Fanfou, China’s most popular Twitter clone from about a year ago, has been quiet for more than 6 months, ever since being shut down by the Chinese authorities. Its founder, Wang Xing, launched a new site today. The new discount shopping site,Meituan.com (link in Chinese) — beautiful group, in literal translation, but also a pun on the acronym of group purchase every day — could aptly be summarized as a Groupon.com clone.

[image courtesy of Digital East Asia]

The two websites look very similar in design (aside from the different background colors), which is not a surprise for a Chinese clone. There are similarities in features too. Meituan.com currently runs one product sale per city per day, and offers a heavy discount on the product in question. Since March 8 is Women’s Day, the product on offer in the above screenshot is a spa package.

The site lists 15 major cities in China, though only the Beijing site is actually in service. For information on the product being offered, the site pulls information from other websites – in the spa package’s example, reviews on the spa are scraped from Dianping.com (the Chinese-equivalent of Yelp, which is a very unfair statement since Dianping actually launched first).

With Meituan, Wang Xing is now officially a serial entrepreneur. He started the Chinese Facebook clone, Xiaonei (now branded Renren), in 2005 and  sold it for $2M in 2006. He then started Fanfou in 2007. I’m not too sure on the prospects of Meituan, since e-commerce in China is dominated by Alibaba’s c2c platform Taobao.com. It’s not at all difficult for Taobao to emulate the features of Meituan (and leverage its user base and established best-in-class payment infrastructure Alipay), and indeed self-organized group purchase activities have long been present in Chinese forums.

The second post shows a fairly slick youtube video of Flash on Android, through a Farmville demo:

If you look closely enough, you can see that 1) there is an issue with mouse hover-overs; 2) for a intensely interactive Flash app, there is “money left on the table” in the sense that it is not customized for touch and the controls feel clumsy (or maybe it’s just the demo person…).

Which leads me to the provocative title of this post. The whole demand for Flash on the iPhone and other mobile platforms is based on how it gives consumers the “real web.” However, if you think about the main uses of Flash, which is 1) video 2) games 3) ads, I would say that consumers don’t care about whether ads can be displayed, and as the above example illustrates, games (and other forms of highly interactive Flash usages) probably need to be redesigned anyway (which calls for custom apps). Which leaves video – and this is where the competitive landscape plays an interesting role. The biggest video site, Youtube, is owned by Google, and Google is definitely going for HTML5 + H.264 and moving away from Flash. (Tangent: Google is also getting some criticism for not truly supporting the open web, as H.264 is a licensed technology.)

So the bottom line is, while Flash has dominance on the web now, it definitely faces the danger of becoming completely irrelevant in the mobile space. This may not be a terrible thing – moving to a unified standard such as HTML5 and away from proprietary codecs – except of course for Adobe.

QQ.com reports (link in Chinese) that Chinese Shanzhai mobile phone manufacturers — Shanzhai denotes low price knockoffs of trendy products — are considering building factories in India to regain access to the massive and rapidly growing mobile market. Last December India banned phones without International Mobile Equipment Identity (IMEI) codes — the unique identification number per mobile device globally; unfortunately,many Shanzhai manufacturers aggressively manage costs by sharing IMEI codes or not having them at all. These manufacturers, primarily based in Shenzhen, hope that by establishing local manufacturing in India, they would gain some goodwill with Indian authorities and perhaps regain access to the market.

According to the article, the Shenzhen Mobile Communications Association (SMCA), a trade group, plans to organize a business trip to India this month for 12 of its members. The group will negotiate an agreement with the Federation of Indian Chambers of Commerce and Industry (FICCI) to grant Shanzhai products legitimate access to the Indian market so it can regain its substantial market share:

“…the goal is to set up several production lines, with annual capacity of 10 million units… Chinese brands achieved 40% market share in India last year, but we are now blocked out of this market. We must leverage Shenzhen’s manufacturing strengths, to build the image of producing Indian phones.”
– Tang Ruijin, Chairman, SMCA

Some interesting mobile phone statistics from 2009 include:

• Global handset production volume was 1.13 billion last year, with an estimated 20% to beChinese Shanzhai phones,
• In 2009 Shanzhai manufacturers produced 235 million units, of which 140 million units were for export (sweeping across emerging markets globally, especially in Southeast Asia and South Asia). (Source: BDA, a telecommunications, media and technology consultancy based in Beijing), and
• Exports could grow as much as 50% this year to 211 million units, with India being the largest foreign market.

