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As 2012 comes to a close, it’s time to briefly reflect on the year. This is my story of 2012.

I came across this memorable quote recently from an article about startups raising money:

Investors at the seed level are typically less concerned with the fact that a team has yet to pull off market or customer fit, and much more focused on whether it can weather the storm of running a startup.

My own startup journey has a lot of highs and lows in 2012. I can attest that its very stormy! Hence, the team has to be strong to withstand the bumps and bruises along the way.

You need to be able to fight your way out of a very dark hole and into the light. That’s why its called the trough of sorrow. The majority of startups will die in this phase as they attempt to find their way. This is reality. The majority of small businesses will fail within 2 years. This is where we are now with Native Tongue – in the trough of sorrow.

In our first year, there has been a lot of rain, but more like meteorites that have been dropping down from the sky. But we have survived, we’re still intact and I have my sanity.

Buckle in

In the first week of launching our product, Mandarin Madness on iphone in February, we made over $1,000 AUD. It was making roughly $200/day. We were the #2 Australian education app and featured on the iTunes Australia home page. We were a top 10 grossing education app in Australia. We thought awesome!!

I quickly calculated that we would do $52k that year on this one product alone. Lets just bang out a few more products – then we would be self funded! Thats $52k x 3 products = $156k annual revenue. No need for raising seed investment. If it did well in Australia, then a similar Spanish product would “smash” it in the US. And the English product would “erupt” in Asia!

So we started beavering away and launched a whole array of new language products this year – Spanish Smash and English Eruption.

However, the sales in the app store started slowing down. We did our best to prop it up. But we learnt something critical about the app store – the first 2 weeks are critical as you are classified as a new app. You are featured as a new app and can also be in the “new and noteworthy” section. We were also beating a lot of the bigger branded apps (except for Spongebob) when we were featured.

When we launched the Spanish and English product it didn’t fare as well as the Chinese one. In fact, we botched the launches and it fell flat. Our dreams of making $1k/week vanished within several weeks.

If I look back, we should have focused on one product, Mandarin Madness. We should have kept polishing and refining it to get product market fit. We went too wide instead of focusing on one vertical and missed the mark. I’ll explain later on what we decided to focus on.

More meteorites

These were just some of the meteorites that rained down on us in the first year. We thought we were close to getting seed investment from some investors. However, that didn’t come through. We were also faced with dwindling cash flow and our runway fast disappearing.

James, one of our co-founders had to do some contracting work to get by. My personal runway was longer, so I kept focusing on the business, as we needed to keep moving forward. We knew that if all of us went to work, and worked on it part time or we came back to it within 6 months, we’d lose all the momentum we had.

We also parted ways with one of our original founders. It didn’t work out. We moved offices from York Butter Factory to South Melbourne. We pitched at several events but didn’t get much investor interest. A lot of things like this happened in the first half of the year.

Chaotic personal life

I also had my own personal situation to figure out. I had moved from Sydney to Melbourne last year, and I had been staying on airbnb and then living with a friend. But I had to find a more permanent and more cost-effective place to stay. I found a place in Northcote and was about to sign a lease.

I came back to Sydney for Christmas and NYE. I found out a few days later, that the landlord decided to kick us all out, citing that the property needed repairs. They gave us 3 months to vacate (in March 2012)*. I didn’t have time to deal with it, and it was only until the last two weeks that I started looking for a new place. It was hectic and we had only 8 days to find a place to live. So I banded together with one of the housemates and another friend, and we found a place within a week. We then signed a 12 months lease.

Up until this point, I also had no possessions in Melbourne other than 2 suitcases. I was sleeping on a mattress for 4 months on the floor. I had acquired the mattress from the previous tenant. I also acquired Anthony’s old desk and chair. I had clothes hangers from my friend Tyson. It was a very nomadic life style I was living but it was all I needed to get by.

So my own personal situation was somewhat chaotic whilst in Melbourne. I did my best to not let it bother me. I believe that if you can settle your personal life, it will be much easier to focus on your work. I watched a interview video by Steve Blank who believes that entrepreneurs make sense out of chaos and often had a dysfunctional personal life. When things are organised, they actually don’t do that well. So maybe there’s something in that.

