1

EXPLORE EMERGING MARKETNew Horizons For Innovative Enterprise

Forinnovatorsandentrepreneurs,theques2onsaboutemergingmarkets,modesofopera2on,andexplora2onneverstop.Newmarketpla=ormsmeanhugespacesfullofpoten2alfordevelopmentandprofit,andnewproductsandmodesofproductdevelopmentmeananopportunitytogetclosertouserdemandsandbringaboutaddedvalueandgrowth.Theseallrepresentpreciousopportuni2esandexci2ngnewhorizonsforinnova2veenterprise.

Thisweek,wefocusonexploringemergingmarkets.Inthefirstsec2on,wegointotwotopics:first,Chinesedev

teamsgeFnginonappsforthethreemajorJapanesesocialpla=orms,aswellasthecurrentstatus,dis2nguishingcharacteris2csandfuturedevelopmentopportuni2esofeachofthepla=orm.Second,wetalkabouttheentranceofluxurybrandsintotheecommercemarket,andassociatedinnova2onsandbreakthroughs.Inourrisingstarssec2on,weintroduce7newcompaniesthathavecomeonlinerecently,andattheendofthispublica2onwerecapthecontentsofAugust'sNTalksforumonLoca2onBasedServices,summarisingthecontentsof

thediscussionandprovidinghelpfulinforma2ontounderstandandconsidertheLBSparadigminthecontextoftheChinesemarket.

Thismonth'sStartupsWatchiseditedbyWEB20SHARE’sWatsonXuandMOBINODE'sLuGang,CindyJiang,Thisisamonthlybilingualreport.ThanksmuchtoourEnglishtranslatorMoyHauandEnglisheditorDanCiez.Welookforwardtohearingyourfeedback.

Feelfreetodropusmessageviamobinodetv@gmail.com

With this monthly report we hope to: 1) highlight the best content and opinions from non-mainstream independent bloggers. 2) provide overviews and commentaries on the views of innovators, and 3) give thoughts on both hot and new topics in Chinese web industry.

星观察STARTUPSWATCHS

EP

TE

MB

ER

201

0

2

A\ergamingandSNSbecameconnectedin Japan, we saw some amazingenterprises cometotheforefront,amongthemthethreebigplayers: GREE,DeNA,andMixi.DeNA currentlyhas amarketvalua2onof4.121billionUSD,GREE3.356billionUSD,andMixi802millionUSD.

More and more Chinese social game developers areturning their sightson the Japanese internetmarket. It’sgiantintermsofscaleandspace,andrela2velymature.Ithas goodusers who are ready to pay for product, muchmore profit per user poten2al than the Chinese market,andit’s rela2vely closertoChinanotonlygeographicallybut also in terms of culture and user needs. We’ll befocusing on the three major Japanese online socialpla=orms in this issue, as well as the state of Chineseteams’entryintothefray.

A\ergamingandSNSbecameconnectedinJapan,wesawsomeamazing enterprisescome to the forefront, amongthemthethreebigplayers:GREE,DeNA,andMixi.DeNAcurrentlyhas amarketvalua2onof4.121billionUSD,GREE3.356 billion USD, andMixi 802million USD. The threecompanies are listed on the Tokyo Stock Exchange.Together,theyareclosetohalfofthecombinedvalua2onofAmerica’sEAandBlizzard.

MostUsers:GREE

GREE has exploded onto the Japanese scene recently,experiencing the fastest growth among the big three. Itcurrentlyhasabout100employees.

GREE was establishedattheendof 2004.It listedontheTokyoStockExchangeattheendof 2008with10millionregistered users. As of July 31, 2010, the company had21.25 million registered users, making it the largestpla=orminJapan.Asof lastquarter,its revenuewas127millionUSD,up113%. 104million came fromdirectuserexpenditure, and the remaining 23 million fromadver2sing.GREE’s products include asocial networkwithavatarandadver2sing income streams, and Flash Lite social gamesformingastrongvirtualincomechannel.98%ofthetrafficcomes from mobile phones. In June of this year, GREEimported 40 third party games from tradi2onal playerssuch as Sega and Nancom, as well as some Chinesedevelopers.

