Tuesday, December 7, 2010

Today's Tangential Reading and Rant - China and Social Networking

update.... see Groupon blog post ....

I recently purchased a few shares of Tencent Holdings, and it's been going down slowing and consistently since (oops!). Yesterday I was down a total of 10% but I was holding in there because I believed in the company.Then today, it started to go up! So,wondering what the catalyst was, I started clicking links to blogs.

and, yada yada yada....here is the article that started my crazy brain synapses firing, And is my long winded (sorry) rationale for purchasing stock in Tencent (訊控股有限公司) (wikipedia) ($TCEHY.PK , $TCTZF.PK) . 

Note: I am a furniture designer, not a professional investing advisor, so I don't recommend that you make investment decisions based solely upon my thoughts. (I'm sure that goes without saying, but...just wanted to dot the 'i' and cross the 't'.)
Why It's Still Early in the Internet and e-Commerce Investing Cycle
November 21, 2010 by Wade Slome on Seeking Alpha

"...According to the broad base of expert strategists, we apparently are living in an overvalued, “New Normal ” (I am sooo sick of this phrase, argggh) market with subdued growth for as far as the eye can see .... In the meantime ... the top 15 global internet franchises have nearly quadrupled revenue from $33 billion in 2004 to $126 billion today."

"...Last year 1.8 billion people accessed ...the internet. Users spent 18.8 trillion minutes online, up +21% over the previous year. Many people are very familiar with the home-bred internet franchises of Facebook (620 million users), Google (GOOG) (940 million users), and Apple (AAPL) (120 million internet device users), but many investors under-appreciate the global scale of international internet franchises like Tencent (TCEHY.PK) (637 million users… more than Facebook, by the way), Baidu (BIDU) (see my previous post on How Baidu Infected my Computer) ($40 billion market value), or Alibaba.com (ALBCF.PK) ($10 billion market value)." (BTW, Alibaba is a great resource that I have used many times to source materials, products, and entire factories.)
And... Here is my twisted, yet surprisingly logical rationale for liking Tencent

One Is The Loneliest Number

China's one child generation is a lonely generation; social media allows them to connect with others-internet siblings.

The one child generation that came of age in in the post Deng Xiaoping era have more opportunities than any generation previously in China's history. As a result they want and are expected to move to a first tier city for their education and careers. Social media allows these already lonely kids to keep in touch with their hometown friends and family, as well as keep track of their rapidly upwardly mobile, "yuppie" / 小资 (xiaozi)? classmates and coworkers. 

Does Not Play Well With Others / Home Team Advantage

Because of China's 'strong' government oversight of Web 2.0 true 'free market' business is not possible. So only an 'inside' (ie: Chinese company) will be successful.

"Allegedly" hacking into Google ($GOOG) (not to mention attorney's offices, the US government and US Universities.) In response to Google's accusations "...Guo Liang, the director of the China Internet Project at the Chinese Academy of Social Sciences, said he thought Google’s accusations were little more than public whining....(read entire article)". 

"... the [Chinese] Foreign Ministry said that China welcomed foreign Internet companies but that those offering online services must do so “in accordance with the law.” But added that “China’s Internet is open.” 

Aside from the internal 'issues', foreign companies entering the Chinese market make the mistake of taking a cookie cutter/ one business model fits all countries and cultures approach. Wrong! 

Wal-Mart ($WMT) learned this lesson.  and has built extremely popular stores in China which would be unrecognizable to a US Wal-Mart consumer. (Additional articles/resources  CNBC Logistics Today, NY Times (re: Wal-Mart's Brazil failure and lesson)

"...Three of the top 10 global sites, ranked by total unique visitors, are Chinese sites intended primarily for the Chinese domestic market. These are the sites with the longer shelf life, and they’re also sites that were created by Chinese, for Chinese, in ChinaYes, with a total Internet population that exceeds the total country population of the United States, homegrown Chinese Internet companies can rely on the domestic market alone to achieve success." (read this entire article here)

The current 'golden child' of the new tech world Apple ($APPL) is not immune to China's censorship. In August 2008 I was in China for business and after a long day of driving between factories and reviewing samples, I plugged in my iPod to update podcasts for my listening pleasure for the next long day of driving. Imagine my surprise when I put on my ear-buds the next day and my iPod was completely empty (zero, zilch, zip!)

Frustrated,later that evening, I scoured the internet but couldn't find news about the problem I was having anywhere. I did, however, find news about a 'Pro-Tibet' song on iTunes that was stirring up a hornets nest with Beijing, but nothing else. I thought maybe I had a virus so I was running scans with no results. I was even online with some techies at cnet and Symantec ($SYMCand they had no idea what the problem could be. 

I found out later that I had apparently I plugged into iTunes 2 days before the site was taken down. Nearly two weeks after the initial 'wipe-out' I received an e-mail from cnet, in which they said their 'unofficial' guess was that the Chinese government installed a virus to delete iPod contents in order to 'eradicate' copies of the controversial content. And for good measure they seemingly had gone one step further and eliminated all content that wasn't on it's approved list. (Apparently my music and podcast choices were not big in Beijing.)

