June 7, 2007 4:00 AM PDT

Web 2.0 madness grips China

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Focus, which runs video ads on public LCD screens, gets credit by many for upping the excitement around Web 2.0. The key is that the company's screens are located where lines congregate, which is to say everywhere in China: bank lobbies, shopping centers, convenience stores, inside elevators, and the lobby next to the elevators where a person can wait a minute or longer for a car.

The company formed in 2003 and held an IPO in 2005. The stock went out at $17 a share and now sells for around $44. Revenue in the first quarter came to $58.1 million, up 75 percent from a year ago, while profit rose 73 percent to $16.3 million.

The rapid success and somewhat unusual delivery model for ads "changed the mindset" of both entrepreneurs and local advertisers, who were more focused on print and TV, said Ian Chin, president of Wealink, a Mandarin language version of LinkedIn. "You have to wait so you have eyeballs."

Word got around fast. "After they went public, the Focus executives would hit the button for Floor-1 (the floor below the lobby) instead of L (for lobby)," said Chin, who works in the same building. Instead of stopping in the lobby to exit the building, the executives were going a floor lower to the garage, where their new cars were parked.

Gavin Ni, CEO of Zero-2-IPO, a publishing house that tracks the Chinese market, asserts that a lot of the activity isn't so much around technology, but the relatively untapped nature of the domestic market.

"China is a developing country, and so now what people want are brands and consistency," Ni said. "Clothes, food, beverages are interesting."

Cultural nuances
The success of many local companies has come at the expense of multinationals. Google is a distant second to Baidu. While a preference to "buy local" can't be dismissed, many Chinese say that international vendors ignored cultural nuances.

Google, for instance, will split Chinese names into separate terms in a search, which skews the results, said Max Yuan, CEO of Incesoft, adding that Chinese search engines like Baidu do a better job. To prop up their efforts in China, Yahoo teamed up with Alibaba, while Amazon bought local online bookseller Joyo.

Business models also need to be tailored to local conditions too. The 83,000-plus screen network owned by Focus actually isn't a network at all. If the screens were connected, it would constitute a TV network and the government would insist on monitoring the content. Thus, the ads don't come from a central server. People on bicycles go to the screens every week and replace the memory card in the back, which bureaucrats have no problem with, Shiong said.

In video, KU6.com grew by tapping in the ubiquitous desire to make money. Like Revver in the U.S., KU6.com gives a portion of its ad revenue to people who submit videos. But then it goes one step further. The top 10 money earners and top 10 video contributors are listed on KU6's home page, which turns contributing to the network into sort of a video game. The site provides data on the top earners for the day, the current month and since the site began. Contributors get 10 percent to 50 percent of the ad revenue.

Li offers different types of ad presentation, with some advertisers opting to have their ads run before the video instead of after, which the most popular format. The company also holds contests: Yili, a dairy company, gave a 100,000 renminbi ($13,000) prize to the person who came up with the best ad. The contest drew more than 500 videos made by amateurs and professionals and generated 18 million page views. The top earner has pulled in $5,700 since September--more than many new college graduates earn in a year.

The top contributor for May posted 7,089 videos during the month. "That means this guy posted over 200 videos every day," Li said. "I don't pay this man's salary or provide an office for him. I just share."

Then there are the "soft" ads. Li gets contributors to make ads/product placement videos for advertisers. In one, a surly teenager walks alone in the streets talking about loneliness and carrying an MP3 player.

"Samsung. Look!" Li laughs.

Another factor fueling the boom is that Chinese media companies are inexpensive to create and run. A growing start-up with 40 to 50 employees might burn through 500,000 renminbi ($67,000) a month, Shiong said.

By contrast, chip companies or manufacturing outfits require buildings, intellectual property, land and often lots of employees. These companies also have to try to sell products internationally, unlike media and software companies that can stay local.

"The amount needed is really low. Survivability is not an issue," he said. "The problem is scalability."

And would-be media giants know that they can't rest for a moment.

"Either die or make money," said Li.

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Cheap Startup Costs
"Cheap Startup Costs" is code for "I bought Windows Vista and Office 2007 on the street for $3".

"media and software companies that can stay local" - this is code for "I bought some software and movie DVDs - made 50,000 copies and my 12 year old daughter is selling them on the street".

China is wonderful.
Posted by DecliningUSDollar (56 comments )
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Even if you pirate it, you're still enslaved, and they will still make your life miserable. Just. Use. Free. Software. It's better anyway, imo.
Posted by ethana2 (348 comments )
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