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Inside QQ
Learning from China��s leading online community Plus Eight Star Ltd
Mobile & Internet Innovation Arbitrage
China, Japan & South Korea

January 2008 www.plus8star.com

This is a free sample of the full report, including about one fourth of the total content
This document is released under the Creative Commons Attribute License (CC-BY)
To order the full version (US$3,000), visit www.plus8star.com or email us at info@inside

Congratulations!

You have looked beyond the hype, press releases and sensational
reporting to dive into China?s most astonishing Internet success.

This report will confirm your intuition by exploring the details of the
service, strategy, business models and actual usage.

It will also highlight the key catalysts, best practices and milestones
that led to QQ?s success and its overwhelming presence in the
Internet life of an entire generation.

Mobile & Internet CC-BY +8* | Plus Eight Star 2008 | www.plus8star.com
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Why should I read this report?

? Whether you are an Internet company, a SNS startup, a telecom or media
group, an investor, or simply interested in knowing more, here are more
reasons that will support your intuition:
? First, Tencent is the world?s largest IM service (270 million accounts vs. MSN?s
250 million) and casual gaming portal.
? How can you gather such a large user base?
? How to keep them interested?
? Second, Tencent?s revenues will be in excess of 400 million USD in 2007, most
of it coming from non-advertising services.
? What are those services?
? How can they make users pay for Internet services?
? What are the successful business models at work to achieve such results?
? Third, for numerous Chinese users, QQ is synonymous with Internet
? What is the social impact of QQ?
? What kind of economy & ecosystem are being created around the service?
? Last, Tencent is considered China?s greatest Internet success
? What are Tencent?s recent strategic moves?
? What is their ambition for overseas markets?

Mobile & Internet +8* | Plus Eight Star 2008 3 | 184
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Why should I read this report?

? Now the next step is to dive into this report and spread its knowledge to
your key people �C a client of our Inside Cyworld report translated it into
Chinese for his management team!

? We encourage you to look beyond numbers and focus on what are the
proven concepts and great ideas that Tencent implemented in QQ and gain
a broader understanding of what online communities are about. Themselves
got inspired by ideas from outside, such as ICQ (US IM), Cyworld (Korean
SNS) or Hangame (Korean casual game portal) and more.

? Last, we wish you to successfully adapt the best of them to create special
business models and feelings about your service.

? The editors
? Benjamin Joffe | Managing Director | +8*
? Yiqun Bo | Consulting & Research Manager | +8*

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Disclaimer

? Opinions
? Opinionated views are expressed in several chapters, those should be seen as
our opinion or the interviewee��s opinion according to the case.

? Claims
? Due to the nature of this product, all our sales are final.
? We recommend that you study the information, table of content and sample
pages provided on our website to determine whether this report fits your needs.

? We are interested in your feedback!
? Tell us your opinion and what you would like to see in the next version
? info@inside

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About the Authors

? Benjamin JOFFE, Managing Director, +8*
? For the past 8 years, Benjamin has been involved with telecom, mobile and Internet
companies in China, Japan and South Korea.
In 2005, he founded +8* | Plus Eight Star to provide ?innovation arbitrage? between advanced
?
markets and companies in the mobile and Internet space around the world. The company
now regularly works with Asian and Western players as a bridge to bring innovative service
ideas and business models, helping them anticipate markets and accelerate their business
? Benjamin is a regular speaker at Internet and telecom events and a contributing expert to the
European Commission Delegation in China for mobile VAS and e-commerce regulation.
? He is also the co-founder and organizer of Mobile Monday Beijing, the leading monthly forum
and networking event in Beijing on mobile services and technologies part of the Mobile
Monday global organization
? Benjamin speaks fluent English, Japanese and French, and practical Mandarin, Korean and
Spanish

? Yiqun BO, Consulting & Research Manager, +8*
Yiqun has been working in China?s IT industry for the past 9 years, and he was notably
?
involved in research on B2B e-commerce, as well as Beijing Eleventh Five-Year (2006-1010)
Plan on infomatization.
? He has been the lead consultant in numerous projects ranging from Web 2.0, evaluation of
MVNO opportunities in China, mobile innovation and ecosystem assessment, etc.
? Yiqun speaks fluent Mandarin, English and French

