that provides an "immersive experience" for its users. Features of the site include multi player gaming and wireless value-added services for mobile users. In the college market, Xiaonei.com has a dominating market share. OPI also owns and operates Mop.com, the largest entertainment portal, and Donews.com, one of the leading IT blogging services in China.

Facbeook Rip Off or ChineseWay
Oak Pacific Interactive acquired Xiaonei.com in October 2006. Xionei, positioned like Facebook visually looks like a clone of Facebook and is thought to have a 90% share of the active on line students in China. It was started by Tsinghua university graduate Wang Xing. Much like Facebook's Ivy League heritage Xiaonei focused on China's top schools first, realizing that widespread adoption would follow. They even received angel funding from investors that included an ex-CTO of Amazon.com.

Xiaonei.com’s features include include multi player gaming and wireless services for mobile users. Xiaonei had “22 million registered users and 12.7 million daily users by March,” reports Communication Information. Xiaonei had 280 million page views in March, according to the report.

Mobile, Baseball, Social Networks
As part of the funding conditions Oak Pacific relayed that Masayoshi Son will join its Board of Directors. Masayoshi Son is the President and CEO of SOFTBANK Corp. Softbank is Japan's leading Internet and telecom services company, and Softbank Mobile is Japan's number three mobile phone carrier, after buying Vodafone KK's operations two years ago. SoftBank's revenue doubled this year to $23 billion, thanks to a boost from the new mobile phone unit. SoftBank also runs Yahoo Japan, the country's top Internet site, as well as the baseball team Fukuoka Hawks.

Joseph Chen, Chairman and CEO of Oak Pacific, said, “We are honored to welcome SOFTBANK as an investor and to have Mr. Son join our Board of Directors. SOFTBANK’s commitment reinforces our mission to develop world-class, scalable businesses that leverage the tremendous growth potential of consumer internet market China. We will use this capital to further our aggressive growth strategy for Xiaonei.com and ensure that it sustains its leadership and innovative spirit for many years to come.”

Existing investors of OPI include General Atlantic, DCM, Technology Crossover Ventures, Accel Partners, and Legend Capital. Note: Accel Partners is also an investor in Facebook--as well as Hook Mobile.

As for Facebook entering China, as I relayed in my earlier post "Facebook's Hong Kong Connection vs QQ" I think the western press is getting it wrong on Facebook's Chinese opportunity. Presently it isn't even in China, it just has a BIG Hong Kong investor. Reflecting the Chinese Way, to date most Chinese internet companies are home grown, from Alibaba, to 51Job, Baidu, Ctrip and Sina. I'm absent exceptions but I don't think there's much to worry about a Lao wai, non-Chinese born social networking company taking a big chunk of the Chinese social networking services market at this stage. Just as Haier is making incremental steps in the US market, Facebook should consider the China market a long tail effort. At minimum It needs to get some experienced China hands on board before the opinion beacons of the western press coronate it King of the SNS providers.

Facebook's Hong Kong Connection vs QQ

Li Ka-Shing overlooks QQ?

Last month it was reported that Li Ka-Shing, one time plastic flower manufacturer, 11th richest man on  the planet and Hong Kong billionaire upped his stake in Facebook to more than $100 million according to  published reports. Li previously invested a reported US$60 million in Facebook in November 2007.   

That means that he now owns nearly 1 percent of Facebook, assuming the deal was made at the same $15 billion valuation that had been placed on the company since Microsoft's US$240 million of October 2007. If the valuation has dropped, he owns even more!

Li, who is chairman of port conglomerate, real estate speculator and telecom company Hutchinson Whampoa, told reporters on his company's conference call:

"Facebook is doing very well and we could have some synergy between the 3G services of Hutchison and Facebook, so the customers could use Facebook on mobile phones."

