a recent blog post, Wenzhi Lai of online listings company edgeio noted that their China operation - called mulu100 - has become the second largest source of traffic for edgeio. I was curious to know more about edgeio's activities in China - and also to tap CEO Keith Teare's brain about the Chinese Web market in general, seeing as Keith has experience there from the dot com period. So last week I chatted to Keith on the phone to find out more.In
How edgeio got into China
Keith's background in China largely stems from the period 2000-2002, when he ran a domain names company that did business there. For edgeio, it was about April this year that they started to notice Chinese listings coming in. Keith noted that they built edgeio from the start to be globalized - meaning developing for UTF-8 characters and not just ASCII, and in the database being able to parse and search different character sets. By about June, edgeio noticed there were a lot of tags in Chinese. That has grown bit by bit over the months and now about 10% of their listings come from China.
As for how they officially entered the China market, Keith said that earlier this year he'd met a couple of US-based Chinese people from edeng - a craigslist-like listings company in China. The edeng folks had noticed edgeio was doing well on Google China (in terms of PageRank and positioning of search results). So after some initial talks, edgeio partnered with edeng and eventually launched mulu100 - a localized version of edgeio for the China market (including the name itself, which roughly translates to "100% complete catalog"). Most of the listings in mulu100 come from edeng.
The competition in China
I asked Keith who is mulu100's major competition in China? He told me it's a very fragmented market for listings, but all the major portals are buying listings companies. He reckons there is no one big player in China - the biggest is probably kijiji, an eBay brand. However Keith told me that mulu100 probably has the biggest number of listings in China, mainly because of the edeng listings.
Despite its growth, Keith said he doesn't think China will be the number 1 market for edgeio revenues (which Wenzhi's post had implied). They're mainly looking at the China market for visibility and attention, rather than revenue potential. He thinks pretty soon it will rival edgeio US for number of listings among individuals and small businesses, but it won't compete with edgeio US in big company listings (eBay, Amazon, Cafepress, etc - which together account for tens of millions of listings). He says the China e-commerce market is not as sophisticated in terms of APIs and web services, to allow that level of listings from the big companies.
How is China Web market different to US?
I segued then into the China Web market in general, in comparison to the US market. Keith said the biggest challenge in China is that although costs are low, revenues are even lower. So this makes it difficult to make money in China. He says if you look at Baidu's revenues compared to Google's, "it's a tiny, tiny fraction". He notes that Baidu trades at a much higher revenue multiple than Google. So he says China is "an early investment opportunity, with very large valuations compared to the revenues". Keith thinks that driving up revenue will be China's major challenge in the Web market over the next 5-10 years. But he says due to low costs, you can afford to make those investments (in China) now and wait.
I asked Keith what are the approaches of the big US Internet companies in China. He said they're all active, but they each take very different approaches. It comes down to how fast they localize. He says Yahoo is probably the most localized of the big companies, due to their JV partnership with Alibaba. They've given over management of Y! China to a local team with a local brand. Which is similar to what edgeio has done.
He says Google is pretty much Google China, even though their name doesn't scan well in China. They're hiring locally and trying to do business in China under the Google umbrella, but so far have been relatively unsuccessful at taking a market leadership position - which currently sits with Baidu.
eBay is a kind of hybrid of what Yahoo and Google have done in China - eBay's kijiji is doing OK and the eBay brand is known, but there have been consistent rumors that eBay will pull out of China due to a lack of traction in the market. This, says Keith, is a symptom of lack of localization.
The importance of localization
As an example of localization, Keith tells me how in China it's common for teenage girls to advertise that they will accept an SMS message from people, for a price. Kind of like a pen pal, so innocent in that way. This is very common in China and social networks there take advantage of it - but you would not see this kind of activity anywhere else in the world. So this is an example of a business opportunity that non-Chinese people won't understand - and so may miss.
I'd be interested in hearing other tales from Web entrepreneurs who have done, or are in the process of doing, business in China. Let us know your experiences and advice in the comments below.