The dark months

With our runway dwindling, I was on the path to going broke while paying rent and living expenses in Melbourne. So I decided to move back to Sydney and live with my folks. Both my brothers had moved out last year and we still had several empty rooms including my old room. I figured if I could cut down on my costs, I’d live to fight another day.

There was some adjustment period, but it was fine. My family had missed me while I was living in Melbourne, and I could also take care of my grandma during the day as she lives with us.

But that period between May & June was probably my darkest period this year. I had to move back to Sydney, slightly dejected and I wasn’t sure what I would do – even if I would continue with Native Tongue. Because the team was going to be separated in two different cities which would make things difficult.

In a way, I was also slightly relieved. I felt at times I was stuck in Melbourne, unable to see my family and friends. I flew back to Sydney several times for weddings and for Christmas, but it was always brief. However, money was tight, and I needed to save money. Paying $230/week for rent alone, plus expenses for bills, food + entertainment expenses was too much in an early stage startup.

Things start picking up again

But somehow we made it work.

I started hanging out with my friend Alvin at his place as he had just resigned from his job and was working on Pocketbook. Bosco then joined him, and the 3 of us started co-working together in his apartment. I couldn’t afford to go to a co-working space (even though they are great), but this was just as good. I had two guys that were working on another startup and it re-created that startup vibe. I was excited to work again on my own thing, and I felt like they were extra members who would give me ideas and inspiration, and feedback.

There were certain events that happened in the next few months which gave us a shot in the arm. I pitched at the Sydstart event and was awarded 6th place in September. In October, I made it into Tech23, one of Australia’s most prestigious technology conferences. The top 23 up and coming companies were selected. We made the short list and I got to present again. You can read my insiders perspective here. We were amongst the best tech companies in Australia.

We were able to get several great blog reviews of our products and formed a partnership with a language blogger for a competition. We also had interest from several schools for a trial. I was also featured in the BRW in an article on “How to make the perfect pitch“.

We also got around the distance factor, and I was speaking to my co-founder every day on the phone when we had to or communicated via email.

Renewed focus

We felt stretched with the number of products in our portfolio – we had over 10 products! So we decided in June 2012 to concentrate our effort on one product for one platform and in one market. We released a free version of Spanish Smash (Personalised) on iOS for the US market, as it has a large number of Spanish language learners (6 million).

It was initially only available in English and then we added Korean and Russian translations. Its now doing about 180 – 200 downloads a day. The upsell rate is 5% for in-app-purchase modules or to the full paid version. This app now represents roughly 35% of our total downloads. We still haven’t “cracked” the US market, but downloads are increasing month on month in the US. The app is also reguarly featured in Russia, Korea, Netherlands and now in China.

Our airbnb moment

I noticed there was a new word game called Letterpress which was simply brilliant. I showed my co-founder and he liked it too. I predicted that this new app would be popular. We had our “airbnb moment” where we thought we could fund the business with some crazy idea. I knew the story all too well as I had worked at airbnb.

Airbnb sold boxes of Obama cereal at Obama’s inaugruation. So we decided to make a cheat app for Letterpress and sell copies of our cheat app. We actually made it in one week, but decided to work on it for another week to polish it up. We submitted it to the app store with a free version and upsell for $0.99. It only sold a few copies and started dying. We kept iterating on it and recently rebranded it to LP strategy and have about 1,000 downloads to date and its one of the top ranked cheat apps for Letterpress. I believe that we have the best cheat app for Letterpress, however its quite crowded now as there about 20 of these apps now in the app store.

But the one thing it did was show that we could make mobile apps and we could do it fast. We could respond to market conditions and opportunities, and we had a strong resolve. We could figure out a way to survive.

We also applied for the Startmate incubator on the final day. Out of 220 applications from around the country, we were one of the 20 teams selected for interview. We ultimately didn’t get in, but meeting with 15 of Australia’s top investors in one afternoon and getting their feedback was worthwhile. It also validated our efforts to date to make it to the final round.

Backup plan

We had a back up plan in case we didn’t get into Startmate. We decided we could try consulting on behalf of the business rather than as individuals. We would make apps for other people. We’d already made roughly 10 apps in total. So we created a landing page on unbounce and prepared some keywords for google adwords.

