Getting Started in Japan

Earlier in May 2006 Baidu had announced a hiring plan to search for Japanese and Vietnamese search talents and product managers to be in charge of know-how on the local competitive market as well as local cultures. Rumors at the time were that Baidu had already hired several Korean search engineers. Nearly a year after the first signs of Baidu expanding to other Asian markets on March 20 2007 a test version of Baidu.jp was launched. The site runs on servers located in Japan and straight from the start it turned out that the site was mainly getting visitors from China looking for content they can’t find on Baidu’s Chinese site. According to Alexa, at the time the share of Chinese users visiting Baidu.jp nearly reached 60 percent (of which 76 percent were visitors searching for pictures) compared with less then 30 percent of the visits coming from Japan. In a reaction on the launch of Baidu.jp, that was still in beta at the time, the purpose of the bulk of the Chinese visitors is well illustrated: “It is really very good, but nothing stunning for other countries, especially Japan which has a large, specialized po r nography industry. Still this is huge for China!” Not surprisingly even before its official launch in January 2008 when more Japanese language services including a blog search application were added, Baidu.jp was blocked in China in April 2007, less then a month after the first launch.

Baidu.jp frontpage

Currently Baidu’s Japanese subsidiary has around 30 employees located in Japan. Furthermore nearly 90 percent of Baidu.jp visitors come from Japan while only 8 percent comes from China. When looking at Alexa statistics it looks as if Baidu did not get a foothold in Japan. With only 0.3 percent market share it has not been able to claim a significant market share from market leader Yahoo! and the pursuing International giants Google and Microsoft. Though contradictory with its initial naïve announcement Robin Li now appears to be realistic about the situation and realizes that Baidu will not become a significant player over night. “We will be very patient.” In another reaction, Robin Li said that Baidu has plenty of experience in starting of as the underdog and taking over a market. “Baidu wasn’t No. 1 in China from Day One,” he said. “We started quite late. So we are familiar with how to play the catch-up game.”

Why?

It is interesting to evaluate what the initial goal and reason was for Baidu to give Japan a try with such an extensive budget. The decision must have been based on many more factors and incentives than just short-term profit and it would be too one-dimensional to purely assume that Baidu genuinely suspected to quickly become a big player in the Japanese search market.  For my study I have tried to collect all possible incentives for the decision I could find. During my interviews with Tangos Chan, China Web 2.0 expert, and Zhang Tao, Baidu’s manager of international business, I have asked them to distribute 100 points over the four reasons for Baidu’s Japan adventure that I had previously derived from numerous interviews. The two respondents could also enter a new reason which they both did and attributed 5 points to. The results of the small survey are depicted below.

Survey Baidu incentives Japan

Following are the six reasons for Baidu to enter Japan worked out separately and in order of influentialness.

1. Maybe the most important reason for Baidu to enter the Japanese search market is Robin Li’s power and personal pride. As depicted in the survey above according to Zhang Tao, sometimes working with Robin Li himself, this could have been one of the primary reasons. Zhang’s remarks on the whole Japan expansion situation made me realize that Robin Li plays an essential role in Baidu and has a very distinctive view on the market. It seems that his personality is determinative for Baidu’s direction and he almost solely formulates its strategy. After having beat Google in its home market he now wants to show the world that a Chinese company can compete with the big Western giants in other markets also. According to Tangos Chan, “Robin Li wanted to prove that it could beat Google not only in China.”

2. The chance to gain valuable market experience in a foreign market has also had its effect on to the choice of Baidu to enter Japan. Paul Denlinger, CEO, China Business Strategy and tech blogger behind China Vortex, thinks this has been one of the major reasons. “The thing is that market share is not the most important part. The important part is to go to another market and put a flag there to learn and understand how the Japanese search market is different from the Chinese search market” he says. Zhang Tao shares the same view and has addressed 40 out of 100 points to the ‘longer term International strategy’ reason. Tangos Chan thinks that the opportunity to learn could not have been extremely influential. I tend to agree since the amount of resources that Baidu has poored in the Japan project does not match with such a longer term strategy. If Baidu wanted to gain valuable insights they might as well have looked for local partners or even acquire local companies which would have been a much cheaper and more efficient approach.