I think this could be a very interesting development, with implications beyond just the return of Chinese Shanzhai brands to India. Essentially, these export facing manufacturers are forced to tackle global marketing issues, and could be pioneers for how Chinese brands expand internationally; most Chinese brands these days have the luxury of being able to only focus on the domestic market. To a large extent, these low price manufacturers have enjoyed success so far; now their ambition is to make their business sustainable – to do so they will need to shift to real innovation, either in product, market distribution or customer segmentation.

Last Friday, a day before Chinese New Year’s Eve, China’s General Administration of Press and Publication (GAPP) finally approved (via QQ Tech – link in Chinese) Activision Blizzard Inc.’s (NASDAQ: ATVI) massively multiplayer online role playing game (MMORPG), World of Warcraft: The  Burning Crusade. This is good news for the 4 million Mainland Chinese subscribers who since mid-last year have been torn with uncertainty over the future of their beloved game.

GAPP issued a very simple statement, stating that since Netease.com, Inc. ((ADR) NASDAQ: NTES) “has taken necessary corrective measures” to address issues highlighted before by GAPP, it now has been given the license to operate the game in Mainland China.

Incidentally, one of the biggest Internet memes in China over the last month has been a fan-made film about the World of Warcraft approval fiasco, with a shocking parody of all the major players involved – Netease, The9 Limited ((ADR) NASDAQ: NCTY), GAPP and the Ministry of Culture. Veteran expat twitterer / blogger @niubi has a nice summary post of the video. (Part 1 of the video on Youtube, with English subtitles, is here.)

Haas MBA Google Trek 2010

Besides having a great time talking with the Googlers, I was also lucky enough to win one of the 5 Droids handed out in a surprise lottery (you can see the winners showing off their gear in the photo). The phone, targeted for developers, comes with a one-month free trial from Verizon, as well as a nice discount for a 1 year or 2 year contract.

This is the first Android handset I have used, having been a loyal iPhone user since January 2009. There are things I immediately like about the phone, and it really is almost a completely different experience from the iPhone. I know there are plenty of Droid reviews out there (since this device has been out for a quarter now), but here are some of my first impressions:

• Great support for Google products – really, no surprises here. The turn-by-turn navigation, a coveted app by many, could well be one of the killer apps for this device. (I am curious how well that works on the road, especially in areas with patchy reception – this was a key differentiation point Nokia was trying to emphasize for its Ovi Maps, where the maps are stored locally and require less data transmission – and therefore less dependence on reception – on the go.) And of course the Google Voice app is great, but it does make you wonder how Verizon feels about it.
• Background apps – Pandora while surfing? No problem. However, it’s not apparent what apps are running in the background, which could both be a drain on your battery and also a potential nuisance – I realized I was always on Google Chat, even though that wasn’t my intention.
• Poor support for business users. This is not a phone ready for corporate America. It supports Microsoft Exchange, but apparently the “corporate email” app doesn’t support search. That’s right. No inbox searching. That alone is enough for me to hold on to my iPhone. (I could, in theory, forward all my emails to Gmail, but I’m sure there are plenty of users like me out there who prefer to keep their work-email and gmail separate)
• Very slow charging on USB? I have a habit of carrying only the USB cord, and not the adapter, for my iPhone. For some reason, the Droid charges at a very slow pace via USB – something like 15% an hour, which is not satisfactory.
• The physical keyboard is redundant. Yes. I’ve gotten used to typing on virtual keyboards. Having to actually push down feels painful, and there is no auto-correct. In this regard I’d probably like the Nexus One a lot better.
• App market. Good number of apps already, most of the web2.0 services are present, but much less presence of old-school stuff – e.g. WSJ, FT, NYTimes etc.

Reading through the points above, it’s interesting to note how many of them are talking about consumers’ habits. For example the point about the keyboard – if I came from the blackberry world I probably would love the physical keyboard (remember all those people who hated the virtual keyboard on the iPhone when it first launched?), but I’ve grown accustomed to virtual keyboards. Same for the email search – my work-around would solve the problem, but it is asking me to change my behavior, so I have a strong distaste for it.