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Acknowledgements

? We would like to thank for their contribution and support at Tencent
? Mrs. Catherine CHAN, General Manager, Investors Relations, Tencent/QQ
? Tencent executives who regularly contribute their views to the local media at
various conferences and seminars
? Unnamed executives and friends who gracefully enlightened us during informal
discussions

? Expert interviewees were a great balance to Tencent?s views
? Mr. Tangos CHAN, Editor-at-large, China Web 2.0 Review
? Mr. Kaiser KUO, Group Director, Digital Strategy, Ogilvy China
Chief Editor, Ogilvy China Digital Watch
? Dr. Song LI, CEO, SinoFriends
? Mr. A, CEO, Company A (competitor to QQ)
? Mrs. B, Partner, Company B (China-focused VC)
? Mr. C, CEO, Company C (UGC company in China)

? Last, thanks to the numerous users of QQ �C you made it what it is!

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Methodology

? A service as enormous as QQ is unlikely to be covered in its entirety. To
make the best use of your time reading this research, we provided views
from different angles to help grasp as much as possible of QQ?s richness.

? This research was conducted over a year relying on
First-hand trial and analysis of QQ?s various services
?
? Online and print media reviews
Analysis of Tencent and other key players? financial reports
?
? Interviews and discussions with Tencent executives
Interviews of experts involved in China?s Internet and mobile scene
?
? Interviews of users
Identification of QQ?s best practices and catalysts for success
?

? We hope you will enjoy your reading and encourage you to apply QQ?s
numerous proven ideas to your own context. China has jumped onto the
Web 2.0 bandwagon and is now an innovation powerhouse for Internet
services, it is time for the rest of us to learn from it!

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Table of content

Foreword 10

Executive summary 13

1. Market overview 15 3. QQ key services 79
? ?
General figures Instant messaging
? ?
Why do global giants fail in China? QQ pet
? ?
Dispelling misconceptions: Internet and Additional services
Media censorship ? Boosting online ads: MIND
? Key players ? Access solutions
? Internet creates heroes! ? Payment systems
? Economic value of virtual assets
2. QQ facts and figures 63
? General figures 4. Strategy 152
? Key milestones and results
? 5. Users interviews 157
Legal stories

6. Expert insights 165

Appendix 181

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Foreword

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Foreword

? Internet business models are stuck in Internet 1.0
? In most advanced Internet markets, the only way to gather revenues on the
Internet seem to be by using online advertising, in the form of banners, paid
search or paid listings (houses, cars, personals, etc.).

? After studying dozens of key players in cutting-edge markets, we came to
the conclusion that the main reasons for this situation were the following
? Content is still in silos
? Measurement and advertisers are lagging behind new usage patterns and
technologies
? Online payment mechanisms are too few and inefficient to provide hassle-free 1-
click macro or micro-payment
? Online communities need sociologists, not engineers
? As technology is becoming more and more a commodity, the real issue lies
today in the assessment of trust, social links and privacy.
? Our words are poor to describe the reality of the social fabric
? What are the differences between a ��good friend��, a ��business friend��, a
��best friend��?. Who would you lend your car keys to? Who can see the
pictures from your latest cross-dressing party or fishing trip? Also, how can
you differentiate a MySpace from a Facebook only with the word ��SNS��?
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Foreword

? Online communities and social networking services face very similar
challenges in their development
? How to build a community? How to monetize it?
? What is it users value in the service? How to keep them interested?

? As we worked closely with Chinese innovative companies, we realized that
? Ideas from the West are readily available but how to differentiate when a handful
of companies start a very similar service?
? Many services do not work well in markets where the online advertising market is
too small, or online payment systems are not developed.
? As a result, while the first wave of Internet successes needed strong execution
skills, the second wave requires numerous adaptations to the local environment
and improvements leveraging local characteristics.