3. The most obvious reason for Baidu to give it a try in Japan is, as mentioned, the presumption that they really stand a chance and can compete in another market. Success in the Chinese market made Baidu feel confident enough to start tapping in on the $700 million paid search market rather than focusing on growth in the relatively undeveloped and small local market. In a reaction on the launch of Baidu.jp Robin Li has said: “We believe that our proven strength in non-English-language search, the high Internet penetration in Japan, as well as similarities between the Chinese and Japanese languages make this market an ideal next step for Baidu.” Gang Lu, owner of MObinoDE and China Internet expert, adds to this and explains that Baidu might have thought “that the Japanese and the Chinese are quite similar and also historically Japan was a part of China, so the technique could be similar.” Some people I have met think this has been the primary reason for the rather drastic International initiative. They believe that Baidu genuinely thought that its strengths, especially its ability to cope with tens of thousands different Chinese characters, combined with good technology would help them to do well. Also because Japan is an important trading partner of China, Baidu might have aimed for linking small Chinese companies to Japanese consumers and businesses through their search engine. It could have been assumed that Baidu.jp would become particularly popular among these groups because these have a strong interest in inexpensive goods produced in China.

4. When I asked Tangos Chan to distribute his 100 credits he argued that besides the major weight of Robin Li also the overall attitude or sentiment of everybody in the company could have been of influence. He came up with a reason I had not previously encountered. He argued: “it was the whole company that wanted to prove that they stand a chance abroad.” Paul Denlinger also thinks this could have been a factor that contributed to Baidu’s move. “The Chinese are proud of Baidu.” he says. Gang Lu’s reaction on Chinese companies going International is illustrative for the sentiment of many proud Chinese: “I was very exited when I first heard that some Chinese companies were going abroad.”

5. An additional reason that Zhang Tao thinks might have been of influence, is closely related to the influence of Robin Li. According to Zhang Tao the Internet does not have a geographical border it only has cultural and language borders. He points out that Robin Li believes in the concept that if you want to be a global search engine, the best way is to localize as much as you can so language and culture are the main factor for success. This is something Baidu has learned from the Chinese search engine market where Google failed because it “just tried to copy its concept which made them so successful in the rest of the world.” “We want the users in Japan to be a benchmark. If we succeed in Japan our concept is approved.” Zhang Tao explains.

6. A different reason for Baidu to go over the border has to do with the fact that it is listed on Nasdaq. As a public company Baidu has to deal with shareholders and investors that are looking for short term profit. “These guys will look at your quarterly earnings and will try to make sure that you are making money.” says Paul Denlinger. Shareholders could have pushed Baidu to make the hasty decision to enter Japan. Benjamin Joffe, Managing Director of +8* (plus8star), adds to this and says the decision “sends an interesting signal to Nasdaq”. He argues that maybe Baidu might have deliberately avoided expanding to developing countries such as the Philippines or Vietnam with a small online advertising market. Instead they wanted to make “a big headline” and expand to a more mature market: Japan, with the world’s second biggest online advertising market.

Conclusion

It is uncertain what has been the primary reason for Baidu to expand its services to Japan, but based on the different stand-points that I have come across there are probably three key factors that have been decisive. When looking at the model the foremost important one is Robin Li’s strategic views combined with the key decisional role he plays. As a founder and CEO he still plays an essential role in determining the longer and short term strategy which has a profound impact on the company. Furthermore despite spending 14 percent of the total 2007 budget and skipping the whole partnership and joint-venture part, Baidu entered Japan to learn. Also considering rumors about expansion to other Asian regions and even Europe, expanding to and learning from the Japan market seems to be part of a longer term International strategy. Lastly because of the domestic success and distinct strategy used in the Chinese market I assume that Baidu genuinely believed that it could quickly acquire a strong position in Japan.

