[Note: below is Chapter 12 from Great Wall of Numbers]
Unlike Chatroulette, parachute pants and cabbage patch dolls, social media is not a passing fad. Despite its IPO growing pains, with more than one billion users Facebook is here to stay. And organizations like Pew Internet continue to note the strong embrace of social media by digital denizens. For example, in September 2012, Pew reported that 46% of internet users (in the US) post original photos and videos online. Similarly, there are 564 million internet users in China (growing at a rate of 4 million more each month, a number expected to reach 800 million in 2015), a large portion of who – as I detail below – have also adopted and incorporated social media into their daily lives.
Keep in mind, as Matt Garner notes in Red Flags, that you will not be able to establish a long-term presence in China as a foreign company without establishing yourself as a brand – using social media services. This is because domestic Chinese companies will continually benchmark your bottom-line and undercut you on price. The situation can be likened to the consumer goods company that sells excess product to a private in-house label. Before long, the company has diluted its own brand image and the private label has cannibalized its market share. The original benefit to an American company sourcing its goods from China is a low cost overhead. But when the American firm decides to turn around and sell its goods directly in China it often discovers it cannot because the source company has already started selling its own domestic brand of the same product. One way to establish your brand is by using social media.
Yet social media services in China are typically no different than those in the West. For example, I remember exactly where I was when Youtube, Facebook and Twitter no longer worked in China – at my apartment in Bengbu in the summer of 2009. Yet, irrespective of what you might think about the Great Firewall and internet censorship, the humbling reality of China is in the words of Bill Bishop: one worlds, two internets. In fact, in a short email exchange in January 2013, Bishop explained to me that “If they [foreign social media experts and firms] are not tracking and engaging on Chinese social media they will not be talking to most of their Chinese customers who are online. Facebook and Twitter are basically irrelevant on the Chinese Internet.”
Or in other words: an intractable situation that will not change anytime soon. But while international web 2.0 technology titans such as YouTube, Facebook and Twitter are effectively blocked, this is not to say that domestic internet users are not proficient with similar services. And with its 564 million internet users (and 420 million mobile net users), it would arguably be a significant segment too important to ignore even if you think it is not worth the trouble.
Do Chinese users spend much time on these services or buy anything? Incitez, a market research firm, found that “consumers in China spend 46 minutes a day visiting social-media sites.” In comparison, in Japan the time is 7 minutes a day and in the US it is 37 minutes. And according to a report from the Boston Consulting Group published last fall, China’s online shopping population was the largest, 193 million compared with 170 million in the US (though it trails both the US and Japan in total online spending). China’s shopping population has since grown to 242 million people through December 2012.
How big is this in revenue numbers? Altogether in 2012, e-commerce revenue totaled $196 billion. During the 2012 Single’s Day (November 11th or 11-11) on the mainland, Alibaba Group e-commerce properties (Tmall and Taobao) purportedly broke the single day sales record with over 100 million visitors and $3.03 billion. And as noted earlier in Chapter 7, the BCG report also estimates that China’s e-commerce market will become the world’s largest in 2015. In fact, Analysis International projects that China’s e-commerce market will hit 2.57 trillion RMB ($410 billion) by 2015 and $457.6 billion in 2016. For comparison, e-commerce sales in the US reached $186.2 billion in 2012; the previous revenue records were $1.3 billion from Cyber Monday 2011 and $1.04 billion of merchandise was sold on Black Friday 2012.
What are the domestic alternatives to the international social media site? In place of these Silicon Valley firms are a slew of Chinese-based solutions, most notably:
– Tencent is China’s largest tech company, generating $4.5 billion in 2011 and $3.24 billion for the first half of 2012. It develops the popular instant messaging clients, QQ (784 million users) and Weixin or as it is known in English, WeChat (300 million users, doubling its userbase in 6 months) and operates two microblogging sites called Qzone and Tencent Weibo. Its success has prompted Western marketers such as Nike, Intel and Starbucks to build marketing campaigns around it. WeChat’s Western-equivalent is WhatsApp and the Chinese companies influence may have rubbed off on Facebook which itself has been purportedly stealthily adopting some of WeChat features for mobile users (e.g., communications tool). And messaging applications like WeChat have become so popular in China that SMS usage grew at a mere 2.1% in 2012 even though wireless service penetration grew at 9%. Furthermore WeChat now has 10 million overseas users and has recently opened a US office with a team focused solely on developing the app for developed countries. According to the same Incitez report above, Qzone and Tencent Weibo are the 1st and 3rd most popular networks for social sharing in China. All told Tencent is the 9th largest web platform in the world. For perspective, the collective instant messenger userbase in China reached 1.21 billion in Q3 2012 and the mobile instant messenger active userbase reached 480 million in the same timeframe.
