（Written by Longfei Hu & Kai Lukoff, iChinaStock.com)
Qihoo 360 was the first Chinese internet company to IPO in the US this year, but there are many more to come. Ge Yang, NYSE’s representative in Beijing, states, “Following Qihoo 360 we expect another batch of Chinese firms to go public, with a number of different business models.”
The 17 Chinese internet firms shooting for an IPO this year fall into 5 categories: social networks, online TV and video, mobile Internet, e-commerce, and online media.
1) Social Networks
RenRen
RenRen claims to be China’s largest real-name social network. Its forerunner was XiaoNei, which launched in 2005. Xiaonei was purchased by Oak Pacific Interactive in 2006 and in 2009 subsequently changed its name to RenRen (“the people’s web” in Chinese).
Softbank is the largest investor in RenRen with about a 40% stake. RenRen has 160 million registered users. Its primary revenue sources are web games and advertising.
On February 19, 2011, Sina Tech reported that RenRen plans to IPO in the U.S, with the aim of raising about $500 million.
Kaixin001
Kaixin (Kaixin001.com), founded in March 2008, is one of China’s largest social networks. In August of 2010, it claimed 86 million registered users, with an average of 50 million monthly active users. Its revenues are about 300 million yuan, primarily from advertising (about 80%), virtual goods, and third party developers. CEO Binghao Cheng stated that by the second quarter of 2010 monthly profits were over 10 million yuan.
At the end of last year Caijing reported that the company plans to IPO in 2011. On March 16, it was leaked that Kaixin had already selected JP Morgan and Citigroup to serve as underwriters of the IPO.
Taomee
Taomee (taomee.com) is a children’s social network. It claims to have 180 million registered users with active users of 30-50 million. In January 2011 it announced that it had reached profitability.
In October 2010, Caijing reported that Taomee will IPO on NASDAQ in 2011. It has fulfilled basic preparations at present.
Jia Yuan
In December 2010, Tencent Tech quoted an industry insider, “The Chinese dating site Jia Yuan intends to list on the NASDAQ next year, with the aim of raising $100 million.” Jia Yuan would be China’s first dating site to go public.
2) Online TV and Video
Tudou
Tudou launch on April 15, 2005 as China’s first video sharing site. On November 10, 2010, Tudou filed with the SEC for listing as TUDO on the NASDAQ with the aim of raising $120 million.
The magazine China Entrepreneur reports two possible reasons for the delay since then: 1) Tudou CEO Gary Wang violated the “quiet period”; or 2) A lawsuit from the ex-wife of Tudou CEO Gary Wang which claims a stake in the company. Gary Wang holds a 13.4% stake in Tudou according to the SEC filing.
PPLive
PPLive (PPTV) provides TV streaming and video-on-demand.
In February, PPLive received a $250 million investment from Softbank. According to Caijing Daily, CEO Xinchen Yao aims to list on NASDAQ by the end of the year.
PPStream
PPStream provides TV streaming and video-on-demand.
On February 17, TechWeb reported that PPStream intends IPO in the US and raise $200-300 million. Bank of America Merrill Lynch and UBS Investment Bank will serve as underwriters.
Xunlei
Shenzhen-based Xunlei is China’s largest download client, used primarily for movies and music. Advertising is its largest source of revenue, but the firm also sells value-added services to users, like cloud storage space to host videos and music.
On March 3, Bloomberg quoted an industry insider who stated that plans to list in the US this year to raise about $200 million. Deutsche Bank and JPMorgan will serve as underwriters. On March 23, Reuters reported that Xunlei could IPO as soon as April, but was waiting for the right market conditions.
3) Mobile Internet
NetQin
NetQin is a mobile security software firm. On March 16, NetQin filed with the NYSE with the intention of raising $100 million.
The eve of its IPO China’s CCTV accused NetQin of plotting to disseminate malware via Feiliu, a firm it invested in, and then charge users for NetQin’s services to remove the malware. There is concern that this revelation may hinder NetQin’s chances for an IPO.
UCWeb
UCWeb’s core product is the UCWeb mobile browser. In March 2011, it claimed to have more than 200 million users and over 700 million downloads.
On March 25, Sohu IT reported that the company was reaching out to investors in preparation for an IPO this year.
3G.cn
3G.cn claims to be China’s largest mobile portal. According to management advertising accounts for over 70% of revenues and it estimates 2010 revenues will surpass 200 million yuan.
In July 2010, after completing a third round of investment for $100 million, CEO Yuqiang Deng stated, “This is our last round of financing before an IPO. We plan to list at the end of this year or the beginning of next year.”
Yicha
Yicha was established in February 2004 and was China’s first mobile search engine.
In May 2010, Chairman Bin Liu stated, “Yicha originally planned to list in Japan this year, but due to a weak market we’ll wait until next year; we estimate 2010 revenues will reach $10 million.”
4) E-commerce
Qunar
Qunar is a price-comparison site for booking plane tickets, hotels, and travel packages, similar to Kayak in the US.
In September 2010, Qunar’s CEO told Reuters, “At the earliest we hope to list in the second half of next year and release 20-25% of our shares. Our first choice is NASDAQ.”
Red Baby
Red Baby is China’s largest site for mothers and babies. Sales reached 2 billion yuan in 2009.
In December 2010, the managing director of New Enterprise Associates China, an investor in Red Baby, stated that the firm plans to IPO in the US in the next year.
5) Online Media
Shanda Literature
Shanda Literature is a subsidiary of the Shanda Group and includes well-known literature sites like Chinese Web.
