China’s Internet Giants: Tencent, Baidu & Taobao
Duncan Clark & Liu Ning, BDA China Stanford University, May 24th 2010
© BDA 2010 Three companies tower over others in China 2.0 Three companies tower over others in China 2.0
Pony Ma Robin Li Jack Ma Tencent dominates IM & community. Baidu dominates search. Taobao dominates consumer e-commerce
Instant Messenger Search Engine C2C
77% 76% 85%
Source: CNNIC, Company information, BDA estimate, iResearch The reach of these companies now rivals telcos and TV broadcasters The reach of these companies now rivals telcos and TV broadcasters
Active Accounts/Users (2009)
600M
523M 450M
300M 250M
150M
60M 0M
Source: CNNIC, Company information, BDA estimate, iResearch The reach of these companies now rivals telcos and TV broadcasters Tencent and Baidu are the most valuable Chinese internet companies but still trail far behind Google
Market Cap Comparison (USD BN)
200
150
100
50
0
Source: Google Finance (May 17th 2010) Tencent’s growth is fueled by its transformation from a messaging company to an online platform for communication & applications
Active Accounts (Million)
SNS Game“QQ Farm” 600 SNS “QQ Campus”
Online payment “Tenpay”
C2C “Paipai” Search 450 Q Pet engine “Soso” Space “Q Zone” 300 IPO - HKSE:0700 Avatar IM“OICQ” “QQ Show” Portal QQ.com Tencent Mobile QQ QQ Game founded 150
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 0 2008 2009
Source: Company information, BDA Tencent revenues come mostly from online games and virtual items
Tencentʼs Annual Revenues (RMB Million)
Internet Value-Added Service Mobile Value-Added Service Online Ad Others
15,000 Total 1,427 2,800 3,821 7,155 12,440
41 962 11,250 1,906
9,531 15 7,500 826 1,399 7 8 4,915 10 267 493 113 700 808 517 3,750 787 1,825 2,514 2006 2007 2008 2009 0
Source: Company information, BDA 2010 Tencent first accumulated a huge user base with free services then monetized it with value-added services, ads and e-commerce
A Variety of Free Services
QQ. QQ Q QQ TT QQ com Mail Zone Music Browser
IVAS MVAS Online Ad E-Commerce
SMS QQ.com Paipai QQ Game MMS QQ Show WAP SOSO CRBT Monetize QQ VIP Mobile Game Traffic ...
Easy Payment Tools
Mobile Q Coin Tenpay Payment
Source: BDA China Tencent has become the largest online game operator in China, by leveraging its huge IM user base
The 15 Most Popular Games in China, 2009 Market Share by Revenue, Q1 2010
Game Operator Pop Kart TianCity Audition 9you 24% WoW Netease 27% DNF
Counter Fighter X5 6% Fantasy Westward Journey Netease QQ Speed 8% MIR2 Shanda
Zhuxian PerfectWorld 19% 15% ZT ZTGame
QQ R2 Beat
CS Online TianCity
Wendao GYYX Journey to the West Netease Others
Source: CNNIC, iResearch Baidu vs. Google China: Localized products resonate with users (& local origins of founders with government)
Baidu vs Google China: Market Share Revenues
Baidu Google RMB Billions
80% 7.4 8
60% 6
4.4 40% 3.2 4
20% 1.7 0.9 2
2004 2005 2006 2007 0% 2008 2009 2006 2007 2008 2009 0 2010E
Source: iResearch, Company information Baidu offers more entertainment related search services than Google in China, attracting a huge number of users
Traffic Breakdown by Search Products
Tieba (BBS) 14.5% Image Image 13.5% 11.2%
Translate 1.9% News 0.9% Others Zhidao (~ Y! Answers) 2.9% 8.4% Webpage 44.5% Webpage Hi (Blog) 83.1% 3.5%
MP3 Video 3.3% 2.8% Others 9.5%
Source: Alexa Taobao’s registered users grew rapidly to 170 million in 2009; GMV (Gross Merchandise Volume) exceeds RMB 200 billion, ~1.6% of aggregate retail value of China’s social consumption goods
: Registered User Growth : GMV Growth
Millions RMB Billions 200.0 200 200 170.0 150 150
98.0 100.0 100 100 53.0 0.3 3.5 13.9 30.0 0.2 43.3 1.0 8.1 16.9 2003 50 2003 2004 2004 50 2005 2005 2006 2006 2007 2007 2008 0 2008 0 2009 2009
Source: Company data, BDA research Taobao’s success is based on helping establish trust between buyers and sellers
Taobaoʼs Online Transaction Value Chain
Step 4 Delivery
Third party logistics companies
Step 1 List Products,Set Prices,Process Order Browse Products,Order Products Step 2 Sellers Communicate with Ali Wangwang Communicate with Ali Wangwang Buyers A C2C Platform
Payment : Alipay
Step 3 Payment Source: BDA China Partnership & Investment Strategies: Tencent looking overseas through DST; Baidu focused on domestic market; Taobao leveraging Softbank connection in Japan
Source: BDA China Tencent looks overseas to access global innovation; Baidu partners at home to broaden its offer; Taobao leverages Softbank for Japan
B2B2C
Online Video
B2C
Source: BDA research These 3 companies will increasingly step on each other’s turf
Source: BDA China