– Youku/Tudou recently merged in the summer of 2012 to become the largest video sharing site in China’s fragmented market. Altogether they receive a combined 400 million visitors a month. By one estimate, their combined marketshare was originally 32.3% but decreased to 25.2% in May 2012 while their main competitor, iQiyi (which itself was recently acquired by Baidu) has jumped up to 18.4% marketshare in July 2012. In Q1 2011 all three of them had a combined 70% marketshare. Tencent-related properties have reportedly gained at their expense. Despite this challenge, Youku’s revenue increased 84% in Q3 2012 and posted its first ever profit during the same time frame. And in December 2012 Victor Koo (founder and CEO of Youku) now estimates that “Youku gets 74% of the Chinese Web audience in a given month [for streaming videos].”
– Renren is one of the largest domestic social networking sites, with about 200 million registered users and more than 45 million monthly active users. According to Incitez it is the 4th most popular network for social sharing. Its feature-set serves as a very close proxy to what Facebook offers, including many of the popular games and apps. For perspective, eMarketer estimates that China is already the largest social networking market with an expected ad revenue of $612.8 million in 2013 (based on a conservative estimate of 307.5 million users).
– Sina Weibo, is now the world’s second largest microblogging service after Twitter. As of February 2013 they had 503 million accounts, 300,000 enterprise customers and at least 46.3 million daily active users, second only to Twitter (which also more than 500 million registered users and 200 million monthly active users). It has a number of additional features that differentiate it from Twitter, such as a built-in instant messenger.
– Baidu is the largest search engine in China (with 78.6% marketshare through 2012) largely because of preferential regulatory policies that have stymied Google (which only has about 15.6% marketshare on the mainland. Baidu also now owns iQiyi, the Chinese equivalent to Hulu that streams licensed HD video content. Incitez estimates that Baidu properties account for roughly 12% of social media sharing. It now has 80 million daily active users on its mobile search product and serves up five billion search queries daily across all of its partner sites; it is the 3rd largest tech company by revenue, $3.558 billion in 2012 (up from $2.34 billion in 2011). And in an effort to internationalize, in February 2013 it launched an English website for developers.
While the start-up culture is still young and maturing, some domestic start-ups are funded by the likes of Kai-Fu Lee (former head of operations for both Google and Microsoft in China) and Digital Sky Technologies (DST) or through incubators in Shenzhen financed by Tencent. Others are even financed directly by Silicon Valley venture capitalists (VCs) like 500 Startups which opened a Beijing office in Q1 2013 headed by Rui Ma, an experienced venture capitalist. There is even a venue similar to TED-talks called Geek Park which has held 40 forums since 2010, bringing together thousands of developers, product managers and investors. In fact, after initial success this past year, Microsoft now plans to incubate 100 companies annually on the mainland and will provide “the space, the technology, mentorship, access to funds” to the start-ups.
Yet Duncan Clark, a technology analyst in Beijing, has noted that the insular protectionist policy making by officials renders it increasingly difficult for international companies to enter the domestic market. What this means is that you should not wait for the Great Firewall to open back up. Instead, take the initiative to create company accounts at Chinese social media sites.
Starting from scratch
Arguably the first service a foreign firm should start working with is QQ international. It is free and easy-to-use because it is in English (Sina Weibo is also internationalizing and creating an English-based version).. It also puts you into direct contact with more than 700 million active QQ users. But it does not stop at the desktop as many TV commercials and retailers prominently display company QQ numbers (like the AOL keyword). In addition to the traditional contact information, many Chinese business cards also have QQ numbers displayed as well. So if you plan to do business in China and want to interface with potential customers, having a QQ number is a must.
While micro-blog Twitter-like sites such as Sina Weibo and Tencent Weibo follow the same 140 character constraints as their Western counterparts, one distinct advantage written Chinese has over English is that the language is more compressed. Chinese users typically only need 1-3 characters to make a word whereas English words typically need more, even when abbreviated. While this may seem trivial minutiae, every little bit helps to better understand your potential customer base more.
