For Chinese Internet companies and users, these are the best of times; these are the worst of times. While the government continues an unprecedented crackdown on outspoken liberal bloggers, e-commerce sites are thriving—and roughly 10 percent of China’s retail sales are now conducted online, according to Beijing research firm GK Dragonomics. About 600 million people have Internet access in China, and 450 million smartphones and tablets have been activated here. None of the leading Chinese Internet companies are state-controlled, and those listed overseas have a combined market capitalization approaching $300 billion.
For all the economic activity flowing online, it’s still a riddle for China’s leading social media sites to translate eyeballs into renminbi. (The same applies to Twitter (TWTR) in the U.S.) China’s preeminent social networks, Sina Weibo (SINA) and Tencent Weixin (700:HK), arguably have different pathways to turning a profit, as Will Tao of iResearch, a market research firm in China, explained to journalists in Beijing on Friday.
Tao likens Sina Weibo to a newspaper, both in its function and its revenue model. The Twitter-like site, with more than 500 million registered users, is popularly used as a news feed and as a way to follow celebrities, opinion-makers, and even government press offices divulging and commenting on the daily news. For example, last week the Beijing First Intermediate People’s Court announced its decision via Weibo to reject an appeal by he son of a famous military singer and uphold his 10-year sentence for gang rape in a closely watched case. Meanwhile, popular musician and heartthrob Li Yundi also took to Weibo last week to introduce fans to his new girlfriend; that post was briefly the most-read on the site as teenaged girls across China lamented and sighed.
With so many news junkies tuned into Weibo, Tao believes that traditional cost-per-click advertising and ads imported from e-commerce sites such as Taobao.com have high growth potential. “It’s an advertising-based business model,” he explains.
Tencent Weixin, on the other hand, traffics in relationships. Its format is somewhat more analogous to that of Facebook (FB), with users’ posts visible only to their circle of friends. Tao believes that in the future, Weixin users may have multiple interlinked accounts: for socializing; for gaming; for reading news; and for shopping. If Weixin can successfully develop an integrated payment system, it could potentially charge for subscriptions to online games, specialized news services, or further value-added services such as e-coupons to be used in online stores.
“On Weixin, close friends talk to each other and share information”—and potentially, shopping tips, says Tao. “We all know each other on Weixin. But we don’t know each other on Weibo. So the strategies are different.”
Larson is a Bloomberg Businessweek contributor.