As soon as we got word that we didn’t get in, we re-calibrated and our backup plan kicked into gear. We started running the google adwords campaigns. Within a few days, we started getting clicks and enquiries. We have a number of enquiries we are following up on, and this is how we are going to fund our business. Partly through growing and also by doing work for other people. When I spoke to a lot of startups, this is what a lot of them had to do to get by in the early days. If you’d like to build an app, check out our consulting page.

Snapshot

This is where we are now. We believe that we will lose nothing by revealing our figures, in fact it will help us measure our success.

- Revenues: $1k/month in revenue. Annual revenue approx $11k.
- Downloads: 90,000 downloads. This is across our 3 games. On iOS, Android, Amazon Kindle.
- Monthly Active Users (MAU): 18% iOS.

Ideally, we want to be doing 10x in terms of revenue ($10k/month) to be self sustaining.

What we need to do in 2013

1. Focus on a product and customer segment.
2. Improve the game mechanics
3. Increase user retention
4. Increase life time value (LTV)
5. Grow the consulting business

Final word

Thanks to everyone that has supported Native Tongue – friends, family, colleagues, our customers, and the startup community. If you are in startup, then don’t forget your hard hat and your raincoat, cause its going to get rocky in 2013! You have to learn how to withstand the meteorites

I’m out like 2012,

Matt Ho.
@inspiredworlds

*The landlord & agent took us to court over property damages, even though we were only there for a few months. We ended up getting most of our bond back and I invested my bond money into my housemate’s new startup. Double down ftw.

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Today, my friend Bosco and I were helping out another friend with his startup pitch. I got a great tip from Bosco, which was that I should pitch someone else’s startup.

It was actually a really good experience for myself and also the founder that we were helping. The founder was able to see it from another perspective. A founder is always so knee deep in the history and detail of the work they’ve put in. They’ve worked on it non-stop so viewing it from a different perspective is very insightful for them. I was able to synthesise the pitch a lot better because I didn’t have all the legacy about the business bearing down on me and I didn’t feel the need to communicate EVERYTHING.

Funnily enough, when we pitched it and described a certain section in a shorter time span his feedback was “you’re spending too long on these slides describing it”. Our animated response was: “That’s what we’ve been trying to tell you!“. Sometimes it isn’t apparent until you see someone else do it.

I can’t say that I’m great at pitching but I’ve done it a few times and learnt a few things which I can pass on to other people. I hit the panic button when I had to pitch the first time, and luckily I had a few friends & people in my network to lean on for advice. I also watched other people pitch but there’s nothing like actually pitching yourself, and pitching for money.

Here are some things that I discovered and some thoughts that I have:

- It gets easier the more times you do it. The first time I did it in front of 40 people, it was pretty nerve wracking. Then I backed up and pitched the next week at another event, and it was much much easier.

- People tend to ask similar questions, so the more times you pitch the better you get at answering questions.

- I always said to myself before I pitched that I had “to give the pitch of my life“. We were at several crossroads that it was do or die so I had to have that mentality. You’ve got to pitch with passion.

- I like to have some backup slides to answer some common questions. In a 5 – 10 minute presentation, you can never address everything. There are certain things that people might ask for e.g. statistics, more details about customer acquisition strategy, exits, etc…

- I’ve never fully understood why investors ask about exit strategy. I’ve been asked this several times. For an early stage business that has just started, shouldn’t a founder try to build a sustainable business that doesn’t need to exit, that can stand on its own two feet? I can understand the logic behind the question, as I worked in an accounting firm providing advice to private equity funds. Per the fund terms, they are required to exit and make a return in certain time frame (e.g. 5 years). An exit could be via IPO, M&A (trade sale), MBO (management buyout), or liquidation. The investor possibly want to see if the founder has given it some thought. In some larger markets (e.g. US), M&A activity is a lot more common but in other markets like China, the exit strategy is IPO. My opinion is that you should build for the long term and not the quick flip.

- I hate working on powerpoint slide decks (or keynote). It could be a combination of my lack of skills in powerpoint and design to make something sophisticated / pretty. The hours spent sweating over the content, the pictures, the layout. Some people enjoy it, but I didn’t. Get a designer to help you.

- ABC: Perhaps I’ve watched too much Mark Suster on This Week in VC. Always be Pitching, Always Be Raising, Always Be Closing. I know that in the latest YCombinator batch, none of the startups pitched for money at demo day. But I’m from that school of thought of “Always Be Closing!”.

