Felicis Ventures Blog

Top Social Networking Sites & Top 5 Countries Their Traffic's Coming From

Despite frequent claims of being over-hyped, social networking sites still comfortably claim 3 of the top 10 spots world-wide on Alexa (as of September 9, 2007) and their growth shows no sign of slowing down.

According to ComScore, the top 6 Social Networking Sites (Myspace, Facebook, Hi5, Friendster, Orkut and Bebo) grew between 56-270%, between June ’06 and June ’07. Five of those top 6 were ranked in the 16 highest Alexa sites globally as summarized below:

The unique user numbers for those sites range between an impressive 18 and 114 million, but where those users come from tell a more important story, especially when it comes to monetizing those eyeballs. 

According to Alexa more than 40% of the Myspace and Facebook users come from the US and the UK. Compared to those two leading sites, Hi5 seems to be getting most of its users from South America, Friendster from Southeast Asia and Orkut from Brazil. Out of the trailing social networking sites, Bebo is the only one that drives 83% of its traffic from English speaking countries:

In addition to monetizing traffic from emerging countries and non-English speaking visitors, the largest social networks will also have to deal with strong entrenched local players like StudiVZ in Germany. But there’s still huge value in dominating a key region or demographic like the Spanish speakers or Southeast Asia.

Case in point is the Hispanic Market. According to Lee Vann, CEO of Captura Group as quoted in Juan Tornoe’s Blog on Hispanic Trending: “The U.S. Market is growing at about 1 percent whereas the Hispanic market is growing at about 15 percent each year. $16 billion a year is spent on Internet advertising in the U.S. Only $150 million of that targets Latinos. But more users could mean more ad revenues.”

Outlook for Search in China

First posted on Read/Write Web on April 4th

Today China boasts over 105 million Internet users, not to mention 350M mobile users (growing by 57 million every year). By 2010, Chinese Internet users will outnumber US Internet users by 25%. Currently, 87% of the Chinese Internet audience uses search. And given Internet search’s dominance of monetization and audience rankings globally, the competition for the top spot in the Chinese search market is pretty intense.

Baidu, Google, Yahoo, Sohu and Sina are battling each other to be the leading provider of search in China. Currently the two largest search players, Baidu and Google, account for almost 90% of the searches (source: CNNIC Search Survey, 2006), per the latest local search market share depicted in the pie chart below.

Chinese Search Market

Though it doesn’t show up in the main search rankings, Tencent - the leading Chinese Instant Messaging (IM) platform with over 220M active users - has been making significant in-roads into this market by licensing Google’s search in 2005.

More than 3 out of every 4 Internet searchers in China use multiple search engines (source: CNNIC Search Survey, 2006). Therein lies one of the more interesting dynamics of this market: Baidu and Google clearly lead the field in all aspects of search, through the variety of searches they offer and the quality of their results. Sohu features more prominently in MP3 and video search, compared to its lagging ranking in web search. Yahoo, on the other hand, has been struggling with its local partnering strategy - as it failed to take advantage of large acquisitions locally, including 3721 and the much publicized Ali Baba. Indeed Yahoo's brand seems weaker in China compared to Google’s and other local players - as a result of its lack of focus (and differentiation).

Search Type

Even though Google is trailing Baidu in market share, it has made some significant progress in the last 2 years in China. It started to comply with local laws in China by filtering its results (and it’s the only one that informs users when it does so). Google also introduced its first music search - though its results point to music sites and not to downloadable music links, like its competitors.

Google recently managed to outflank Baidu in terms of perceived quality. Recent research by Keynote Systems shows that among 1200 Internet users in China, Google outperformed all other competitors in 11 out of 13 factors measured. Moreover, most participants that ranked Google highest were actually using another search engine as their primary site for search. Google’s excellent scores were not surprising, given that the 3 most important criteria for ranking search engines in users minds were: clean home page design, quality of web search results, and quality of image search results (all of which play strongly to Google’s hand). This trend speaks strongly for Google in terms of catching up to Baidu in the market share.