On February 16 HeXun Tech quoted an insider saying the Shanda Literature plans to IPO on the NASDAQ in June.
HeXun
HeXun is a famous Chinese financial portal. Last December Chinese Entrepreneur reported an employee who stated management was aiming for an IPO in the second quarter of 2011.
iFeng Media
iFeng is a cross-platform media company that includes a portal (www.ifeng.com) , a mobile site (3g.ifeng.com) and iFeng video.
iFeng Deputy Director Xinzeng Liu revealed last year that the firm plans to IPO in the third quarter of 2011 and that the video property would be included as a selling point.
The famous US-based consumer electronics retailer Best Buy announced on February 22, 2011 that it had decided to stop running its nine stores in China. The surprise announcement effectively signaled the end of Best Buy’s eight-year China story in which it spent three years preparing for its market entry and five years expanding itself to nine stores located in Shanghai, Beijing, Suzhou and Hangzhou.
BestBuy is not the first one and definitely will not be the last one to pull out of China. Given the fact that China is strong in electronics and the native retailors are already taking a strong hold in that market, it wasn’t easy for BsetBuy to carve out a piece for itself.
Do you see it as a failure for Best Buy? In fact, Best Buy had failed to gain national influence since its entering Chinese market in 2006 because most of its retail stores were located in East China. There has been talk during the six years about its withdrawal. It has been said that Best Buy’s failure in China is based on its “famous”, “advanced” business model.
It has been well accepted that the Best Buy business model stands for a higher business civilization; nevertheless, a direct consequence of Best Buy model was that the retail store cost was too high, failing to provide a competitive price. It significantly reduced Best Buy’s competitive power in this way, especially in China.
When Best Buy entered China in 2005, the Chinese suppliers were not terrified at all; instead of it, they deeply expected it—the business model of Gome and Suning (Two Chinese biggest household appliance retailers) had had an ingrained vicious circle which was suffocating every supplier. Household appliance manufacturers expected a new model that could contend against the current model; in addition, the carrier must be strong enough—such as Best Buy, the biggest household appliance retailer in the world.
However, the result was disappointing. Best Buy suffered in deficit year by year and after six years, it ultimately came to an end.
Theoretically, the Best Buy “buy out” operation method and “spot trading” were supposed to be the best way to return to essence of retail and the most beneficial model for business ecological harmony. Included in their business model was to obtain the dominant right of the retail store by buying out the products and bear the depreciation loss; the employees of Best Buy are responsible for the sales promotions; making profit by scale purchases and purchase and sale price differentials. Compared to the badly condemned business model of Gome and Suning, Best Buy model stands for a higher business civilization with no doubt.
Do you see it as American morals fail to transcend Chinese consumer market?
Then what exactly is the Gome and Suning model? They enjoy a model that combined commission sale and distribute. They rent the sales area in the store to different household appliance manufacturers. Then they collect the rental fee and a certain percent of the manufacturers’ revenue. Even the sales promotion people are hired or appointed by the manufacturers. The tremendous fast expansion of Gome and Suning was based on collecting the store entrance fee from those manufacturers and returning money to them slowly.
It’s not hard to tell that one of the direct consequences of Best Buy model is the high storing cost—labor cost, advertising cost and other cost for a single store are much higher than one of Gome and Suning. This made Best Buy on one hand fail to provide a more competitive price to the consumers; on the other hand, due to the limited profit from every single store, the pace of Best Buy opening new stores was detrimentally slow—Gome and Suning have thousands of retail stores in China, and Best Buy only had nine. The sales revenue could not satisfy the U.S. headquarters, plus, it could hardly benefit Chinese customers and suppliers; as a result there was no way Best Buy could find a reason to stay in China.
What’s the lesson here?
Be flexible, even it means to change your business model.
Be adaptive, learn from the local business people.
Be innovative, or pull out of the competitive Chinese market.
Most American families all got a brochure from the Census Bureau within the past two weeks. Have you ever wondered why does the Census Bureau send letters telling people that they are going to be receiving their census form in the mail? Commerce Secretary Gary Locke told Jon Stewart on The Daily Show “past research has shown that if we send this advanced mailing, we can actually increase the response rate the percentage of households sending back the census form by six percent to twelve percent.”
In a similar vein, study has shown that by asking potential voters to predict whether they will vote on an election and to provide a reason for their prediction, participation rate could be increase 20% to 25%.
So what’s actually driving the drastic increase? Based on my recent interesting read of <Yes! 50 scientifically proven ways to be persuasive>, there are two important psychological steps involved in the success of this technique. First of all, when people are asked to predict whether they’ll engage in a socially desirable behavior in the future, they feel compelled to say yes because that’s the socially appropriate thing to say. Secondly, after most of these people have publicly state that they’ll perform the socially desirable behavior, they’ll be motivated to behave consistently with the commitment they just made.
What lessons can we draw from this human factor that can be effectively employed in our lives?
- If you plan on joining a charity run for a nonprofit, start by asking your friends, family and co-workers whether they think they’ll donate
- If you manage a restaurant or doctor’s office, having your receptionist ASK instead of TELL when taking a reservation. Simply by changing “Please call if you have to cancel,” to “Will you please call if you have to cancel?” I ensure you the no-show rate would drop significantly!
- If you are designing a nonprofit/corporate responsibility website where voting mechanism is the center piece, make sure to cement those potential voters’ commitment by making it voluntary, active and publicly declared to others.
Small and easy changes to our messages and to our requests can be made vastly more persuasive, just remember: asking a little goes a long way!