? Chinese models provide today innovative business models and services
ideas that can help develop Internet services worldwide.
? Just as US powered the first Internet wave, Asia is now proving an innovation
powerhouse in business models and service designs
? This report demonstrates how QQ, not only triggered a social phenomenon, but
also proved numerous business models that can be adapted globally
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Executive summary

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Executive summary

? In China, QQ is Internet
? QQ is China?s largest online community with over 270 million accounts. Many
users connect to Internet solely for using QQ.
? Starting with a simple IM for Chinese users, QQ evolved into an array of services
ranging from blogs, avatars, virtual items and pets and online games.

? And users pay for it
? Tencent managed to monetize its service directly from users in an environment
with poor payment systems, low trust and moderate network speed.
? Revenues for the third quarter of 2007 alone amounted to 140 million USD. This
is close to four times those of Facebook over 2007.

? And there is more to come
? Despite its incredible Internet influence, Tencent derives only a minor share of its
revenues from online advertising.
? Recognizing this untapped potential, Tencent is now beefing up its team and
working on building a higher trust in their capacity as an advertising platform.
? This requires notably to improve the understanding of it with advertisers, as
those start timidly to shift ad dollars to Internet and embrace online communities.
? Mobile is still a tough market as mobile carriers? control is tight, but growth can
be expected from this sector as well in the future.
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1. Overview of China��s Internet & Mobile Markets

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General figures

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Foundation of the market: huge user base

Million users 2002 2003 2004 2005 2006

Internet users 59 79 94 111 137

(Broadband subs) - 7.2 13.8 37.5 51.9

(ADSL subs) - - - 26.4 37.1

Fixed-line subs 214 263 312 350 368

Mobile subs 206 268 334 393 461
Sources: CNNIC, MII

? Since 2005, mobile subs have exceeded fixed-line users
? China is the #2 largest Internet country in the world
? Penetration is still ~10%

? Broadband grows strongly
? Driven by ADSL (70% of broadband connections)
? Cable, LAN, FTTX, PLC share the rest of market.

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Service revenues

Million US$ 2002 2003 2004 2005 2006

Internet Ad 83 183 320 489 710

E-commerce 126 233 481 760 1190

Online game 146 195 394 662 839

WVAS 157 566 852 915 995
Source: Deutsche Bank

? Online Payment & e-Commerce
? Emergence of payment systems like Tenpay (from Tencent/QQ) and AliPay
(from Alibaba.com), and billing by mobile operators make online payment easier
? As a result, the volume of online payments is projected to rapidly increase.
? Online advertising
? Online advertising includes both brand advertising and paid search.
? Online advertising has been a proven model in developed markets as well as in
China. Although paid search is a relatively new concept, it has achieved rapid
growth in recent years in China.
? Online game
? 70% of Internet users in China are <30 y.o., fueling the online gaming market
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Internet Portals and local players

? Local players won the top spot in all
the main Internet sectors.

? Baidu (search engine) and QQ (IM)
Sector Local player Global player
enjoy a strong lead in their sectors in
Portal #1, QQ #7, Yahoo
terms of market share
Search #1, Baidu #2, Google
E-commerce #1, Taobao #2, Ebay China
? No foreign company operates directly
IM #1, QQ #2, MSN
in the online game sector (mostly due
Online game #1, NetEase --
to Chinese regulation)
Source: Plus Eight Star

? eBay China lost its #1 position in C2C
auctions to Taobao since 2005 and is
unlikely to bounce back in the near
future

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Chinese Web 2.0 scene might be the world��s #2
most active

? China has turned into a Web 2.0
powerhouse.

? Environment for Web 2.0
? Large influx of venture capital
? Overseas-educated returning talent
? Low entry barriers in the Internet
and mobile fields
? Many copycats from overseas
(?Copy-2-China?)

? Several hundred Internet startups
joined the ��China Web 2.0
Conference�� in 2007.

Chinese Web 2.0 Companies Logotype

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Other pages in this section

? Four telecom operators in China
? Internet Portals and local players

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Why do global giants fail in China?

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Why do global giants fail in China?