GREE’s userbase consists primarily of the 15 to 30 agebracketwithamoreorless equalsexdistribu2on.Mostofthefriendrela2onshipsonthesite arevirtual,Thepla=ormfocuses onentertainment.GREE is aimingtoexpandintoChinaaswellas theAmericanandEuropeanmarkets, aswell as onto the iPhone and Android pla=orms. GREE’siPhonesite isalreadyinlive beta,witha completeversiondueoutsoon.

Japanese Social Gaming PlatformsChinese Developers Jonesing to Get In

FO

CU

S. S

epte

mb

er 2

010

3

FOC

US

. Sep

tem

ber

201

0HighestValua2on:DeNADeNA is Japan’slargestsocialplayerinterms of both opera2ng income andvalua2on, with more than 400employees.FoundedinMarch1999,itwent public in 2005 on the TokyoStock Exchange. Mobage‐Town isDeNA’sflagshipmobileentertainmentpla=orm, with a userbase of 20.48millionasofJuly31,2010.

DeNA’sproductsinclude mobilesocialnetworks,mobile services,andmobilesocial games.Approximately80%ofitsincomecomesfromthesocialgamesarea. Mobage‐Town opened itsp l a=orm i n September 2009 ,accep2ng a number of third‐partygames,a ringintowhichChina’sRekooquickly threw in its hat. The mostpopular game on the pla=orm wasdeveloped byDeNA and is similar toMafiaWars.

Mobage‐Town’s users also formrela2onships thatarenotgroundedinface‐to‐faceconnec2ons,anditis alsoentertainment‐focused. Of the majorplayers,DeNAis theonewiththemostoverseas development experience.The company already has subsidiaryenterprises in both China and theUn i ted S tates , hav ing boughtIceBreaker in theUnitedStatesandacontrollinginterestinChina’sTianxia.

In order to break into the iPhonepla=orm, DeNA has bought a 20%stakeinAurora Feint,o\enreferredtoas the “Xbox Live” of the iPhonepla=orm. DeNA putfiveof itsgamesonthepla=orm,includingitsMafia

Wars clone.DeNA is alsoworking onAndroid products. Addi2onally, thecompanyisworkingwithYahoo!JapantocomeoutwithaPCgamespla=orminOctoberofthisyear.DeNAwantstobring its products onto the globalstageinabigway.

SuperSocial:MixiMixi is the site that most closelyresembles Facebook. Most of thewebsite’s design borrows conceptsfromFacebook,andmostconnec2onsbetween users are based on offlinerela2onships. It was established inJune 1999, and listed on the TokyoStockExchangeinSeptember2006.Ithas 313 employees, 21.02 millionregistered users, and an ac2veuserbaseof14.3million.

Mixi has a more or less even sexdistribu2on, with slightly morefemales.Mostusersareinthe18to30age bracket and live in Tokyo andother larger ci2es within Japan. Itopened its PC pla=orm in August2009, and its mobile pla=orm inOctober of the sameyear. There aremorethan800applica2onsforthe PCpla=ormandabout400forthe mobileone.

With is open pla=orm, overseas 3rdparty developers have entered intotheirnetwork.Rekoo’sFarmvilleclonehas beenmassively successfulon thepla=orm,withabout5.1 millionusers.Ac2ve developers include Rekoo,Yicha, DeNA, Cybird, HappyElements,Drecom, Kaiying, Rockyou, 5minitues,andothers.

Mixi established a subsidiary inShanghai in 2008, calledMixiU. Mixihas alsorecentlyinvestedinanumberofChineseenterprises,pullingtheminto develop games for their Japanesepla=orm.MixihasaniPhoneapp,MixiTouch,andthere arealsoa numberof3rd party Mixi clients listed in theJapaneseApp Store. UnlikeGREE andDeNA, however, Mixi has yet toproduceanygamesofitsown.

OtherSocialPla=ormsFacebookonlyhas1.33millionusers inJapan currently, a rela2vely small

number.Twiqer,however,isspreadinglike a wildfire, with even the mostbasic of mobiles integra2ng itsfunc2onality. As of February of thisyear,italreadyhad5millionusers.

DeNA isworkingwithYahoo!Japantoformacompletelynewsocialnetwork,Yabage‐Town. Yahoo! Japan claims24.11 million ac2ve users, but thirdparty analysis points out these aremostlyfromolderdemographics.