One final point – I want to comment on how fundamentally different the Droid is from the iPhone. I felt it was a phone for geeks and engineers. The UI was less polished, but there was much more that the user could customize (menus, widgets etc…) You need to spend time to play around with it. The iPhone, on the other hand, is a device ready for mass adoption. It’s frustrating for geeks who want to do all kinds of things (but can’t), but perfect for everyday users who can just use it intuitively. Very different philosophies, and therefore potentially a sharp divergence in consumer segments going forward.

The recent Google Inc. (NASDAQ: GOOG) – China spat has made Chinese web news much less interesting to read lately, as there is a flood of officially-toned articles criticizing Google and the US government (after Secretary of State Hillary Clinton’s Internet Freedom Address last week). And honestly, many Chinese netizens are perhaps fearful of tougher crackdowns from the government as a show of strength. It is therefore great news, then, to hear Douban raising close to $10MM in its Series B round of VC funding (via Chinabyte article, link in Chinese).

The Series B round of funding is led byTrustbridge Partners, founded by formerShanda Interactive Entertainment Ltd.((ADR) NASDAQ: SNDA) CFO Li Shujun in 2006, and Ceyuan Ventures, which invested $2MM in the Series A round in 2006.

Founded in 2005, Douban is China’s leading SNS when it comes to books, films and music – organized around such interests, it’s distinctively different from the other Chinese social networks (Renren – the college kids, Kaixin – casual games etc.). The crowd that Douban attracts may be smaller in size, but it is much more skewed towards the highly educated (and perhaps elitist) rising middle class, commonly termed “xiaozi” (literally meaning petty bourgeoisie). And since most topics are centered on the various arts, discussions are generally less sensitive, though Douban had to do some heavy self-censoring in the summer of 2009 to comply with the Chinese government’s regulations.

The site seems to have been picking up significantly over the half year, with over 33MM registered IDs now, versus only 10MM in September 2009. This could partly be due to a partnership withTencent Holdings Ltd.’s (HKG: 0700) popular IM platform QQ, where Douban was listed in the books section. However, like most SNSes, Douban is still on the path to profitability. The site currently generates income from book recommendations (linking to online retailers such as Dangdang and Amazon Joyo), ticket booking services and brand advertising (Ford, Converse, Ray-ban etc., full list of brands here).

I’ve just been on a Berkeley Haas MBA student trek to China, where one of the companies we visited was Google China (before the recent news broke). Having talked with several Googlers and also pondered on the issue for a bit on my flight back to Berkeley, I’d like to share a few thoughts on the still developing showdown regarding Google Inc.’s (NASDAQ: GOOG) Chinese operations:

1. As regards the abstract and philosophical issue of “what is the right thing for Google to do” — “abide by Chinese law” or stand by its “do no evil” mantra? — there is actually no right answer to this question. First off, most governments in the world adopt some form of censorship, and China is not the only country where Google has to abide by local law. Chinese netizens have pointedly dug out the 2008 news story in which Google assisted the Indian government in arresting an Indian man. Secondly, the argument made by Google 4 years ago when entering China (ie – that offering Chinese netizens access to limited information is better than no information) is still just as valid as the moral claims Google is now stating when threatening to exit China. As a poor analogy, should a man steal from a food bank if he sees lots of hungry people on the street? The act of stealing itself may be repulsive, but does the end (saving people’s lives) justify the means? I honestly believe this is an issue which you can side with either way and there is no right or wrong. Furthermore, a cyber-attack is illegal by any country’s law, whereas what is censored and what is not censored can be different due to country-specific issues like religion or in the case of China, politics. So for Google to use the hacker attacks as justification that it can’t tolerate Chinese censorship anymore is somewhat dubious, since this is not exactly the same issue.
2. Secondly, this confrontation helps highlight the different cultural differences that are important in business in the US and in China. On our recent student trek, every company (whether multinational or local) emphasized the huge difference in business culture – “it’s not right or wrong, it’s just different.” What I mean by this is that Google’s going public has made the Chinese government lose face, and this will only result in a lose-lose situation. If Google was pissed about the hacker attacks, it should have escalated that to the relevant US government agencies, and therefore go through official diplomatic channels. From the Chinese perspective, by breaching the regular channels and creating such a PR issue, Google has shown that it has no respect for China, its government, or even its people. Just a quick glance at my friends’ statuses on Kaixin, the most popular Chinese SNS, and I can see just as many people who are sad and “mourning” for Google as there are who are angry and skeptical of Google claiming the moral high ground (“just leave”). Google has arguably alienated some Chinese netizens by escalating this political disagreement into a high-profile media story.
3. Thirdly, what is the fallout? A few possible scenarios are as follows (my own speculation, neither confirmed nor denied by my chats with Googlers):

