Monday, January 31, 2011

Investors Want Into China's Social Network

By Eric Jackson
RealMoney Contributor

1/31/2011 5:30 PM EST
Click here for more stories by Eric Jackson

A slew of social networking sites are operating in China at the moment. They are benefiting from the Chinese government's decision to block the popular U.S. sites Facebook and Twitter on the mainland. Smart Chinese entrepreneurs have unabashedly copied these popular sites to try and be the first mover within China. The current issue of Fast Company has a cover story on the heated rivalry between two popular Chinese social networking sites, Renren and Kaixin001. Here's what U.S. investors should know.

The two sites, which are both currently private, although Renren is expected to go public this year, currently have 260 million users. That's pretty amazing when you consider that Facebook itself has gained 600 million users globally over a much longer period of time. It's also astounding how readily Renren and Kaixin001's founders admit copycatting the U.S. websites.

Renren's founder is a Wang Xing, who studied at the prestigious Tsinghua University before going to the U.S. to pursue a Ph.D., then dropping out to start Renren with about $45,000 in seed capital.

Kaixin001 was the first mover in China's social networking space and has over 100 million users. Although Kaixin001 had the initial buzz, Renren has now surpassed it in growth, at 165 million users. Renren was also sneaky in the early days when it was trying to catch up to Kaixin001: It bought the URL www.kaixin.comand invited people to join a social network that looked like Kaixin001 but was actually signing people up to Renren. Kaixin has since won a court battle to say this is improper. But even today, the URL redirects to Renren.

Only a third of the Chinese population is online (vs. 75% in the U.S.). Therefore, social networking and e-commerce sites in China have enormous potential for the next five years. Additionally, there's big opportunity ahead for increased ad spending on websites (which also goes for the U.S.). The growth should be even faster in China, though, because of the increased rise of purchasing power of a growing middle class.


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