Pin-boards and group-buying
Pinterest is an increasingly popular “pin-board” style content sharing web service, breaking the record for fastest time to reach 10 million unique visitors (accomplished in less than 1 year). It was founded in March 2010 and raised $100 million this spring at a $1.5 billion valuation. It competes head-to-head with Facebook’s newly acquired Instagram photo sharing site. And it has a significant advantage in this region: it is not blocked in China.
As a consequence its usage rate is not only soaring, but its popularity has inspired the sincerest form of flattery, copying. One recent estimate from Zhang Dan at ZDNet is that there are now about 30 Chinese clones of the site.
One of the key differences between Pinterest and clones like Faxian and Mogujie is that users not only “pin” things that interest them, but can also buy items as well. Typically users can make purchases directly from Chinese e-tailers like Taobao who have formed revenue sharing partnerships with the Pinterest-clones. As a consequence many of these start-up Pinterest/ e-commerce hybrids in China have found relatively “quicker return on capital.”
What about other services that have moved West-to-East? The seemingly instant success of group-buying sites such as Group-On has inspired a plethora of copy-cats in China as well. According to an August 2012 China e-Business Research Center report, there were 3,210 group-buying sites operating in China, whose transaction values reached $2.3 billion in the first half of 2012, “an increase of 124 percent from the same period a year ago.” It is a highly crowded space with about half of all group-buying websites closing down in 2012 including 24quan, which was shut down in September (it had been the 5th largest). In fact, Lashou was at one point the market leader yet has dropped to 6th by revenue. While it may be very difficult to start a similar service, placing your product on one of the sites could enable your company to expand its brand awareness to an entirely new customer base.
The immediate takeaway for you and your company is this: how can you position your idea, your brand, and your products in China?
If you sell consumer goods, components or even services you can utilize Pinterests organic grassroots community sharing to help promote your goods and services. And you can also try to get your products placed on Meituan, the current group-buying leader in China.
There are of course legal concerns to regarding copyrights in Pinterest-like sites. Because of the relative ease and viral nature of copy/pinning, Pinterest has attempted to help alleviate some of the legal headaches by implementing a “nopin” tag that companies can use to prevent copyrighted images from being pinned on the site. Another issue that Brian Heidelberger recently noted, that touches on this viral marketing and positioning of your product: if you open an official company Pinterest page and allow your customers and fans to pin images for your promotion, these users may not own, thus creating copyright complications (e.g., because when a copyrighted image is attached to a commercial product, your company must receive legal permission to use it).
Just like there was a virtual land rush for unique domain names in the 1990s and with Facebook Pages, so too is there a land rush for social media positioning in China. And with that rush comes branding and market research.
In October 2012 I spoke with Pieter Nooren, Research Manager at Wildfire Asia, a social marketing firm with offices in Shanghai and Singapore. Wildfire Asia provides technology for understanding and changing online conversations; a service with high demand in a country where word-of-mouth is shown to drive 55% of consumer purchase decisions.
In particular, the company combs Chinese social networks to discover conversations and trends, helps brands to understand and engage in conversations, and recruits unpaid influencers to a brands’ cause. In Nooren’s words, “We monitor the internet. We index any conversations and comments on forums, BBS and social networks according to our client’s strategic objectives. We then analyze this data to provide consumer and market insights, as well as to identify advocates and influencers in the brand’s category.”
To help their clients manage all of the data, Wildfire provides them with an online dashboard providing key conversation metrics, Weibo performance, and influencer management tools. Based on the data, Wildfire can provide “insights and strategic recommendations to the client.” This is important, especially to foreign companies unfamiliar with both the Chinese marketplace and social networking services. And Wildfire’s business model has been effective thus far, as the firm has grown to 25 full-time staff since its founding in 2009.
What does this mean in a nutshell?
It means that Wildfire not only tracks what consumers are saying about your brand, but gives you the ability to impact those conversations through social customer relationship management (CRM) and influencer marketing. You can also find out what is going on with your competition using the same tools.
You might already be thinking to yourself, “I already have a Facebook strategy, why should I bother with Weibo or Renren?” As both Duncan Clark and Bill Bishop have noted above, it would be foolish to assume that Facebook will be allowed back in anytime soon. And unfortunately the harsh reality is that Facebook’s reach is very limited within China.