• “Worst case” scenario: Google China is completely disbanded, all .cn services sare hut down, and all employees are let go (or for some people, offered transfers to the US); the aftermath is very likely that the Chinese government will block Google.com for an extended period of time to recover its lost face. Absolutely worst possible outcome, termed “lose-lose-lose” by the WSJ editorial.
• “Moderate case” scenario: Google’s .cn services are shut down, but Google China’s engineering staff is kept on, in a pure R&D center (think Microsoft Research Asia). Some form of comprise will be reached between the Chinese government and Google, and Google.com will remain accessible but prone to occasional blocks in China.
• “Best case” scenario: Business as usual. Somehow all parties get out of this political row with something to show, and everyone can forget that the whole thing even happened. This is only “best” in that we can go back to our prior state, not necessarily “best” in the moral and philosophical debate about censorship etc.

In closing, I’d like to say that the current events are unfortunate by any measure, since the biggest losers potentially are the Chinese netizens. Competition is necessary for a healthy market, and letting Baidu, Inc. ((ADR) NASDAQ: BIDU) own the Chinese search market is just as bad as letting Google own the US search market. This is why I root for Google in China and Microsoft Corporation’s (NASDAQ: MSFT) Bing in the US.

Warning – this one is straight from the rumor mills, but has been reposted on more than 3 dozen Chinese news sites according to Baidu News Search. The original source is Chinese IT news portal DoNews (in Chinese).

China Mobile Ltd.’s ((ADR) NYSE: CHL) CEO Wang Jianzhou and a team of senior executives visited Tencent Holdings Ltd. (HKG: 0700) headquarters on Dec 31st, 2009, and were received by Tencent President Martin Lau Chi Ping.  According to QQ.com (owned by Tencent), the Tencent management team showcased their R&D and applications in wireless Internet; whereas DoNews speculates that such a visit cannot just be for some demos, but is in fact to re-initiate discussions of China Mobile acquiring Tencent. According to an “industry insider” (DoNews’ anonymous source), China Mobile has been interested in buying Tencent ever since the era of its previous CEO Wang Xiaochu (who stepped down in late 2004).

It’s true that China Mobile has always seemed very serious about getting into the content side of the business, and is determined to be not just the “dumb pipe”. It developed in-house Fetion, which is an also-ran in the instant messaging market whose main value proposition is free text messaging to mobile phones. That feature helped the service gain a decent number of users, bust I guess most users are like me – I only log on when I need to send some text messages to my friends and I log off immediately afterwards (you get SMS notification if others reply). Buying Tencent would obviously give China Mobile a range of extremely profitable Internet properties and help it achieve its ambition in content; the doubt would be whether there could be any synergies actually realized – the AOL-Time Warner deal immediately jumps to mind.

Taking a step back, the high profile visit at least signals that some form of discussions is ongoing, and there will probably be at least some partnership deals coming soon. It will be interesting to see what comes out of this in the near future.

China’s online space has long been one of rare industries where there is not big state-owned players present – Baidu, Inc. ((ADR) NASDAQ: BIDU),Alibaba.com Limited (HKSE: 1688), Tencent Holdings Limited(HKG: 0700 | (ADR) PINK: TCEHY), etc. are all private companies. People often speculate if and when this will change (just last night I had such a conversation with a friend who works in VC). Well, this has just become true for the online video sector.

China’s state-owned media giant China Central Television (CCTV) has just launched China Network Television (CNTV.cn), which is an aggressive foray into the online video space by any measure. Previously, CCTV has been content with offering ad-hoc streaming of important programs on its website and partnering with internet properties such as Sina. CNTV is a dramatic development as it is essentially trying to move all of CCTV’s content online (think Hulu, but 10 times more aggressive).

The site, which will officially launch on Monday, Dec. 28th, is already accessible. At launch, the site offers 5 distinct “channels”:

1. a 24-hour news channel,
2. a sports channel,
3. a general entertainment channel,
4. a user-generated-content (UGC) channel (think Youtube clone), and
5. a video-on-demand (VOD) channel.

In addition, CBOX (in Chinese), a software client, is available for download (though right now the link seems to be broken, so I haven’t been able to test it).