The Uncertain Future

Baidu will certainly have a hard time growing its share in Japan considering the trong competitors Yahoo! and Google. But the strategy has to change drastically in order to even stand the slightest chance of gaining a significant market share and eventually make money. According to a Baidu insider the operations in Japan will be further intensified, but this was all before they got into trouble with their dodgy practices concerning paid for ads of unlicensed suppliers of medical products. Before the while crisis Baidu expected to spend between $20 million and $25 million on the development of its search service in the Japanese market in 2008. Furthermore in July 2008 Robin Li has said that a new president of Baidu Japan will be hired and that despite any specific plans Baidu is also looking into the Taiwanese market. Regarding these considerable efforts to intensify Baidu’s overseas operations and despite Baidu’s current reputation crisis I think it is unlikely that they will pull the plug in Japan any time soon. It is more likely that Baidu will cut back on its International expansion budget.

Question:

1. Does that mean Tencent will soon seriously enter Chinese search market and compete with Baidu?

2. Tencent is of course a very important partner helping Google conquer Chinese search market. How Google will respond to this when the partnership comes to end? Note that Google still partners with Sina.

3. Will Tencent integrate new Soso into its QQ client?

4. With hundreds millions of users, will Soso search try some new technology and concept, such as Human-powered search like Mahalo?

5. Is it a Good or Bad news for Chinese search market?

We are looking fowards to the answers.

Coordinator Blank (怿飞) is expecting close to 200 developers this time. The topic that interests me the most is Microsoft’s IE8 as the future platform. I wonder what IE8 brings for developers. IE8 will probably push Silverlight into the limelight, will the temptation to promote Silverlight overshadow the effort to introduce standards multimedia support such as the proposed canvas, svg and video element in HTML 5?

I am also hoping that IE8 will announce more support for standards. We know that one of the headache developers face is the task of serving codes that run on different browsers. Part of this headache stems from IE’s non standard-conforming browser. Mobinode Chinese article took a look at the importance of standards, written by yours truly.

Genoom is created by David Díaz Daré, now CEO of the company. The project started in March 2007 and its beta version was first launched in July. In Genoom, users can add family trees, personal information, photos, videos, and related documents about ancestors and living relatives alike, limiting access to uploaded information through invitations and custom group privacy settings.

Available in 16 different languages, Genoom recently also added Chinese language support. We talked to Bob who kindly shared his understanding of the product and the business:

The key features of Genoom

- Multilingual: now translated in 17 languages with a big focus on Spanish-speaking countries;

- Fast-loading AJAX platform and most others are Flash-based;

- Facebook application which allows users to access and build their family trees within FaceBook accounts.

- the first site support GEDCOM.

Keep the idea simple: Discover and stay in touch with your family

“Some of other sites are more focused on the research and genealogy discovery aspect, e.g. Ancestry.com has a DNA test service, but our intention is to create more of a family-oriented communication tool.  Just like Facebook is for your friends, LinkedIn is for your business contacts, Genoom is for staying in touch with your family within a private, secure network.” Bob said, “There still isn’t any clear winner, as you noted, but we believe that family-based social networking is poised to be a massive market.”

Chinese market has Big potential, but how-to?

Localizing Genoom in Chinese is more than just the translation and it is important to understand and know the peculiarities of the Chinese culture. Bob told me they had hired a person from China to join the team who will be responsible in supporting their efforts in China. It is a good move, but it also reminds me two things, Geni used to set up an office in Shanghai but closed it after a year; Kindo which is now merged with MyHeritage has also hired a Chinese staff based in London. So which can be the first truly grabs Chinese users?

The revenue: ads and charge for services

the primary income source can split between advertising and charge for services. The advertising can be combined with paying accounts, which will offer additional services to the user. “In the next phase, we foresee utilizing other income ways, such as commercialization of objects related to the family.” Bob mentioned.

David Diaz Daré said, “By adding Chinese language support to the Genoom network, we’re able to connect a large population to family members both locally and globally, unlike other family networking sites. Our goal is to make Genoom as internationally accessible as possible, to connect even distant family in ways previously not available due to geography and language barriers.” The insight is absolutely brilliant, but eventually waking up the family tree market is still not an easy-to-do and note that the competition is already tough.