However, one company that may be bucking the trend is Qunar.com (哪儿) "...What it takes to be successful in the Chinese market is the same stuff it takes to be successful in other markets. We forget that here." 

"[American companies] ought to come in with an advantage, but the advantage turns into a disadvantage because ... the company does not empower the local team and does not have enough humility to understand the Chinese market," said Kai-Fu Lee, former head of Google China and founder of Innovation Works, an incubation company....If you want to participate, you have to build a true local presence, otherwise don't play. You will end up following the others' footsteps and wasting a lot of money," Lee said. (continue reading this article)

Even the Home Team Faces Constant Challenges

In China, internet suicide pacts are 10% the platform's fault

December 7, 2010 from The Shanghaiist 

"In a startling case from earlier this week, it seems that courts in Zhejiang Province have ruled that Tencent, the makers of the super popular QQ chat program, is 10% responsible for a student who killed himself. "Fan" responded to a "suicide invitation" by "Zhang" on QQ, and the two agreed to meet up and commit suicide. Only Fan died, when Zhang gave up because of the "unbearable pain." >> Continue Reading 

PG-Rated Content Only

China blocks all porn as criminal through filtering software. (Think of all of the lost revenues!) Apparently the software by Green Dam Youth Escort  绿坝·花季护航 looks for large areas of 'flesh coloring' and considers any image which fits their formula to be porn.While I really have no use for porn (honestly!) on the web, it is apparently quite popular. 

But, I believe the Chinese definition of 'porn' is too broad. And like the 1964 U.S. Supreme Court ruling in Jacobellis v. Ohio it can be critisized for it's "lack of concreteness". Therefore in spite of my 
deifintion of can see where the line drawn can be a bit too strict for example:

  • During my January stay in Shanghai, my Mum posted pics to Picassa from her New Years Polar Bear swim in the Ocean, in which she and her friends are wearing very conservative swim suits. Unfortunately I wasn't able to see them because they were blocked as "porn"! Apparently the software's definition of porn was so broad in the first version of the software that school teachers in China complained that images of pigs were all blocked-too much flesh coloring! Those slutty pigs!
  • The censorship reminds me of stories my English cousin told me about the years she lived in Saudi Arabia. Her husband was the President of the Bank of England and they lived in Riyadh. She would bring fashion magazines and Jane Fonda aerobics videos (beta!) back from her trips home to the UK and the customs censors at the airport would tear out pages of the magazine that showed too much female skin to black out with a giant Sharpie. (Basically they covered everything from ankles to wrists, to neck.) Her Jane Fonda video was confiscated as straight out porn. and based on experience Facebook, Twitter, I-Tunes all shut down several times during my trips to China.
Tienanmen Square 1989
However, the Chinese government does use porn to its advantage when necessary. For example, it was widely reported that in the run up to the 20th Anniversary of Tiananmen Square. 

"Why the policy shift, and why now? The obvious answer is that the government is trying to distract Internet users from today's anniversary...some believe the move may be an attempt at "calming discontent among the country's increasingly male-heavy population." (read entire article here)

Meanwhile foreign social networking sites including Foursquare, Twitter, Facebook, Myspace, and Youtube are frequently blocked in order to limit the spread of information. (read entire article here) (Additional reading on this topic: China Blocks Twitter (And Almost Everything ElseExplore Chinese Social Networking Sites )

Proudly bourgeois
Louis Vuitton Chopsticks
China's single child generation is a 'lonely' group of hard working conspicuous consumers. For them, social networks are more important than 'Westerners' of the same age group. They use social networks to connect with friends, but more importantly to 'show off' their consumer purchases both for themselves and their generosity of gifts for their parents. The revenue streams from social media advertising sales and other web 2.0 money making opportunities are limitless. These are consumers who buy luxury brands and flaunt them. 

Top 10 Luxury Consumer Names in China for 2010

The poll which was based on the question "What are the three brands you desire the most" had a whopping 46% of respondents picking Louis Vuitton ($LVMUY.PK), 36% choosing Chanel and 22% for Gucci (GUCG.PK)

Mark Jacobs for Louis Vuitton
China Fashion Week Fall 2010 via Shanghaiist

  1. Louis Vuitton 
  2. Chanel
  3. Gucci
  4. Armani
  5. Christian Dior
  6. Rolex
  7. Cartier
  8. Hermes
  9. Prada
  10. Lancôme 

other links: LV audio guide to Shanghai 

And when you are in meeting, do not pull out your pen unless it is a Mont Blanc ("...China overtook the United States in 2008 to become Montblanc's largest market....")

"…today’s xiaozi are not defined about how they make money, but how the spend it. The term, once used to mark those on the wrong side of the revolution, has now been co-opted by popular culture to mean something entirely different and not entirely negative."

Thanks for reading! :-)
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