CyberAgent’s Ameba has 10 millionac2veusers,most of whichuse theirblogpla=orm.Thecompanyalsohasavirtual world service, Pigu, and amicroblogservice.

Korean game company Hangame’sJapanesesubsidiary announced 32.39million registered users, but analysishas pointedout that therearea verylargenumberofduplicateaccountsontheservice.

Zynga took an investment of 150millionUSD fromSo\bankCapital fora joint‐venture to distribute socialgamesinJapan.Zynga alsopurchasedJapananese social game developerUnoh inAugust to help itsentry intotheJapanesemarket.

TheInternetSocialCircleinJapanBesidesMixi, DeNA, andGREE, thereare a number of Japanese firmsac2ve ly inves2ng in overseasdevelopment, including InfinityVenture Partners,oneoftheinvestorsin Rekoo and Qpod, and also apar2cipant in the forma2on ofGroupon.

Together, the three companies areclose to half of the combinedvalua2on of America’s EA andBlizzard.

4

The biggest event in the Japanese scene currently isIVP’s Infinity VentureSummit,whichhappens twice ayear,onceinthenorthandonceinthesouthofJapan.Itbringstogetherindustryluminaries frombothJapanandabroad.This sec2on was wriqen by Netease’s Snake Chen, athree2mepar2cipant at IVS. Hecovered thestart ofRekooinChinafirsthand,as wellastheopeningof thethreemajorpla=ormsinJapan,thegrowthofGREE,andZynga and Playfish’s entry into the market. You cancontact Snake through africa815 AT gmail.com forfurtherdiscussion.FO

CU

S.

Sep

tem

ber

201

0

Tips for Luxury Brands in Chinese e-Commerce Market

Salesofluxurygoodsgrew12%in2009,to$9.6billion,accoun2ngfor27.5%oftheglobalmarket,accordingtoBain&Co.Inthenextfiveyears,China’sluxuryspendingwillincreaseto$14.6billion,makingittheNo.1luxurymarketglobally.In2009,ChinaovertooktheU.S.tobecometheworld’ssecond‐largestluxury‐goodsmarket,behindJapan.RoughlyhalfoftheluxurygoodspurchasedinChinaareboughtasgi\s.(viaAdAgeChina)

Accordingtothelatest(26th)reportreleasedbyCNNIC,byJune2010,Chinesee‐commerceusershavereached142millionsandincreasedby31.4%inpast6months.AlsoviaiResearch,theChinesee‐commercetransac2onvolumeinQ12010hashitrmb1015.27billion~$150billion).

Moreandmoretradi2onalbusinessseethehugepoten2alfromChinesee‐commerce,andsomeoftheluxurybrandsseethattoo.Luxuryindustryine‐commerce,socanwefindtheperfectmatchingofboth?

OneofoureditorsGangLuwasinvolvedwithaprojectconsul2nganinterna2onaltopluxurybrandwhichisplanningitse‐commercestrategyinChina.Gangneitherabigfanofluxuryproduct,noreverintothemarket.However,theexperienceofworkingwithbothaluxurybrandandlocale‐commerceserviceswasgreat.Herehewanttosharewithouraudiencessomeofhisfindingwhichdoesnotcomewithsta2s2csbyresearchbuthopeyoufinditinteres2ngaswellasprac2cal.

GeneralTakeaways:

*Despitemoreandmorebusinesswanttotryoute‐commerce,NONEofluxurybrandisac2velydoinge‐commerceinChina.

*Themarketisverygeographic.AccordingtoTaobao’sreport,theTOP5e‐commerceci2esareShanghai,Beijing,Shenzhen,Hangzhou,Guangzhouwhichgenerate~22%transac2on.

*CounterfeitissueinChinahastobeconsidered,especiallyforluxurymarket.