1. Avantouch - provides wireless multimedia M3 eTicket platform and service;

2. Babytree - a Chinese online community that focuses on mothers and children;

3. Baixing - the Chinese Kijiji, a free classifieds site;

4. Handon - provides a mobile software named Handon which can be used for surfing internet, downloading music and even video, hotel search etc;

5. Beijing Idea Interactive－mobile business solution provider;

6. Sagaware - a sino-american joint venture company, owner of wap.vlm.cn and Mov6.com;

7. ChinaCache - the leading provider of professional CDN (Content Delivery Network) service in China, and it takes 75% of China’s CDN market share (read our coverage);

8. ChinaTicketing - China’s leading end-to-end ticketing systems company;

9. Vogins - invents VRE platform, Virtual Runtime Environment, to help chipset maker, mobile phone maker, content and application developer, embedded technology enabler to build an interactive ecosystem;

10. Yeepay - a leading e-payment service provider in China, the first company in China providing a single platform integrating both online and offline electronic payments;

11. Ahsay - developed an Internet-based remote backup software, named Ahsay which provides a low-cost, automated and reliable backup solution to the business communities;

12. iSoftStone - a global provider of business consulting, IT outsourcing, and business process outsourcing services;

13. Easou - a local search engine which also has a mobile version;

14. Temobi - a mobile service solution provider, owns a number of global leading patents concerning mobile streaming;

15. Velo - offers Velo Card which can be used as a e-voucher for all sorts of discount in restaurant, shops etc.

16. I.T. United - a global provider of IT and business process solutions.

The full list of 200 companies can be found here.

At the same time, Liu Yan said 6 Rooms will not layoff before the end of this year. On the contrary, the company will hire about 10 employees.

Turning to the employees be laid off, Liu Yan said that he gave the highest compensation to all the retrenched employees, and will continue to retain their mailbox. After the Company to be profitable, he hope they could come back.

It is reported that the video-sharing Web site UUSee, PPLIVE have confirmed that layoffs, and there are the layoff rumors of Tudou, Ku6 and Youku.

At present, I think there 4 types of web sites are most likely to close down. They are video sharing, SNS social networking, search for life and online game. Because mainly rely on the support of venture capital, the video sharing sites are most affected by the financial crisis.

Some video sharing sites which does not have sufficient capital reserves will lay off and scale down. Some major sites must take advantage of this opportunity to promote the industry reshuffle.

Google rarely include scanning document in their search results page, because it can not determine the nature of the content. However, this situation will change. Google said it will use optical character recognition (OCR) software to enable Web surfers to search any PDF files which are developed by Adobe.

Evin Levey, Google product manager said that Google will use this technology to scan document into a text file. This will search for documents, index and return the answers to Google search queries.

Google’s such a OCR application is expected to help Google Book Search. This is an ambitious and controversial plan releaseed by Google at the Frankfurt Book Fair 2004. Since then, Google scans 3000 books/day from the world’s major libraries.

Although the plan was raised copyright concerns firstly. However, Google has reached a settlement with the Authors Guild and the Association of American Publishers on this issue. According to the agreement, in the United States, Google will be able to expand online access to millions of copyrighted books and other written content. The agreement to resolve a number of legal issues which challenge Google on the search and display the content of the copyrighted books. Google does not need copyright owners’ approval and share digital versions of books with the libraries.

At present, due to the content of the network continues to multiply grow, the current search engine technology based on the nature of the text is clearly inadequate. This is because the current generation of search engines can only find multimedia files with notes text. Notes text is a laborious and time-consuming process. Content producers often overlook this issue.

David Wadhwani, vice president of Adobe explained that they are initially cooperate with the Google and Yahoo to significantly improve the multimedia content search. They intend to expand the such applications so that all the publishers, developers and users benefit.

GoPlanit is an extremely useful travel planning tool because it’s like your own personal travel agent and hotel concierge. When you travel, it’s either for business or pleasure. With work or vacation on your mind already, it can be frustrating and time consuming to research details, organize travel plans, and coordinate with others. GoPlanit simplifies the frustrations associated with travel by saving you time and money.