- Take advice from people that have pitched for money before.

- Have a rough idea of how you will spend the money that you raise. Unfortunately, I’ve seen other startups get grilled on this, so I thanked my lucky stars that I had an answer for it.

Pitching is a daunting experience for a new entrepreneur so I hope some of my experiences are useful to you.

I’m out like pitching,

Matt Ho

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This video by reigning champion Dominic Cruz is relevant and motivating for startups. Cruz mentions that “little guys can scrap” and what he means is fight. I hear the word scrappy in relation to startups as well.

I’ve been called that a few times. So I just wanted to clarify to everyone what that means. Whilst it doesn’t sound like an endearing term normally, it is for people that work in startups.

It means you are willing to get down and dirty, to be creative and resourceful, and to make the most of what you have. Some people might call it “guerilla marketing”, and it encompasses that and more. When I spoke to Tom Howard of Adioso, he described his class at Y Combinator as the “cockroach class”.

The background is that this was at the height of the GFC (the lowest point) and only the cockroaches would survive. YC looked for the teams that had been together for a long time, the ones that had the motivation and instincts to fight for survival. Only the scrappiest would survive.

Entrepreneurs by their very nature are scrappy. You have limited resources and time, and you need to maximise output with that. The way to do that is to be creative, resourceful and scrappy. Do your logo on 99 designs, hire a developer on odesk, maximise the discounts you have, pay your expenses using your credit card so you get extra 60 days credit.

So if someone calls you scrappy, don’t take it the wrong way! Wear it as badge (could we get a foursquare badge for that?).

Yours in scrappiness,

Matt Ho

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I’m helping to organise Product Camp Sydney this saturday (4 June 2011).

What is ProductCamp?

In the spirit of BarCamp (www.barcamp.org), ProductCamp Sydney is a collaborative, user-organised professional conference that focuses on Product Management and Marketing topics. At ProductCamp Sydney everyone participates in some manner: presenting, leading a discussion, showcasing a best practice, or sharing their experiences. Others help with logistics, securing sponsorships, organising sessions, setting up or cleaning up.  This is a self-organising collaborative event that is designed to be fun, rewarding and a unique experience.

ProductCamp Sydney is a great opportunity for participants to learn from, teach to, and network with professionals involved in the Product Management, Marketing, and Development processes from all industries around Australia.

We’ve listed the topics on Uservoice, so you can view the currently submitted topics and vote on them. Vote for my talk here.

Thanks,

Matt

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I’m a big fan of Zara, having been introduced to them overseas. I saw them in Europe along with H&M stores. When I went to Malaysia and Thailand last year, my friends were also stocking up on Zara. So I did the same! The clothes looked good, decent quality and the prices were reasonable.

My favourite pair of shorts over the summer were Zara. I got them for $30-40 AUD. My favourite jacket over the winter was a Zara jacket which I bought for $150 AUD.

The opening of the Zara store in Sydney has resulted in customers lining up around the block and clearing out the stock. There is clearly pent up demand for Zara in Australia.

Zara – keeping it lean

The Zara business model reminds me a lot about lean startups. Look at this quote from Zara’s Chief of Communication from this article.

“Zara is known for interpreting runway fashion trends and having copycat looks available in-store within three weeks.

Items available include a leopard print cardigan for $59.95, sleeve cotton tops for $19.95 and jeans for $69.95.

Mr Echevarria attributed Zara’s success to focusing on customer feedback and being reactive to their comments. Store managers in Sydney will carry out a daily sales analysis and order new stock twice a week, which will arrive from Spain within 48 hours.”

Similarities with lean startups

So this is what Zara doing:

- Constantly talking to it customers and listening to their feedback.

- Monitoring daily analytics on what’s moving in the store AND knowing what is not selling.

- Analysing fashion trends for new looks and behaviours

- Ability to adjust their design and production rapidly

Which ultimately leads to new fashions in store. This is a rapid iteration process and results in an ability to pivot on a dime. Whilstly talking to customers all the time is good and getting feedback, it is of little use if there are no analytical evidence to back it up. It is also futile if you are unable to adjust your product in a timely manner despite customers wanting a different feature or changing consumer taste.

However, this system only works if the whole process is in sync. It is an end to end process of listening, watching, producing and distributing quickly.