However, “both Google and Yahoo could still further improve their government relations in China”, quipped Janelle Wu, who was formerly Senior VP at NetEase.

Janelle Wu also mentioned that one of Baidu’s great strategic moves was hiring R&D experts from the US, while recruiting locally for sales talent.

Baidu is currently enjoying virtually double the market share in all types of search over Google. A 2006 Study by CNNIC cites other reasons for Baidu attracting a large user base, including Baidu’s well-liked Bulletin Boards and its responsiveness. Baidu also benefits from its wildly popular MP3 search, which takes users directly to downloadable music. This could be a major headache for Baidu in the future if China decides to tighten its enforcement of IP laws, with respect to illegal music.

Sohu, Sina and Yahoo all draw significant numbers of users to their search sites through their popular free email offerings, but that’s still not enough to help them break into the upper echelon of search - currently occupied by Baidu and Google.

In terms of brand awareness, Baidu once again stands out with 87% - while Google and Yahoo trail with 64% and 39% respectively (source: CNNIC Search Survey, 2006).

Furthermore, more than 50% of Baidu’s users are under 23 years old. Since 80% of people under 24 years old use the Internet in China (source: the CASS China Internet Survey, 2006) compared to a much lower ratio for older age groups, Baidu’s momentum is bound to continue. Maybe it’s for this reason, and lack of further explosive growth opportunity at home, that Baidu decided to launch its first international search in Japan last week.

While Google’s perception has improved considerably among Internet users in China, its refusal to offer its Gmail and Blogger services locally (due to privacy concerns) will probably slow its efforts to boost its user base. However Google continues to invest in the Chinese Internet market, with a minority stake in P2P player Xunlei - which is aimed at the local online video market. This move might have other benefits for Google, as Xunlei doesn’t support Baidu downloads for instance.

Among all the players, the one to watch is Tencent. Given its dominance in IM and success in entering new markets such as casual games, mobile chat and virtual goods - it has the strengths to make a decent entry into the Chinese search market.

The Chinese search market is bound to hold a few surprises in the next year or two, as most Chinese Internet users claim that factors such as duplication of results, freshness and quality of the way results are ranked, could use further improvement.

Speaking of improvement, Google apparently needs to pay more attention to the quality of its image search, as it returns virtually no images for the Chinese name of former president Deng Xiaoping. Baidu, on the other hand, could be leveraging its new Japanese office to offer a better service to its users searching for adult terms like “sex”. Baidu apparently returns only 3 results for “sex” in its Chinese site, whereas its new Japanese site returns 107,000 images for the same search term.

Moikrug, Xing and LinkedIn

Yandex, the largest Internet portal in Russia announced last week that it acquired Moikrug.ru (a Russian version of LinkedIn). By itself the move was not surprising, as Yandex, which offers every imaginable web service in Russia from search to free web-hosting, added a largely complimentary professional networking site to its group. The value of the transaction was estimated at about $1.5 million for about 100 thousand users. Given that Russia's Internet audience in 2006 is estimated at about 26 million users (more than Italy or France), the combined company still has huge potential for explosive growth.

While it's extremely difficult to value social networks, let alone compare valuations across different companies in different countries, if one looks at this transaction on a simple value per user basis in comparison with LinkedIn and Xing, the deal actually looks pretty reasonable.

Social networks are inherently local, so it's not a big surprise to see successful national or even regional social networks pop up in the global internet scene. It's a fact that a majority of the internet users are spending more time than ever within their social networks so we should expect more interesting consolidations or acquisitions of social networking sites around the world. 

Internationalization: Strength, Weakness & Opportunity

Internationalization can be leveraged by fast growing websites to reinforce their lead globally and create a barrier to entry for copycat versions in other countries. What could be a great strength often ends up being a missed opportunity. Just visit some of the most successful sites on the web today: Digg, LinkedIn and Facebook. While each has built a strong user base, they all lack internationalization for the time being. So if you're a visitor to any of these sites but can't speak English, you're out of luck.