Certainly, mobile is the biggest opportunity for social networking in China, with close to 600 million mobile users in the middle kingdom, versus less than 30% of that for China's web uses--172 million users. Facebook may be considering this as a move to enter the China market by thinking it can get "on deck" with the Chinese carriers, resulting in tens of millions of users very quickly. If Facebook thinks this is access to China's mobile silk road, ask yourself how much of CMCC does Li Ka Shing own? Answer: 0%. Such simplistic theories are easily dismissed.

An Investor First

The "Chinese Way" prefers to do business with a local Chinese provider. Better joss with a local who can then go global, than a loa wai company entering China. The cultural reveloution was not that long ago, and just as economic nationalism is expressed with US consumers (Buy American!), the same happens in China. Facebook will not so easily enter the Chinese market on the coat tails of Li, especially since mobile operator Hutch 3 (Li's primary property) in Hong Kong has no formal commercial presence in the mainland. Better to deal directly with the Chinese, something Facebook's new COO, Sheryl Sandberg is likely to be the only one in the building who has ever sat across from a Chinese functionary, from her prior experience at the US Treasury Dept.

Plus there are rumors that Facebook is seeking a revenue return for Facebook subscribers who utilize mobile operator text and mobile messaging through their Facebook account. Whoa--they think they will get operators to pay them for messaging traffic. A very bold commercial position which would be an attempt to realign the mobile messaging business. This is an opportunity that I've surmised in the past and that I think is possible where social networking services could capture messaging traffic if they approach it correctly--not by confrontation with the mobile operators but through co-opting. Perhaps they think China's social silk road runs through Li Kai Shing. Perhaps they think they can leverage CMCC much as Apple has in taming the Dragon? Clearly University Ave is a long way from Tsim Sha Tsui and I don't think the Cuppertino business case is the one to follow in China.

What will QQ will do?

Who is QQ you ask? For the uninitiated or overly  western centric in the audience, QQ is the world's largest social networking service with over 300 million users in China, with revenues exceeding US$523 million. That's almost 4x Facebook's estimated US$150 million in revenues. With an operating profit of US$224 million, and 21% of its total revenues of US$334 million generated from NON ADVERTISING MOBILE revenues of $110 million perhaps Li Kai Shing should have invested in TenCent the owner of QQ.

QQ is still growing. Notably, the ad market is largely untapped - mostly due to the misunderstanding of IM and SNS by ad agencies and brands in China. Lots of work to convince those folks that a service that attracts so many millions is, perhaps, a media in its own right. Probably why Li Ka Shing invested in Facebook in the first place. He gets it that it is an emerging media platform, not a simple application.

 

Carnival of the Mobilists #102

CoM #102 is hosted this week at Tarek Ghazali's blog, Symbiano-TeK.  For an 18 year old--he's a university student in Cairo--Tarek has a great command of the mobile segment (and an obvious fascination with Symbian), so explore Symbiano-TeK while checking out CoM this week.

Of this week's contributions, I enjoyed most Ajit Jaokar's "P2P May be Google's biggest Weakness and an Operator's biggest Asset" on his blog, Open Gardens. Great discussion of open mobility.  Oh, I've contributed a post there as well. Check it out. What do you think?

Mobile Social Networking & Ancient Talking Cultures

Oral is the core of Communications

The New York Times reported on Dec. 2nd on how the collective buzz of profile-surfing, messaging and “friending,”  which drives social networking services, seems to be tapping into our "ancient" forms of oral communication.

"The growing popularity of social networking sites like Facebook, MySpace and Second Life has thrust many of us into a new world where we make “friends” with people we barely know, scrawl messages on each other’s walls and project our identities using totem-like visual symbols. “Orality is the base of all human experience,” says Lance Strate, a communications professor at Fordham University and devoted MySpace user. He says he is convinced that the popularity of social networks stems from their appeal to deep-seated, prehistoric patterns of human communication. “We evolved with speech,” he says. “We didn’t evolve with writing.”