There is definitely a few takeaways that lean startups can learn from this.

I’m out like last seasons fashion,

Matt Ho.

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I just wrote an answer on the profitability of the music subscription model on Silicon Beach. I used Spotify as my example, cause that’s the one I’m familiar with and most high profile. Here is my full answer in case you are not a member of Silicon Beach.

————————

Many organisations are banking on the paid subscription model – from music, news, movies etc..whether its the answer is another question.

Clay Shirky understands this better than most people. He explains the paid content model, comparing music subscription vs news subscription model here:

http://www.shirky.com/weblog/2009/03/why-itunes-is-not-a-workable-mod…

I have also been thinking about the music subscription model today. Apple has a whole ecosystem supporting the music experience. People will pay for this convenience and experience.

In terms of music, lets use Spotify as an example since they are most likely to extract value from the rest of the value chain. Is Spotify profitable?

Spotify has 10million users. News articles suggest they have approx 650,000 paying subscribers (~ 1 in 20 paying).

http://eu.techcrunch.com/2010/09/15/spotify-10-million/
http://gigaom.com/2010/11/22/spotify-2010-revenues/

MUSIC REVENUES

90% of users pay $10 Euros/month = $120 Euros yearly
10% of users pay $5 Euros/month = $60 Euros yearly

On a revenue basis, Spotify generated $74m Euros last year on music  subscriptions alone.

ADVERTISING + “VALUE CHAIN” REVENUES

Gigaom reckons that Spotify made $58m in advertising. I take this with a pound of salt cause I don’t see how this could be true. My estimates below are based on the low side.

I project the following revenue streams:

- Advertising (PPC): 10m users x 1% of users click on ads x $0.02 x
365 days = $730k/year

- Ticket sales: $5 commission x 10m users x 1% purchasing yearly =
$500k/year. Using the average Posse commission prices.

- Merchandise: $20 tshirt x 10% commission x 10m users x 1% purchasing
yearly = $200k/year

That’s roughly $76m in revenue.

COSTS

The only cost that’s public is music royalties at $30m. That leaves $46m on table.

I wouldn’t think the operating cost of a lean startup business would be any more than 40% of remaining revenues (assuming 20 staff, low overheads). Opex = $46m x40% = $18m.

Total profit is = 76m – 30m – 18m = $28m profit.

So in short, their music subscription model is profitable.

I’m sure they’ll have other revenue streams from deals with mobile companies. I think that’s where the real value is for Spotify – the mobile apps. People will subscribe to this. They probably need to get it to 10% – 20% of paying users (currently at 5%). Their push into the US is more likely to build a barrier to competition cause it will prevent other people from moving in.

I’m out like Myspace,

Matt Ho.

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Lately, more of the activities that I do online is in the cloud.

So what online activities am I doing?

I use file storage like dropbox as a digital locker to store and share large files. This syncs with your computer and your mobile devices. At work, we use Sharepoint to share files, collaborate on word and excel documents online and save them back into the system. Having the files online makes it easier to access and also ensures there is only one copy people will work from.

When I want to listen to music, I jump onto YouTube and type in my favourite artist and find songs that I like. I’ve been mixing it up lately between MySpace, Grooveshark, Hype Machine, and Soundcloud. To be honest, I don’t have that much music on my computer. I mostly stream it from the cloud because there is an infinite collection online, fast access and play lists.

I spend a lot of time online also watching videos. Again, I love my YouTubes! But there’s also Vimeo and a bunch of other sites you can stream from. I look at my friend’s photos not on their computers but via Flickr and Facebook. That’s where we store our photos and share them with others.

What is the cloud?

The cloud is defined as:

“The use of a Web services such as Flickr, Google Docs to perform the functions that were traditionally done with software installed on an individual computer.”

- Penn State Learning Hub Community Glossary

“Cloud computing is Internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, like electricity.”

- Wikipedia

There is a big push from the digital industry to go cloud. Consumers are already there. Enterprises have started to as well. Its only a matter of time before all of our online activities are in the cloud.

What are the benefits of being in the cloud?

1. Not having to install software on your machine. When was the last time you had to update Gmail? Our corporate email has regular maintenance and scheduled downtimes. Now, computers all about getting online, as fast as possible. Deploy in the cloud = deployed everywhere.