Take Digg for example: the Google Trends chart on the left clearly demonstrates that its following extends far beyond English speakers. People are searching for Digg in Norwegian, Catalan (Spain), Tagalog (Philippines) and Swedish. So, why not create a wiki-like platform so that all Digg users from around the world could translate popular news pieces into their own languages. This would allow local users who can't speak English to enjoy this great site as well.

Another case in point: Facebook. While it grew phenomenally in the US, it could not prevent its German competitor Studiverzeichnis taking the lead in Germany and Austria. Facebook has been around since 2005 and is 22nd most trafficked site globally (according to Alexa). Yet its German rival was able to rocket to Alexa Top 333 in less than a year, and is #13 in Germany (Facebook is #235 in comparison) [once again based on Alexa]. Contrast with Myspace, which is now available in 12 localized versions, and not surprisingly happens to be the one of the leading social networking sites in every major country.

Xing is one of LinkedIn's greatest competitors. While it's trailing LinkedIn in traffic globally, Xing is already available in no less than 16 languages which can all be easily accessed from its homepage. The German company managed to go public in Europe last December at a valuation (at the time) greater than 4 times LinkedIn's latest round of financing.

Google launched its first 10 international sites on June 2000, less than 22 months after it was started. While we used outside translation services for that first international launch, Google subsequently employed the user translation method, which was first made popular by the weather site Wunderground. It simply allows users to translate user interface strings into their own languages and even act as supervisors to oversee the quality of translation by others. This strategy allowed Google to expand a lot faster into more languages and more countries later on (at least until respective local offices were opened).

It could be argued that weaker international monetization and risk of losing focus may explain the hesitation with internationalization. However both can be managed. Google reported that 44% of its revenues in Q4 of 2006 came from outside the US. The advertising revenues from merely Google partners in Japan grew more than 60 fold between 2002 and 2004. The investment in internationalization paid off nicely for the company. As for staying focused: by putting its loyal users to task, Google managed to address internationalization with minimal resources and faster than anybody could have predicted.

Internationalization can be a great strength. It's at the very least a great opportunity. Don't let it become a weakness.

 

Silicon Valley vs International...

Is there a significant opportunity for non-English, non-US startups ?

Arguably, the valley firms have faster, better access to venture capital, created more value than in any other place in terms of market capitalization and benefit from close proximity to some of the world's largest established firms like Google, Cisco, Apple and Oracle, which were once startups themselves. This also translates into a self-replenishing and immense talent pool that reinforces the valley's lead in the global startup scene. But there are also impressive international success stories :

Mixi, the Japanese social networking phenomenon, was launched on February 2004, and went public on September 14 of this year in the Tokyo Stock Exchange. While neither its 5 million members nor its close to $1 billion market capitalization (as of September 2006) compare to  US giants like  Google, it was the number 3 site in Japan with about 7 billion monthly page views in September 2006. That's pretty impressive for a company that's only 19 months old. Baidu, recently chosen as the Best International Stock for 2007 by Motley Fool, was founded by Robin Li, formerly of Infoseek by 2000. It's currently valued at nearly $4 billion and remains the leading search site in China. Skype of course was the big European "Successful Exit" with its $ 4.1B sale to eBay in 2005. The list can be extended to many others like Israel-originated Mirabilis (creator of ICQ) which was acquired by AOL.

There are many other international startups in earlier stages working hard to differentiate themselves with unique ideas or useful features compared to their US counterparts. Newly renamed Xing (formerly OpenBC) for instance is trying to distinguish itself with the ability for each member to contact another directly as opposed to on LinkedIn which has been the leading business social network in the US. Xing is currently awaiting its IPO on the German and Swiss stock markets. Lokalisten.de from Germany is another social networking site building communities based on the same city (you actually have to choose a "home city" when you log in). Pikeo, a new photo-sharing site is available in Spanish and French besides English which as  TechCrunch points out, might be a key feature onto itself as non-English speakers increasingly seem to prefer sites in their own language.

Being in Silicon Valley without a doubt constitutes a huge advantage for startups but that doesn't mean success can't come from outside of the US. It's exciting to see innovation proliferating globally.