Talking is the "New Black"

Clearly there are common parallels between online social networks and tribal societies. In the collective behavior of profile surfing, messaging, establishing and posting friends ("friending") there is a new assertion of old communicating styles and patterns. The argument is that social networks now fueled by the internet have arisen from the desire to express oneself in a more "talking" format than "writing." Blogs, comments, UGC video and the one liners they fuel via channels such as Twitter and Facebook are the new "talking."

I believe mobile communications are the ultimate access point for communications between humans, and these findings just fuel the argument that eventually mobile messaging and mobile voice are going to be both access points and channel for the social networking portals. That is where the industry will be migrating.

Flat Cloud Archietecture

The power of a short, asynchronous “snack” length communication has made text the dominant format. It taps into these same ancient needs we have as human beings and is a natural extension to the communicaiton style emerging from net social networks. Seems technology today with its instant communications, isn't that different from jungle drums, smoke signals, or cave paintings buried deep in our cerebellum.

Now with the onset of social networks, and the Times' reflection of this research, these social networks will drive a sea change in architecture as well. Why? Because a flat, open architecture will be driven by the need/demand for access by adjacent segment offerings seeking to directly link to the messaging networks, and by definition voice as well. The carriers’ control of a "hub and spoke" architecture will be subject to assault. Q:What are the adjacent segments? A:Social networks.

Access demand by these social networks, driven by our "ancient oral communications" style will be only the first attack on the operators to open up access to application providers, content developers, handset manufacturers and adjacent web communities such as social networks–all as a result of the continuing demand of humans to be "heard" as the Times' article implies. The entire communications ecosystem will seek access, which will be the primary driver of change. In fact, this is already happening through the initial developments of the “mobile internet.” 

“If you examine the Web through the lens of orality, you can’t help but see it everywhere,” says Irwin Chen in the Times article. Chen is a design instructor at Parsons School of Design who is developing a new course to explore the emergence of oral culture online. “Orality is participatory, interactive, communal and focused on the present. The Web is all of these things.”

Look to Mobile for the future of Oral Cultures

Well, that's not that surprising to those of us in the mobile communications field. The mobile web will be even more of an accelerant for social networks, since an "oral culture" unites people into groups. Oral cultures means more than just talking--there are strong social dynamics at work.

“In tribal cultures, your identity is completely wrapped up in the question of how people know you,” he says. “When you look at Facebook, you can see the same pattern at work: people projecting their identities by demonstrating their relationships to each other. You define yourself in terms of who your   friends are.”

Well, we already see that in research on the mobile address book. Notwithstanding hundreds ( or thousands ) of connections in a mobile address book, we tend to communicate with the same core 10 to 20 people. Seems our "oral tradition" and tribal history caps out at that size based survival needs as an individual and as a group. This Darwinian scaled group size may be the optimal comfort level we seek.

Mobile is the Nuclear Access Point

With over 3.3 billion mobile users (probably more since in "ancient Africa" the average number of user per handset exceeds 1.0) establishing "oral communication" as the trend of convergence between social networks. "orality" and mobility, for both channel and access points, will only increase. The mobile phone will eventually be the "nuclear access point" for all communications, tethered web, and unteathered web or over the air.  Read the Times' article here.

OK. Now its your turn. What do you think of the prospects of Social Networking affecting will affect mobile communications? Do you think there's a connection here, or I'm just muddled minded? What do you think of the academic take on the commercial supply demand reaction of communications and social sub cultures? Comments are very welcome, let's get it on!

Name Card Bar Codes in China

Camclic, a "Physical World Connection" company offers a bar code reader handset solution that is currently in beta in China. By using the CamClic Personal Barcode on your business card and in your e-mail signature, you can have your contact information imported into your friends mobile phones contact list when they scan/type your barcode. You will also be linked to each other and inside CamClic you will be able to share each other's social networks, favorite products, shops, clubs etc.When updating your contact information inside CamClic your friends mobile phones will be automatically updated with CamClic.