2. Access anywhere, anytime. Of course, this is dependent on being in the range of fast internet access, so this is a coverage and bandwidth issue.

3. Mobile & Cloud is a great combo. Allows for greater connectivity and syncing between your devices. Your mobile can’t store that much compared to a desktop computer or laptop. For example, my mobile currently has 8GB memory expandable to probably to 32GB so the cloud makes sense. Being able to stream music, access files in the cloud, play games on an online network with other gamers is perfect for mobile. Fred Wilson has a few ideas here on monetizing mobile audio.

There are many other benefits for Enterprises like scalability, reducing your IT hardware costs, and IT support costs. Turns your capex into opex. There are 3 types of cloud computing – SaaS, PaaS, IaaS, but this is for another blog post.

The Cloud Agenda

There’s a really good video I watched last week about Zoho’s new cloud accounting offerring. Its similar to SaaSu, Freshbooks, etc…

What I found interesting about it, was towards the end of this video at 26min 5seconds, they discuss mobile and the cloud and the advantages of the cloud. Other cool stuff they discuss is having your car connected online and the ChromeOS Notebook (which is purely online, no software installation required).

What they are doing, whether they realise it or not is advocating the growth of cloud computing. Not just necessarily growing their piece of the pie, but the entire pie. Because its in everyone’s interest.

Consumers and enterprises benefit as more activity is in the cloud. You can see a lot of online companies now pushing the cloud agenda such as Zoho, Salesforce, Google and Atlassian. Even Microsoft has evolved their service offerring to incorporate cloud services.

As we become an increasingly connected society online, the cloud will only keep growing.

I’m out like software installation,

Matt Ho.

p.s. if you are interested in cloud computing, register for Cloud Camp on 25 Feb 2011.

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The web has become a central part of our lives. Our ever increasingly reliance on email, the ubiqutous nature of social media, “google it” has become  a common phrase for finding something online. Most organisations have websites to varying degrees and eCommerce has become an option that Australian businesses are investigating. The average Australian spends 10 hours online a week. Some of us spend 40 – 50 hours online a week.

Because of this, the web should not be considered as a bolt on to your business. Rather, there needs to be an alignment between business strategy and web strategy. Much will also depend on how important the web is to your business.

Consider questions like “how will my customers find my business online”. Why is this important? This can generate new customer leads. Look into investing in search, managing your presence in online social media channels, optimising your website for organic search, and creating a content plan.

Other questions to consider:

- What information is available on my website to customers?

- How can I get my clients or prospective customers to keep coming back to my website?

- Can customers find my phone number on my website? Do I have the appropriate resources to support the customer service number?

For some businesses that transact purely online, like DealsDirect or NetFlix, the web is at the heart of their business strategy. For many organisations, too often there is a disconnect between the business plan and the online strategy. The web should not be a mere afterthought but a strategy that is planned, managed and executed as part of your business plan. In most cases, it really comes down to ROI. Having the appropriate resources, time and money to invest into online.

Given that it is the start of the year, begin planning for this now. Align your web strategy with your business strategy. Put your website and online presence at the heart of what you do.

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I’m in a China mood lately. I’ve got Chinese class tomorrow, and on Friday we had a presentation at work which mentioned taobao.com. Plus I just finished the Mr China book. So here are some random points about China and the internet that I have come across recently.

Taobao

Taobao is the largest ecommerce website in China. It sells everything! Its basically a Chinese version of Ebay. I actually came across it a few months ago, when this Chinese girl mentioned it to me as the place where she shops for books. Taobao is a subsidiary of Alibaba, which is a huge B2B website.

Let me give you some perspective about Taobao.

Though just six years old, Taobao (Chinese for “to search for treasure”) already has 120 million registered users and 300 million product listings. Its merchants produced nearly $15 billion in sales last year.

The company claims that sales through its Web site are already larger than any Chinese retailer. And, Internet analysts say, sales on its site this year will surpass Amazon.com’s expected sales of about $19 billion.

– New York Times

I came across a tweet from someone at an Alibaba presentation that Taobao is set to overtake Ebay AND Amazon in revenues next year. That’s insane! Consider how big Ebay is and how big Amazon is. Combine them. Then you’ve got Taobao.