The 24 hour news channel and the sports channel (titled “5+”, as CCTV5 is the sports channel under CCTV) require a plug-in to view. 5+ currently only has some ads (it’s 7am Monday as of this writing, so the channel hasn’t officially launched yet), whereas the news channel is currently streaming CCTV News. I think these two channels will offer some forms of original programming going forward, and not just stream TV content. I’m not sure if the plug-in is based on some form of P2P technology (as used by competitors PPLive and PPStream), but at 7am the news channel isn’t streaming that well, so there are some technical issues to resolve. The entertainment channel, the UGC channel and the VOD channel utilize Adobe Flash.

The UGC channel, named CNTV Xiyou (grapefruit, I have no idea why it’s named as such…), looks and feels like any other online video site. As can be expected, there isn’t a lot of content right now, but I did see clips from other television stations uploaded – not sure how CNTV will handle piracy, but this will likely be a very sensitive issue due to CNTV’s state-owned background.

Personally I found the VOD channel, CNTV Bugu (cuckoo, again, no idea why it’s titled this), to be the most interesting. The service has two components – a live component and a database of programs. Right now, live streaming of 51 TV channels (CCTV properties and a range of the most popular provincial channels such as Beijing TV) is available. For the database, it seems to be CCTV’s ambition to make all of its programming fully searchable and watchable online, and Bugu is the first step in that direction. The database has a impressive collection already – I just watched the 30-minute news from September 14th. There are also some films, courtesy of CCTV6 (the movie channel), for example All Quiet on the Western Front, though again there could be some copyright issues involved (when CCTV purchased the license for the film, did it also include online broadcasting rights?).

CNTV’s launch has serious implications for the space. It’s an aggressive entry into all the sectors of online video. While UGC sites like Tudou (in Chinese) and Youku (in Chinese) might feel the pain less (CNTV in this regard is just another Youtube clone; there is not differentiation – yet), properties like PPLive (which has recently renamed itself PPTV) and PPStream which heavily rely on traditional TV resources will certainly be strongly challenged. One of CNTV’s stated goals is to make CCTV’s 20 channels fully viewable online, and since CCTV is the monopolistic player in many fields (sports for example – there are few competitors to CCTV5), this will make CNTV the go-to property for a lot of viewers. Of course, a lot depends on the actual execution, but it’s safe to say that the landscape is about to change.

The recent weeks have been particularly hard for the web P2P community, with thePirate Bay shutting down and Mininova turning legal. The situation in China has taken a turn for the worse (if you’re a P2P user) also, as the State Administration of Radio, Film and Television (SARFT) has taken action against several P2P sites.

Among the casualties is BTChina, the largest torrent tracker in China. On Dec. 4th, netizens found that the website was inaccessible; the following day a short note appeared:

“BTChina has received notification from SARFT that as we don’t have a video license, our ICP registration with the Ministry of Industry and Information Technology has been deleted, and we are shutting down.”

It’s worthy to note that the direct reason these sites are shutting down is that they don’t have licenses to distribute video online, not necessarily because of piracy. In the past few days, several rumors have been flying on the Chinese web regarding SARFT’s actions, including one which claimed that BTChina’s founder, Huang Xiwei, has been detained by the police. This was later proved to be false (link in Chinese), as Dai Yunjie, the founder of VeryCD (the popular Chinese site for eMule downloads), called Huang immediately after he saw the web discussions.

VeryCD itself was down on the afternoon of Dec 9, which has led to massive speculation  that it would follow BTChina’s fate and be shut down permanently. Although initially VeryCD notified visitors to its site that it was experiencing technical difficulties — possibly due to a tremendous surge in traffic from users scrambling to download files as other P2P sites are closed — and would be up and running again by Thursday December 10. Well 12/10 has come and the site still remains down. This lends credence to a Southern Daily article that reported that further action against VeryCD and other P2P sites was highly likely, with another wave of sites receiving closure notifications on Dec 11th.

Needless to say there has been a huge uproar in the Chinese net space, as P2P downloading is the primary method for netizens to access the latest films and US TV series. Over the years the distribution chain has became so efficient that Chinese subtitled versions of the latest episodes of 24and other popular series are up on torrent sites a few hours after their initial showing.

Ironically, commentators think that the clamp down on P2P sites will lead to a revival of the pirated DVDs in China, which has taken quite a hit in recent years as consumers have migrated to downloading online. So in essence it’s saving one part of the piracy market at the expense of another.