Foreign company Local company
People Team leader often coming from HK, Taiwan; Employees are They cover not only white-collar,
but ?small potatoes?
educated white-collar staying in high-class buildings in Shanghai
Field of vision is limited to high-class buildings in Shanghai, and Target regular people and SMEs,
Fortune 500 Companies do not care about having good taste
Know Gmail, but not 163. They use MSN Messenger, but not
QQ, considered to be ?less professional?
Look down on netizens from Internet caf��s, fans of Super Girl,
because of their education.
Would prefer to close their website rather than run one with no
taste or differentiation
Comment: Without attention to the masses, it is difficult to be a Top 3 website

Attitude Earning a salary 8 or 10 times higher than local competitors, Prefer to be hated than to be
they worry about negative news. They prefer ?no achievement? forgotten
than to take a risk which could bring a mistake. Always ready to make mistakes
Cautious, conservative, polite, educated, but little fighting spirit.
Comment: Local players don?t care about sounding good or making mistakes. The worst for them is to be
forgotten. Jack Ma, CEO of Alibaba, and Zhou Hongyi, CEO of 3721 are representative of this philosophy.
Efficiency Long term strategy, spend a lot of money on market research React fast
May have to wait one month for HQ?s answer on the purchase Numerous small steps, and correct
of a laptop if it is out of budget. quickly when making a mistake.
Comment: As the Chinese saying goes, ��Eagerness for quick success and instant benefit should not be
encouraged��. But in the ICT sector, efficiency and speed are of the essence.

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? Why do global giants fail in China?
? Results or means?, Localization, design
? Communication, Advertising strategy
? Comments from industry insiders: Jack Ma (CEO, Alibaba)
? Comments from industry insiders: Zhou Hongyi (ex-CEO, Yahoo China)

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Dispelling Misconceptions: Internet & Media Censorship

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Media and Internet Censorship in China

China has the world?s largest population in a territory
?
similar in size to the United States. Unlike its Western
counterpart, China has extreme gaps between haves
and have-nots, East and West, cities and countryside

? Within this context, the key objectives of the Chinese
Government is stability and ��avoid chaos�� whatever
the cost. The consequence on the Internet is that
websites are required to get a license (Internet
Content Provider or ��ICP�� license) and to filter some
politically-sensitive and illegal keywords
ICP license of
? Sensitive issues: Falung Gong, Tibet Independence,
Google China
Tian?anmen, Taiwan��
? Illegal content: adult, drug and gambling
? Those issues are treated more or less like Nazi groups or
pedophilia in Western countries

? Intimidation power?
? The Shenzhen Public Security Bureau created two anime-
style quot;Internet Policequot; characters named quot;Jingjingquot; and
quot;Chacha�� (��Jingcha�� means ��police�� in Chinese); each
Chacha
cybercop has a blog and a chat window where Chinese
citizens can talk to them.
? The main function of Jingjing and Chacha is to intimidate
all Netizens to be conscious of ��safe and healthy use of
the Internet, self-regulate their online behavior and help
support a healthy Internet.��
? That being said, Western media are much more aware Jingjing
than local netizens of the existence of those mascots.
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? Media and Internet censorship in China
? Misconception 1: The Chinese government is furtive about censorship
? Misconception 2: Censorship is only a political issue
? Misconception 3: The government checks everything
? Misconception 4: Regulations are too numerous and unclear
? Misconception 5: Chinese people suffer from the limit of information
? Comments from industry insiders
? Charles Chao, CEO, Sina.com
? Jack Ma, CEO, Alibaba

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Key players

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The struggle of mobile and Internet companies

? Internet is a low-trust and crowded place
? While China?s Internet has seen an overflow of content, portals and Web 2.0
companies, Internet remains a low-trust environment due to poor measurement.
? Alexa ranking? This has been the key measure to raise venture capital in the
Internet space, making pageviews a critical metric, above actual service quality
(we say China follows the ��Alexa School of Investment��).
? In addition, many companies have used self-installing ��hooligan software�� to beat
competitors, gain subscribers and boost their Alexa ranking.
? As a result, advertisers have been very cautious and unwilling to switch from
traditional media to online media. Today, less than 5% of China?s advertising
spending goes to Internet. The prevalent ad sales format is a antiquated CPD
��cost-per-day��, rather than CDM (per thousand) or CPA (per action).
? Mobile content providers are under tremendous pressure
? Due to operators? policies working in a self-serving mode, mobile CPs have been
declining steadily since 2005, undergoing major changes of strategy.
? China Mobile and China Unicom are more or less using content providers as free
research centers: once a CP achieves some success with a service, operators
will replicate it and launch their own version.
? The trend today for CPs is to find new distribution channels and business models
independent from operators, working with manufacturers and media companies.
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Leaders the WVAS market
WVAS revenues of key CPs in 2006