Check this for more evidence:

The unique host of Taobao.com has topped 40 million, surpassing that of Amazon.com Inc. and eBay Inc., making the Chinese online marketplace the largest e-commerce Web site around the world in terms of traffic, disclosed Zhang Yong, its CFO.

By far, Taobao.com has had 190 million registered users, accounting for half of China’s total Internet users and 4.1% of the world’s total, according to Web information company Alexa.

– TradingMarkets.com

My understanding of the unique hosts stat is that it refers to unique visits. Having just finished Mr China, lets not get all hyped up considering how much of that information might be true. All I’m saying is ecommerce is big business in China and Taobao is #1 and its huge.

Busting up the search industry

Now in most Western countries, users have choice as to which search engines they can use. There’s Yahoo / Bing and Google. Realistically, most people use Google. However,  if you go to Google.cn, you are shown a picture of Google HK and when you click on the picture you are redirected to Google HK.

Google was supposed to renew their search license, but they haven’t done so. They also have not renewed their map and location license. It appears that Google is pulling out of China, and moving its search service to Hong Kong.

They had their recent blowup about abandoning China on ethical and principles, since gmail users were having their accounts hacked allegedly by the Chinese Government. They didn’t mention it specifically, but they hinted at it fairly heavily in this blog post called “A New Approach To China“.  Realistically, I don’t think Google would ever pull out of the biggest market in the world.

The big search engine player in China is baidu. There are local players in the China search market, but I’m not too familiar with them. What I did come across recently is that the Chinese Government is entering into the search market by backing another player.

The second, and more surprising deal was a link-up announced two Fridays ago between Xinhua and China Mobile to start yet another search engine. Xinhua, a news agency belonging to the central government which also acts as a propaganda organ and sometimes intelligence gathering body, and China’s largest cellular carrier seem like unusual partners for an Internet venture, and the exact terms of the transaction have yet to be announced.

The New York Times described the deal as follows: “In an apparent bid to extend its control over the Internet and cash in on the rapid growth of mobile devices, China plans to create a government-controlled search engine.”

– via techrcrunch

Its very intriguing. Would you ever see the Australian government busting into the search market like that, creating a state sponsored search engine? I don’t think so. They were trying to introduce an internet filter but this is a relevant and related discussion but for another day.

This move is to introduce competition into the search market, to ensure one player does not become too dominant and to be able to control where people can search and what information can be given to them. The Chinese government wants to be able to do that =)

Having a dominant search engine (even Google) is not a good thing either. Search, like any industry needs competition but from the free market. Why do you think Google come out with Instant Search? So they can blow Yahoo/Bing out of the water with yet another innovation they hadn’t thought of. Search needs to be competitive but also people should have the freedom to find any information they want. Its akin to freedom of speech. How can I form a reasoned, independent and well thought out opinion without the availability of information?

CCTV iPhone app

Speaking of State sponsored propaganda media, CCTV has an iPhone video app blows the water out of any iPhone video app. The quality and speed at which it streams video (Chinese news) is amazing. Hat tip to @vincentzhou for showing me the app.

So why did they do this?

According to Computerworld:

China’s film and TV regulator late Tuesday praised the growth of an iPhone application from state broadcaster CCTV as the country looks for new ways to project its political views abroad….

China is investing heavily to expand the overseas reach of its state-owned news outlets, which often air official Chinese political views strongly at odds with mainstream Western views. The Dalai Lama, for instance, is frequently attacked as a dangerous separatist in Chinese state news reports, while the exiled Tibetan figure is seen more as a saintly religious activist in the West. The first section of CCTV’s major evening news broadcast is always dry footage of top leaders meeting with officials from other countries or with smiling farmers in rural Chinese areas.

Of course, lets throw the State budget at creating an iPhone app to further push their views. I mean, even I am considering watching CCTV to improve my Mandarin. Its one of the few dedicated Mandarin chanels on my Chinese tv at home.

The Wash Up

There are many opportunities in China, particuarly given the size of the market. There are more internet and mobile users in China than anywhere in the rest of the world. Taobao is currently bigger than Amazon, and could be bigger than Amazon AND Ebay. But as you can see in the search sector, its not easy doing business in China especially with the Chinese government moving in to create competition. And yes, they’ll do that with killer iPhone apps too.

I’m out like Google in China,

Matt Ho