*Despitethee‐commercemarketishothere,itiss2llNOTthatmature.Peopleareexpec2ngmoreaboutcheaperpriceonline.

e‐Commerceinprac2ce:

*Pla=orm–thinkoverwhethertobuildtheonlinepla=ormonyourownorgopartnerwiththeexis2nge‐commercepla=orms;

*Logis2cs–Efficiency,safetyandreliability.Usuallythiscanbeeasilysolvedwiththepartnershipwithotherpla=orms;

*Payment–it’snotthedifficultpartusuallyasthereareseveralpaymentgatewayyoucaneasilyintegratedintoyourownpla=orm

*(Social)Marke2ng–theinternetcultureisverydifferentinChina,e.g.youneedlearnhowtotalktolocalviaoldstyle–BBS(onlineforum)whichisamazinglypopularinChinaandyoualsoneedunderstandthepowerofnewmedia,suchasmicroblog.DocheckSina’smicrobloggingservicewhichwillbeleadingChinesesocialmedia.

5

Buildyourowne‐commercepla=orm:

*Theadvantageisthatyouhavefullcontrolofyouruser’sprofilewhichyoucanusefordirectmarke2ng,suchassendingnewsleqer,dataanalysisetc;

*ButcanyoulegallydothatinChina?Inordertorune‐commerceinChina,youmayneedaChinesepartnersetupaJV,ordoaWFOEstructure;

*UnderstandingChineseusers’onlinebehaviorisimportant.ItisverydifferentsoitmustbeconcernedwhenyoudesigntheUI/UX?Checkoutallthosepopulare‐commercesites,youwillseethelayoutofeachsiteisQUITEsimilar.

*Anddon’tforgetthatyouyourselfneeddealwithlogis2cwhichsoundseasyasthereareseverallogis2ccompaniesyoucanchooseandthepriceisrela2velytransparent.Butifyouarealuxurybrand,youdon’twantyourpackagingdamaged,gotdirtyetcwhenitarrivesatyourcustomers,right?

Workwiththird‐partye‐commercepla=orm:

*It’sthesolu2onsuitableforsmall/mediumcompany.Forsure,theywillofferyouafullpackage:userbaseandtraffic,onlinee‐commercepla=orm,logis2cs,evencustomersupportviaIMs,CallCenter,emailetc;thenyoujustneeddecideonwhatproductyouwanttosellonline;

*Butifyoureallycareaboutyourbrand,makesurethepla=ormthethird‐partyprovidescanbefullycustomizable.Mostoftheexis2nge‐commerce

pla=ormscannotofferyoufullycustomizabledesign;theycanonlydowithdifferenttemplates;Asaluxurybrand,youdon’twanttogiveyourcustomeraCheaplooking,doyou?

*Forsure,thethirty‐partywantssomecommission,probablypertransac2onbasis;theratecouldbevaried,dependsonwhatcategoryofproductsyousellonline.

* It’sasafeandeasystrategytostartwithyoure‐commerce:Partnerwithonebigpla=ormwhichcandrivetrafficandrevenueforseveralyears,inthemeanwhileyoucanlearnthemarketandplanyourowne‐commercepla=orm.Yes.That’sworkable,butmakesurethatthatpartnerallowsyouexportallyourcustomers’datauponthecontractexpires.

Whichpla=ormisthebestforthebusiness?

*Taobao,well,yes,youcannotignoresuchagiantwhichtakes~80%Chinesee‐commercemarketshare;GotalktothemandtheyhaveagoodteamwhichisabletodealwithInterna2onalbrand.

*ButTaobaoisnoteverything.Especiallyforaluxurybrand,it’srisky!!Keepthatinmind,peoplecometoTaobaoforCheaperstuff;

*Thereareseveralothersyoushouldcheck,suchasP1.cn’sonlineshoppingmallforluxurypeople,MSNShoppingandUleChinaforbrands,360buyandneweggforelectronicproduct,dangdangforbooksandsoon.TheymayofferyousomethingwhichTaobaomaynot,e.g.morecustomizablepla=orm.

FOC

US

. Sep

tem

ber

201

0

Moreandmoretradi2onalbusinessseethehugepoten2alfromChinesee‐commerce,andsomeoftheluxurybrandsseethattoo.Luxuryindustryine‐

commerce,socanwefindtheperfectmatchingofboth?

6

Establishedin2009,Mokardissuesmembercardsthathelp retailers and marketers establish customerrela2onshipsandbuildbrandtrust.Clients canusethepla=orm to administer membership cards as well asissuevirtualcardslinked tomobilephones,as wellassee geographic and sales informa2on. The companynowhasbothiPhoneandAndroidclients.

