Many of the recent China internet IPO perform very well. This one obviously going to be another hot issue. I interviewed Renren’s CEO Joe Chen for my book Red Wired: China’s internet revolution. His first startup is Chinaren, a social network of Chinese students, which he later sold to Sohu, after 2000 internet bubble burst. The following is an extract from the book:
ChinaRen was sold to Sohu, the second largest online portal in China, for US$33 million after the Internet bubble burst in 2000. After a brief spell at Sohu, Chen went back to the U.S., where he made an ill-fated effort to start an optical networking company. With the industry reeling from the bursting of the bubble and the aftermath of the 9/11 terrorist attacks, his timing could not have been worse.
Chen returned to China to set up another company, Oak Pacific, in November 2002. He tried all kinds of internet businesses. In 2004, he acquired Mop.com and developed it into an online community focused on entertainment. The next year, he bought DoNews, a tech blogging site.
After raising US$48 million in investment from venture capital firms, he was easily able to fund these acquisitions and develop their business.
In 2006, he returned to a favorite obsession, community sites for university students, by acquiring Xiaonei.
“College life has had a strong influence on me. I have always had good intuition about what kind of internet products appeal to college students,” said Chen. “When I saw Facebook, I thought this model would take off. That is why I started doing the same thing.”
ChinaRen is a kind of cyber forum where old schoolmates can leave messages for each other. Each class has its own bulletin board for discussion. On the other hand, Facebook is arranged around individuals.
“This is a more efficient way of organizing information,” Chen said. “And it is stickier.” (In 2009, half of Facebook’s 200 million users worldwide were visiting the site daily.)
Xiaonei’s initial experience was much like Facebook’s. It became popular among students of the top universities in China and with a lot of promotion, both in cyberspace and on campus, spread out to embrace all of the country’s post-secondary institutions. Chen further extended the coverage to take in high school students and white collar workers.
His drive to be China’s Web 2.0 king got another boost in April 2008 when Japan’s Softbank paid US$96 million for a 14 percent stake in his firm, Oak Pacific. (Softbank also took out an option that would allow it to raise its stake to 40 percent by investing a further US$288 million within a year.) At the conclusion of that round of funding, Chen had raised US$430 million, larger than the average IPO on Nasdaq.
By 2009, Xiaonei claimed to have 40 million registered members, of whom 22 million were daily visitors. In August 2009, Xiaonei changed its name to RenRen, which means “everyone” in Chinese, to reflect Chen’s expanded ambition. He was no longer satisfied with justa student network, but wanted people from all walks of life to be members. This meant that Xiaonei, which means “inside the school,”was no longer a suitable name.
Compared with Facebook, Chen noted some differences in user behavior:
“As digital cameras are less widespread in China than the U.S., our users write more blogs and post fewer photos on the site,” said Chen.
More importantly, while Facebook solely depends on advertising for revenue, Chen’s social network site also relies on online games.
“In China, online games are huge. Social games and web games can be an important way to generate revenue on our site,” said Chen. “A small percentage of paying users is enough.”
Selling virtual items in online games can be a huge business, as many of the China online game companies have discovered. Six of the ten largest internet companies by revenue operate online games as a major part of their business.
Chen acquired a web game developer, Peagame.com, in mid 2008 and planned to buy more. “We are also China’s largest web game developer,” he said.
The surge of popularity of social network site Kaixing001.com further convinced Chen that social network sites that incorporated games were the way to go.
Kaixing001.com was founded by a group of former Sina executives, backed by venture capital. It built up its popularity quickly by including “social” games such as “Friends for Sale” and “Parking War”.
Chen started his own competing version, Kaixin.com.