The "Game" of the Internet Seven Great Powers

The "Game" of the Seven Internet Giants (Author: Wang Yingxiong)

As the internet entered 2011, competition among internet giants intensified. China's internet has now entered its most complex period of struggle akin to the Warring States era in Chinese history. During the Eastern Zhou Dynasty (the combined term for the Spring and Autumn Period and the Warring States Period), there were seven powerful feudal states known as the "Seven Great Powers of the Warring States." The countless wars during the Spring and Autumn Period (770 BC - 476 BC) greatly reduced the number of feudal states. By the Warring States Period (475 BC - 221 BC), the seven most powerful states were Yan, Qi, Chu, Qin, Zhao, Wei, and Han. These seven states were referred to by historians as the "Seven Great Powers of the Warring States."

In today's internet landscape, we still have the "Seven Great Powers," which are Baidu ($49.1 billion market cap as of August 8, 2011, same applies hereafter), Tencent ($44.7 billion), Sina ($6 billion), Alibaba ($5.9 billion, excluding Taobao, etc.), NetEase ($5.8 billion), Sohu + Changyou ($5 billion), and Qihoo ($2.3 billion). (Note: Ctrip, Renren, and Youku all have a higher market value than Qihoo, but I personally believe their influence is less significant than Qihoo's, so they are not included.)

These few internet giants are all companies that can stir up the industry with substantial financial reserves. Competition in the internet space is no longer a matter of individual efforts; thus, each company is busy laying out its strategies. There are several noticeable trends in the internet over the past six months:

1. Due to well-known reasons, the number of small and medium-sized websites in China's internet has drastically decreased, with possibly hundreds of thousands fewer such sites.

2. E-commerce has become extremely popular this year, with various e-commerce platforms needing traffic to increase their revenue, causing the cost of traffic to rise, even increasing navigation site prices by dozens of times.

3. After last year's 3Q battle, internet giants realized that even if they are strong individually, they need more allies (at least not enemies or allies of enemies) to firmly establish themselves on the internet.

So how are the Seven Great Powers of the internet laying out their strategies?

Baidu: Baidu could be said to have had an unlucky year, with the closure of its self-built B2C mall "Youa" and the recent announcement of the shutdown of "Baidu Shuoba" on August 22nd. However, this hasn't stopped it from sitting at the top of the market capitalization rankings. Baidu's layout in e-commerce is evident; starting last year, it partnered with DafuNi to build Yaodian 100, established Lekutian with Japan's Rakuten, invested in the home decoration e-commerce website QiJiaWang, and co-founded YouGou with shoe giant Belle. Recently, it also invested in Qunar, entering vertical search. Robin Li personally invested in JD.com, reportedly on a scale of $100 million to $200 million. This series of investment and strategic moves is notable.

Tencent: Tencent is an unusual company; it basically doesn't fail at anything it tries, which is a "miracle" in the internet world. In China, doing internet business revolves around three unavoidable things: life, death, and Tencent. As long as there's a good product or idea, Tencent will try it, like Weibo and WeChat, which were originally others' meat but were snatched back by Tencent. At the beginning of the year, Tencent set up a $50 billion fund for internet investments and acquisitions, and increasingly more projects have come to light: Tongcheng Network, Discuz, Shenzhen Wangyu, Gaopeng Network, YiXun Mall, Huayi Brothers, Elong, HaoLeMai, Mama Network, Innovation Works, Kingsoft Software, F Group, Kolan Diamond... In the past dozen months, Tencent has carried out over 40 external acquisitions, whereas in the previous 11 years, it only conducted about 30 mergers and acquisitions. Besides investing, Tencent announced its openness this year, though many people question whether its openness is genuine. Tencent's openness is selective, only opening to smaller developers while maintaining skepticism towards larger platforms.

Alibaba Group: If you look solely at Alibaba's market value, it isn't particularly high, but if you consider the entire Alibaba Group's market value, it's indeed astronomical, comparable to Baidu and Tencent. In the industry, there's a term called BAT, referring to the three internet giants: Baidu, Alibaba, and Tencent. To understand Alibaba's layout, just take a look at the links under the homepage of Taobao: Taobao, Alipay, AliCloud, Yahoo! China, online customer service, Koubei, Group Research Center, AliExpo, YiTao, WanWang. Regarding the layout of Taobao and Alipay, I won't elaborate further here, but I'd like to talk about AliCloud.

AliCloud includes products such as mobile cloud storage, mobile OS, entrepreneur cloud computing, developer cloud computing, etc. One important platform worth mentioning is the Community Cloud at http://phpwind.aliyun.com, which allows community operators to easily build community products using the phpwind open-source program and cloud services to serve developers. The Community Cloud has several features:

1. Community entrepreneurs can order suitable service packages based on operational goals like PV and concurrent online users, buying more when needed and less when not, maximizing cost savings.

2. AliCloud provides interconnection solutions via its own network, solving the dual-line problem between North and South Telecoms.

3. No need to worry about hardware reliability and data security.

Sina: Sina is one of China's oldest internet companies. Last year, the old tree finally sprouted new buds through Weibo. Although Sina rarely engages in capital layouts (like its partnership with E-House and its stake in MECO), it understands that the internet is no longer a single-player game but must rely on numerous developers and external forces. At the beginning of the year, Sina teamed up with Sequoia Capital, IDG Capital, Innovation Works, Yunfeng Fund, and DFJ to invest $200 million and officially launch the China Weibo Developer Innovation Fund, the first domestic fund specifically targeting Weibo application development, splitting profits 30/70 with developers. Sina's attitude is clear: since Weibo is a good platform, it must make full use of it, building a super-long industrial chain and its own layout on this platform.

NetEase: According to influence, NetEase is the fourth-largest news portal, but by revenue, it's a gaming company. Compared to other major players, NetEase seems somewhat complacent. Once China's highest-valued company, it has now fallen to fifth place. In terms of layout, aside from San Shi raising pigs and the troublesome Warcraft Online Game, there hasn't been much else. Although NetEase has some good products like email, online printing, and Youdao Search, if it doesn't further layout its strategy, its ranking will continue to decline.

Sohu: Sohu should be considered together with Changyou, as both are independent listed companies but cannot escape Zhang Chaoyang's control. Sohu is a company that knows how to strategically position itself, from early acquisitions like Chinaren and Focus Real Estate, developing the search sub-brand Sogou, to later spinning off Changyou for separate listings. Recently, Sohu revealed plans to spin off its video business for separate listing. However, some of Zhang Chaoyang's strategies can be confusing, like the relatively unsuccessful White Social and Sohu Weibo.

Qihoo 360: Although Qihoo's market value is lower than Renren, Youku, and Ctrip, its influence in the circle cannot be underestimated, and no small or medium-sized internet company dares to take it lightly. Qihoo doesn't yet have the funds post-IPO to lay out in e-commerce, but it has positioned itself well in browsers and mobile software, waiting for the next wave of internet growth. The recently released 360 Desktop is an important tool in its strategic positioning, relying on collaborations with numerous app developers to create its own strategy.

Future Trends in China's Internet

China's Seven Great Powers of the internet will continue to strategically position themselves on two levels:

1. Financial ally positioning, such as Alibaba's acquisition of phpwind and Tencent's investment in Kingsoft, etc.

2. Product positioning to avoid too large a gap and prevent the Matthew Effect, such as Alibaba's AliCloud series of products and Sogou entering browsers through input methods, etc.

Additionally, China will see another large-scale wave of entrepreneurship. With the emergence of products like AliCloud's Community Cloud, numerous small and medium-sized websites will rise again, and China's internet will once again present a vibrant scene of diversity.

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