Link：http://www.mokard.com/Index.aspx

Looaisapla=ormthatalertsuserstodiscountsanddealsaswellasallowsinforma2onsharingbetweenusers,providingreliableinforma2onthroughcoopera2onwithmerchants.Thecompanyisexperimen2ngwithbringingsocialfinancingintoe‐commerce,andisdefinitelyworthwatching.

Link：http://www.looa.com/

Yingyonghui is a full featured Android so\waremanagementsystem, basedon theAndroidpla=orm,ofcourse.ItismorelocalizedthantheAndroidMarket,and states its goal as, “Making the most complete,mostconvenientdownloadpla=orm.”Itis aproductofInnova2onFactory.

Link：

http://www.yingyonghui.com/

Wacai365isaproductofHangzhou‐basedCaimiTechnologies,andisanaccoun2ngpla=orm,bothdesktopandmobile‐based.ItprovidesAndroid,WindowsMobile,andJavaclientsatpresent.

Link：http://www.wacai365.com/.

Lezipu is afinancial socialnetwork and anelectronicmarketplaceentertainmentandshopping pla=orm. Itallowsusersto locatenearby storesand injectsgameelements into the experience, allowing affluenturbanitestofindsuitableloca2onstospendmoneyonentertainment.Italsoincludesfunc2onality tostay intouch with friends, as well as compe22ons, point‐collec2onandinterac2vityfeatures.

Link：http://www.lezipu.com/

Uimioisaloca2on‐basedsocialnetwork,whichallowsuserstopublishreal2meupdateslinkedtotheirloca2onthroughmobilephones.Usersarenotonlyabletopublishtheirownupdatesbutalsotocommentonothers,findnearbyac2vi2es,andaddthemtoyourtodolist.Thepla=ormcurrentlyhasaniPhoneclient.

Link：http://www.uimio.com/

Youkiaisanentertainment‐basednextgenera2ononlinecommunitywhichaimstocombinethebestofnetworkingandgaminginagaming‐basedsocialnetwork.Youkia.comhaseffec2velybroughtsocialnetworkingandonlinegamingtogether.Thesitesupportsbothreal‐nameandalias‐basediden2fica2ontomakeatrustworthyandtrendynetworkthateveryonecanenjoy.Thedevelopmentteamhasextensiveexperienceinsocialgames,asthecreatorsof2000’sbiggestvirtualcommunity:逸飞岭情感部落.

Link：http://www.youkia.com/index.php/index.

EXP

LOR

E. S

epte

mb

er 2

010

7

RE

VIE

W. S

epte

mb

er 2

010

CurrentIssuesEverybody was in agreement that problems aren’t amaqerof thefundamentaltechnologies ormapdata,butrathermodesofopera2on.Forinstance:1. Suitability. A lot of people are developing LBS forAndroidandiPhonenow.2.Userhabits.Chineseusersares2ll geFngusedtotheconcept of LBS and “checking in”. A lot of people arerunning MTK chipsets and use it as their only realentertainment pla=orm. WAP pages are compara2velysimpler, and LBS just carries too much complexity forMTK.3. Openness.A lot of Foursquare’s success comesfrom2e‐inswith FacebookandTwiqer,butChinesepla=ormsaremuchlessopen.

WrappingitUpThere are a lot of start‐ups in LBS right now, andeveryone’s veryeagertoseewhatwill come.Themarketis in its ini2al stageswithuser habits s2ll being formedandprofitability s2ll a ways off..LBS inChina hasmanypossibili2es and the mul2ple players may take it indifferentdirec2ons–hopefullywe’ll seesomegreatstuffouttherefortheChinesemarket.

WhatgetstalkedaboutatNTalksWehad IDG’svice‐president,LiFeng;a representa2ve from Japan’s VCCyberAgent , Zhang Qingchun;cofounder of 16fun, Yuan Tianlin;founder of Kaikai, Mu Rong; Vice‐Director of Sales and Marke2ng forGypSii, Liu Jianjun; andcofounderofSifang.com, Gao Shi. AlthoughJ iepang ’s founders David andYuancheng couldn’t make it, theydelivered a short video message inwhichtheyintroducedJiepangtotheaudience and gave “greetz” toeveryoneat NTalks.Wealso enjoyedexcellentaudiencecommentary.

