They added that growth will come despite many players also struggling to develop profitable business models.
They said the industry has grown sharply in the past few years with more than 100 blog service providers (BSPs) in China, up from zero at the beginning of the decade.
On top of the dedicated BSPs, providing platforms for users to maintain personal online diaries and commentary, an increasing number of supporting services sites are emerging, providing such things as hosting of audio podcasts, photos and short videos. Most of the small entrepreneurial firms have started aggressively seeking venture capital.
Still, with mounting competition in the sector, BSP operators and analysts say a shake-out is inevitable. However, they add that the high growth and volatility of the industry, plus the low operating costs that many providers have, may make it difficult to forecast when such consolidation will take place.
Max Su, Internet sector analyst with Analysys International in Beijing, said that by the third quarter of 2005 the number of registered blog accounts in China came to 33.36 mln, or more than double the 2004 total of 16 mln.
Since a registered account does not necessarily imply an active account, and as some bloggers maintain more than one website the number of Chinese bloggers is difficult to gauge.
Isaac Mao, one of China's pioneer bloggers and vice president of venture capital firm United Capital Investment Group (China) Ltd (UCI), said the number of active blog writers in China is probably no more than one mln.
He added, "I think that number will boom in the next two years if we see the emergence of a solid blogging service.
"Maybe the current ones in the market will improve more and we will see a solid blog service like TypePad (of the US) or (Google Inc's service) Blogger. "
Su attributed the rapid growth in registered sites to the entrance of web portals such as Sina, Tencent and Microsoft into the blog market.
He noted that the entrance of the major portals into the industry will provide a boost to dedicated providers such as Bokee.com (formerly Blog China) and BlogCn.com, as many users of the portals' service will eventually seek better-quality professional services.
"Now there are too many players in the market, and some of them are going to stay here for a while, but it is going to peak and then the BSPs who can really provide decent services will eventually lead and it will be just a few big providers," Su said.
Mao says he does not see much threat to dedicated BSP companies from services being offered by the major portals.
"I don't think that either Sina or MSN Spaces will get even half of the market... because other companies will focus their services and do it better than Sina or MSN," Mao said.
"This is not just a money business, it is a loyalty business."
Mao also sees an imminent shakeout.
"There has been fast development in this market but I think it will start consolidating soon, maybe in 2006," Mao said.
"I don't think all of (the current BSPs) have a strategy or model for developing their businesses."
Mao said most of the BSPs were too unfocused and were trying to offer too many services rather than building a strong brand and reputation.
"If you are going to do a video-sharing project then you should just make the video perfect, don't do blog-plus-video, don't do blog-plus-video-plus -pictures. This is the worst idea," said Mao.
Many of the BSPs are placing their hopes on revenues through advertising, mobile services and premium hosting services -- areas that Su and Mao said have some potential but have not yet proven especially revenue accretive.
"More BSPs have started to offer paid memberships and many high-end Blog users are willing to pay for that," Su said. "Even if only one pct of total users are willing to pay for premium services, the market potential is huge."
"There definitely will be a shakeout of the blog service providers," said Kevin Wen, international business officer for Bokee, but he said that this won't be as sudden as some others expect.
"It doesn't really require a high cost to maintain a small BSP. There are lots of free tools you can use, you can have a single server, and bandwidth is not expensive -- but if you wanted to make yourself big that would cost a lot," said Wen.
Bokee is planning an overseas listing, possibly in 2006.
"Absolutely we have to look at being listed in the Nasdaq in the next year or two years, but it's really hard to say clearly how we are going to do that. Right now we're just focusing on developing our services to increase our users," said Wen.
Michael Li, president of Seattle-based 21st century Lion Inc which operates three-month old start-up 1Blogs.com which is targeted at the China market, said his firm expects to set up a Shanghai office and servers.
Li admitted that the earnings potential of his venture and others' is still unclear.
"There's not currently a very good business model for blogs. I think blogs are now like portals were six or seven years ago," Li said.
Noting that 1Blogs.com had not yet developed a revenue-generation model, he said the company, which uses open-source software, did not have an urgent need to turn a profit.
"The maintenance of a site does not require that much capital so you can keep a service going for a long time (without making any money)."
Li expects the market to take shape in the following years with small companies becoming acquisition targets for whatever industry leaders emerge.
"We'll see those with the best business models being bought out by larger companies, like there has been in the United States with Google buying Blogger and News Corp buying MySpace," Li said.
Bokee's Wen said his firm has already started acquiring firms.
"This year, after we raised funding, we acquired two companies, Banner Rich, a wireless SP company, and ChinaPage -- the business-to-business company founded by AliBaba founder Jack Ma," said Wen.
Wen said he sees the main competition currently coming from local rivals but notes that it will eventually come from foreign operators.
"The biggest competition long term will be Yahoo! and MSN -- they really have a lot of potential -- but I think at this stage it's going to be local companies such as BlogCn and BlogBus," he said.
But while foreign entrants are becoming a force in the China 'blogosphere, ' this may not be without cost to their home-market reputations, said industry players.
Overseas players risk negative publicity when they comply with Chinese censorship laws.
China blocks many websites it deems unsuitable and also uses keyword filtering on domestic search engines.
Microsoft attracted heavy criticism earlier this year when it was revealed that its China weblogging service employed key-word filtering preventing users to use terms such as "democracy" and "human rights" in titles of weblogs, a step that Mao said was unnecessary.
"Microsoft has done a lot more than the government required them to do," said Mao. "I think they wanted to flatter someone in China."
Yahoo! Inc's China unit was also criticized for providing state authorities with IP information that helped lead to the jailing of Chinese journalist Shi Tao for "revealing state secrets".
"I don't think (censorship) will make a huge difference for (Microsoft and Yahoo!'s business prospects in China)," said Analysys' Su. "But I agree that seen from outside it may not benefit them."
Rebecca MacKinnion, former CNN China bureau chief and now a research fellow at Harvard Law School's Berkman Center for Internet and Society, argued that heavy regulation has not held back the development of domestic businesses here.
She noted that that most Chinese bloggers don't pay as much consideration to censorship issues.
"For most people in China you grow up in this environment where it's just obvious that there are things that you don't talk about because they will get you in trouble," she said. "It's just going to be obvious that this kind of behavior will start to transfer to the web."
"While some people get frustrated because they write something and it will get filtered, or it will cause them to get blocked, a lot of people are feeling that the web gives them more freedom of speech than they had before, so the majority are willing to accept the censorship as a natural aspect of the country that they live in and a fact of life," MacKinnion said.
UIC's Mao said he believes the high-tech and Internet sector will bring China's business practices more up to an international standard.
"Venture-funded firms are more open and more internationalized than the state-owned companies and some of the large monopolies in the China market," Mao said.
No comments:
Post a Comment