Top 8 = $630 million in 2006 from WVAS (45% of the total)
Million USD

(estimate)

WVAS IM WVAS WVAS Web Online
WVAS Web
Portal games
Portal
Source: Plus8Star
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Performance of leading Internet and mobile companies

1st day: Baidu?s share price shoots
at 5 times its introduction price

Getting NASDAQ?s attention was easy for ��China?s
Tencent enjoys amazingly good karma since its
Google��, Baidu, also enjoying a healthy curve
introduction on the Hong Kong Stock Exchange

New policy
introduced

End of the ��Internet Winter��.
Investors come back to China

As the leading Internet portal, Sina has enjoyed sustained
Along with other mobile content players, KongZhong has
suffered from government and operators? policies. growth along with the online advertising market

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? Company snapshot: Tom Online
? Company snapshot: KongZhong
? Company snapshot: Sina
? Company snapshot: Tencent
? Company snapshot: Linktone
? Company snapshot: Hurray
? Company snapshot: Sohu
? Company snapshot: Netease

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Internet creates heroes!

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Digital entertainment is booming

? In China, there are not many alternatives for affordable
entertainment
? The media/music/cinema industries are still in their infancy and tightly controlled.
? Internet is thus filling a gap.

? Consequences
? Social networks, digital creations, interactive TV are all booming in China
? Online advertising is also taking off
? Digital music sells more than ��offline�� music, most of it via mobile phones

? Among recent Internet phenomenon, the following provide a glimpse
of the current Chinese Internet pop culture. All are whether ��user-
generated�� or ��interactive�� content
��Mice Love Rice�� | Internet-originated national hit song
?
? Backdorm Boys | Lip-synch artists
? Furong Jiejie | Self-proclaimed Internet beauty
? Mu Zimei | Sex blogger
SuperGirls | China?s ��American Idol�� leverages mobiles
?

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��Mice Love Rice��

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��Mice Love Rice��

? In October 2004 the song ''Mice Love Rice'' is released on the Internet
? The author, Yang Chengang, is a 26-year-old music teacher by day and lounge
singer by night in central China's Hubei province

? The song became an instant hit online and its popularity quickly spread to
traditional media
? Over 100 million Internet downloads (mostly free)
? At peak, it sold 6 mln RBT in one month (sales equivalent to 700,000 CDs)
? #1 in RT, RBT and real tones over mobile phones and Internet and made it to
iTunes Top 10 World list in 2005

? The rights holder and SP Hurray Freeland generated $21.5 million in
licensing fees (170 million RMB, mostly coming from RBT)

Sources: Hurray, 2006.9; Chongqing Evening News, 2006.10
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? Comments from industry insiders: Universal Music
? The Backdorm Boys case
? Comments from industry insiders: Ogilvy
? The Furong Jiejie (Sister Hibiscus) case
? The Muzi Mei case
? The SuperGirls case
? So why dealing with Net stars?

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Backdorm Boys

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Sister Hibiscus

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Muzi Mei

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SuperGirls

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2. QQ Facts and Figures

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General figures

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What is QQ?
Key Ideas
? QQ is the main service brand of Tencent, founded in November 1998 and located in Shenzhen
(South of China, near Hong Kong)

? Tencent is the #1 Instant Messaging (IM) service provider in China, and a leading provider for
Internet and mobile value-added services.

Tencent?s IM community counts over 270 million active accounts and is said to be covering
?
95% of Chinese Internet users and 70% of China��s IM market. The IM platform allows users to
communicate in real-time across the Internet, and mobile and fixed line telecom networks using
various terminal devices.

Tencent?s is operating of 4 lines of business:
?
1. Internet and mobile value-added service
2. Mobile and telecommunications value-added service
3. Advertising service
4. Trademark licensing business
The former two made up 90% of Tencent?s revenues in 2006.
?