Whether you are a detailed oriented traveler who wants to plan everything or someone who wants to be given an itinerary, GoPlanit handles it all for you. Their “Planit and Go” feature creates a custom recommended trip itinerary for you in one click. This itinerary accounts for your personal preferences, friends’ recommendations, and each recommended item’s popularity, rating, proximity to your location, hours of operation, and more. For example, I asked my friend from Shanghai to plan a trip to San Francisco. She’s never been there before and GoPlanit gave her an immediate planned trip that she could follow, complete with hotel and restaurant suggestions. She shared this itinerary with me through GoPlanit’s social travel/networking features, and I changed her itinerary on the fly since I am very familiar with the city and her personal preferences. She then finalized her trip by reviewing my suggestions and changing a few destinations to better suit her time table and interests. GoPlanit’s “fill in the gaps” feature also proved useful for my friend when I only gave her a few places of interest for her third day in San Francisco. “Fill in the gaps” inserted suggestions into the free time she had that day. What she liked the most about GoPlanit was the ability to add, delete, and move around items in her itinerary because it gave her a lot of freedom to do and choose what she wanted.

GoPlanit’s mobile access can also be very useful when you’re out and about. With a phone that has Internet access, you can find new things to do near you and update your itinerary on the fly. GoPlanit’s micro-blogging (twitter for travel) feature also allows you to easily update your trip details (where you went, what you spent, who you met, etc) with notes, pictures, and ratings from your mobile phone.

From a business perspective, I think GoPlanit has a solid way to make money with a strong user base. Being a one-stop shop for all your travel needs, they are revenue sharing with partners who specialize in airline and hotel reservations such as Orbitz, Expedia, Kayak, etc. Furthermore, being a social website and with enough user profile information, they can bring relevant ads to users and therefore earning CPM rates.

GoPlanit has a lot going for such an early stage startup with a strong team, a good idea, excellent execution, and a great user interface. I will continue to use GoPlanit to plan my business and vacation trips since I like having a free personal travel agent and hotel concierge at the touch of a keypad or keyboard!

Shanda (NASDAQ: SNDA), the leading interactive entertainment media company in China and offers a variety of internet based entertainment services such as online role playing games (Massively Multiplayer Online Role-Playing Games, or “MMORPGs”), casual games, chess and board games, network PC games, cartoons, literature, and music, is now seriously looking into SNS market, told by an insider. The big question is how they are going to do it?

Internet Bar is a very popular place for Chinese to surf Internet, especially in tier 2 and tier 3 cities. It was reported that there are over 100,000 Internet bards across China and 70 million Chinese netizen are accessing Internet from Internet bars. The figure needs to be verified, but it does tells the fact that Internet bar is a very important battle field in China web. Over 70% of Chinese Internet bars are using a management software which is offered by a Chengdu based company, Sicent Technology Co. Ltd, and Sicent was acquired by Shanda in Sept, 2003.

So here comes the story, on behalf of Shanda, Sicent is planning to launch its own SNS to compete with Xiaonei, Kaixin etc. I am not sure eventually how Sicent is going to excute it, but having the 70% market share in Internet bar business, its strategy could be really tricky and competitive!

While Google is doing great job on educating Chinese web developers, 51.com, the No.2 SNS which has recently launched its own Open Platform is holding its developer event today in its office in Shanghai. The most interesting part is that, 51 will first time introduce its Virtual Coin API to its developers, which means the third-party developers (especially for those web-game developers) can take advantage of this and make some money.

Comsenz, another big player in Chinese SNS market and owner of UCHome has also implemented Virtual Coin-like API into its own open platform standard, Manyou. Kevin Day, CEO of Comsenz showed me the demo in Korea, a Manyou-compatible web-game in which you need buy virtual coins in order to power up your avatar.The money earned will be shared with Comsenz and the webmaster of UCHome.

SNS+Online Game+Open Platform, will that be a perfect combination for monetization? I think in Asia, there is a high possibility.