Back in September 2012 there was a rumor regarding a speculative Facebook user-base number being floated around parts of Western media: that there were up to 63.5 million Facebook users in China. This however was quickly verified to be untrue. Nor are there millions of Twitter users on the mainland. While we may never know the real number, Facebook’s own indirect estimate is closer to 600,000 (and perhaps only 18,164 active Twitter users). While relatively low, this falls in line with another number: there are approximately 600,000 permanent foreign residents in China. It should be noted that not all foreigners use Facebook in China nor do all foreigners have a VPN to access it in the first place. Furthermore, the average Chinese user does not currently have access to a VPN or other “Wall Climbing” software such as UltraSerf, WebFreer or Hotspot. In their mind, why should they have to pay to access foreign services when there is a similar Chinese version available for free?
Social media provides important benefits in improving company brand awareness. According to a 2012 McKinsey & Company report, Estée Lauder created a drama series exclusively for China called “Sufei’s Diary” to promote the brand Clinique. The 40 episode series was broadcast on a variety of digital venues in China (websites, buses, trains, airplanes). Its online viewership alone was viewed “more than 21 million times” and as a consequence, Clinique’s online brand awareness “is now 27 percent higher than its competitors.” Estée Lauder’s use of social marketing has paid off financially, as the company generated $500 million in China in 2011, which is an integral part of its 9.2% increase in overall corporate revenue.
Another consideration for foreign cosmetic firms is that what Chinese consumers view as beauty may not be the same as Western tastes and preferences. For example, fair porcelain skin is traditionally considered more preferable over tan skin due to historical social status (e.g., the affluent could afford to sit inside whereas manual laborers had to withstand the elements including sun light). Thus Unilever, the 2nd largest consumer goods company globally plans to expand its business on the mainland “five fold” by marketing products like Pond’s Flawless White.
While this is not to say your company will also reap immediate success, creating a social media plan today will enable your company to reach new customers and generate additional revenue streams. Or as Incitez recommends, do not become too obsessed with return-on-investment in social media – “digging out insights is more important.”
Using social media to find customers
As I discuss later in Chapter 13, another way that SMEs can leverage domestic social media sites is through a start-up called Mila. Mila is a new cloud service that combs social media websites and helps companies find potential customers. For example, if you are a real estate agent, you can post pictures of vacant apartments and then Mila can help to find people who are looking for apartments for you. Or if you are a plumber, you can create a company profile on Mila which will then search across social networks for potential customers looking for plumbers.
Mila has been localized for the Chinese marketplace through a partnership with China Unicom and is even rebranded as Womaiwomai (沃买沃卖) for the Android ecosystem (its Mila name remains the same on the iTunes App Store). Together with Unicom they integrate Sina Weibo (the largest microblog platform in China) and Alipay (the largest e-pay platform in China) into their product.
Thus before even moving to China your company can create accounts on a wide-variety of social media services in China like Youku. You can then promote your brand through Pinterest-style websites and communicate with customers, clients, fans and even critics through Sina Weibo and Renren. And perhaps most importantly, you can even find potential leads through Mila, which searches social networks to discover who is looking for services that your company offers.
Culture and branding
While there are numerous historical case studies regarding mistranslations of company names and slogans that are typically cited in business schools, creating a Chinese name for your company or product is just as important as it is in the West. For example, whereas Apple and Microsoft literally translated their names into Mandarin, Pepsi was a little more creative and chose the name baishi which means “wishing 100 happy things.” Similarly, Coca-Cola is pronounced ke kou ke le “which includes characters for delicious and happy” and as a consequence is considered a prime example – or gold standard – of how to brand your company and product on the mainland. In contrast one tone of Bing (病) – the name of Microsoft’s search engine – sounds like “sickness” in Chinese and thus was mocked by netizens when it was first introduced.
Why is this language component important? According to a 2012 Economist Intelligence Unit report, “43 percent of nearly 600 global executives admitted to incurring financial setbacks as a result of communication misunderstandings standing in the way of a major cross-border transaction.” Furthermore, “90 percent of the executives [surveyed] felt that company profits, revenue and market share would climb if cross-border communication is improved.” What this means is that you and your company should be cognizant of communication barriers and limitations at both the negotiation table and marketplace for brand recognition.
Takeaway: with nearly 600 million internet users (and as of January 2013 more than 420 million of whom are mobile users), China has a digital populace almost twice the size of the US total population. So what is your company’s social media plan and strategy in China? If you do not have one, you still have time to develop and roll one out. And while you may be unable to understand Mandarin, there are a number of free, easy-to-use online tools that can help you register a namespace at popular Chinese social media sites. Ignoring these potential customers is the last thing your company should do. Be safe rather than sorry – register your brand name at social media sites today.