Howloca=on‐basedserviceswork:

16Funisaloca2on‐basedgame(LBG),similartoavirtualrealestatemarket.Kaikaiisaloca2on‐basedservice(LBS)thatbringstheelementofloca2onbackintotheSNSrealmwhereithasbeenmissing.Tudingstartedoffasmoreofamobile‐basedblog,butwiththeaddi2onoffollowingandsharingofupdates,itbecamemoreofacheck‐inservicethroughwhichpeoplecanfolloweachotheraround.SifangisalargerservicebasedonthebroadconceptofLBS,andismuchmorethanasimplecheck‐inservice.

CyberAgenthasinvestedinsimilarLBSapplica2onprovidersinJapan,

andisconsideringtheinjec2onofads intotheservices,aswellasconduc2ngresearchthatshowsthatJapanesepeoplehaveapsychologicalneedtocheckin.Culturallytheyannouncetheirarrivalanddepartureatworkandathome‐it’safundamentalcomponentofthelanguage.CyberAgentbelievesthatwhenthe5millionusermarkisreached,regionaldifferenceswillstarttobecomesignificant.

IDGhasinvestedinsimilarapplica2onswithinChina,butnottheonesthatshowedupforNTalks.LiFenghadthreepointstomakeaboutFoursquare‐likeservices:

1.Mee2ngtheinternetadver2singneedsoftheter2arysector(smallandmedium‐sizeenterprise)isabigvalue‐addedmarket.BaiduandGooglemostlyworkonthesecondarysector.

2.Foursquareallowsuserstostackoneachothertoimproveeffec2venessofwordofmouth,andcheck‐inalsooffersaquick,easysolu2on.

3.Thealmost1,000group‐buyingsitesthathavesprungupoverthepastfewmonthshaveindirectlyhelpedLBSbyeduca2ngtheter2arysectoraboutinternetadver2sing.

LBShastwodevelopmentmodels:SNSandadver2sing.TheSNSmodelisthe“s2cky”mode,asLBSs2mulatesvirtualandconcreteinterac2on,increasingthelevelofsocialcloseness.Theadver2sing‐basedmodelisthemoredirectrouteto

profit,asfeesaretakendirectlyfromadver2sersthatLBSuserscommenton.

Reac=onstoLBSandDianping

Kaikai’sMuRongmadetheanalogythattradi2onalonlineshoppinglikeDianping.comismorelikethemalemethod:findwhatyouwantandbuyit,whereasLBSismorelikethefemalemethod:gotothemallfirst,andthenseewhatthereistobuy.IDG’sLiFengbelievesthatDianping.comreliesontrus2ngthereviewsofstrangers,whichrequiresabuildupoftrustover2me,whereasLBSoperatesontheprincipleofreviewofopinionsofpeopleyoualreadytrust,andisthusquicker.Dianping.comalreadyhasanandroidclientthathascheck‐infunc2onality,anditsAPIispar2allyopentoothermanufacturers.Thecheck‐infunc2onalityallowsuserstosolicitreal‐2mecommentaryandprovideitthemselves.TheAPIisn’tafullymatureproductyetandisconsequen2allyonlypar2allyopen.

LBSandtradi2onalreviewsitesdiffer.Tradi2onalreviewsiteslikeDianping.comworksbyallowingyoutoweighothers’opinionsagainsteachother,whereasLBSsitesrequireyoutotrustyourfriendsmore.

NTALKS群音荟isanofflineeventorganizedbyMOBINODEonaregularbasisto2ghtentheconnec2onamonglocalstart‐ups,aswellasapla=ormandcommunityforgrassrootsandstartupstodemonstratetheirworks,sharetheirexperienceandcommunicatewiththepoten2alpartnersandinvestors.

。

8

With this monthly report we hope to: 1) highlight the best content and opinions from non-mainstream independent bloggers. 2) provide overviews and commentaries on the views of innovators, and 3) give thoughts on both hot and new topics in Chinese web industry.

SE

PT

EM

BE

R 2

010

星观察STARTUPSWATCH

Special Thanks to OrangLabs Beijing, BlueRun China and TrilogyVC

Feel free to contact us via：mobinodetv@gmail.com

Please keep a lookout for our blog：www.mobinode.tvwww.mobinode.comwww.web20share.com