? Its IM tools include Tencent QQ, Tencent Messenger and RTX. Though these services are free,
they are the core of Tencent?s business and are the foundation for VAS products.

? Tencent is reinforcing its portal to activate its huge IM user base and introduces all kinds
of WVAS and IVAS.

? QQ uses a penguin as its brand mascot. The brand commands
very strong awareness thanks to its early entry and its ?cute? factor.

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? Key figures: users and page views
? Key figures: users growth and ranking among competitors
? Why is QQ so successful in China?

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Key milestones and results

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QQ History
Rise of a Star

? Largely inspired by ICQ, an IM tool originally developed by two Israeli,
Tencent launched OICQ in China in 1999.
OICQ means: ��Oh, I seek you!��
?
Paipai.com launched

QQ Pet launched

Q Zone launched

IPO at HK Stock Exchange
Sep. 2005
Jun. 2005
launched
30
QQ Game/ RTX launched 24.5
Mar. 2005
25
Jun. 2004
Internet VAS launched
20
Dec. 2003 16
Mobile QQ launched
15 Sep. 2003
Oh, I seek you OICQ launched
9
Jun. 2001
10
Company founded in Aug. 2000
4
Shenzhen 5
2
Feb. 1999 1
0.1
Nov. 1998 0
2000 2001 2002 2003 2004 2005 2006

IM PCU (million)

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? QQ bloomed with China?s Internet industry
? Shareholding and revenue breakdown

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Business models

Free services to attract user to come and to keep them stay in the community
(QQ IM, , WAP portal, QQ Group��)

Personalization, value-added Interactivity

Fee-based revenue Traffic-based revenue

IVAS WVAS Advertising
(Internet value-added service) (Wireless value-added service)

Fee-based IM Fee-based IM IM Client-end
Premium QQ, QQ Xing Mobile QQ

Online identities Content-based SMS
QQ Show, Qzone, QQ Pet..

2.5 G
QQ Games Search
MMS, WAP��
Casual, MMORPG

Mobile Voice VAS
Others
IVR+CRBT
Dating, e-card, e-magazine��

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Legal stories

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? Domain name
? QQ and Chery (car manufacturer)
? QQ and Pica (mobile & PC IM service provider)
? Embezzled QQ accounts

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3. Key services
From Instant Messaging to instant noodles

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? QQ service map

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3. Key services
Instant Messaging

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Instant Messaging

QQ
QQ is Tencent?s IM software for common users.
Simplified Chinese, traditional Chinese, and English versions (with
less functions) are available.
The core is entertainment and to have fun.
Free to use
TM

TM stands for Tencent Messenger. Compare to QQ, TM looks more
professional, and provides more business applications such as
contacts management, business card, agenda, and so on.
Free to use

RTX
RTX is Tencent?s professional IM version dedicated to internal
communication for companies.
The software interface can connect to internal management tools
and information systems
Not free to use

Tencent tries to cover several market segments. However, TM and RTX are not as popular as QQ

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Typical QQ IM interface

Take a group photo with
Cathy?s QQ Show

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? QQ lingo

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QQ Show
Chinese avatar

? Largely inspired by South Korea?s Cyworld, QQ Show is a personalized
avatar service.
? Users can buy various items (clothes, background image, decoration) with QQ?s
cybercash called ?Q Bi? to create their ?QQ Show?. 1 Q Bi = 1RMB (0.14 USD)
? This ?QQ Show? is then used within the IM client, ?s online community
and QQ game portal.
? Users have various ways to obtain a QQ Show
? Buy in QQ Show Mall
? Buy in C2C e-market
? Gift from friend

Initial female and
Simple QQ Shows Richer QQ Shows
male characters
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QQ Show use case

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? Selection of standard items
? Selection of branded items
? Change your QQ portrait in QQ Show
Where is the ��QQ Show�� visible?
?
? Generating revenues from QQ Show

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QQ Show Mall

? QQ Show is not free, and should be paid by Q Bi

Starting
avatar

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? Buy a QQ Show online
? Online auction for QQ Show
? Q Zone, a blog-like & Cyworld-like service
? Q Zone without decoration
? Q Zone decorated
? Customizing page style and content modules
? Generating revenues from Q Zone
? Performance and key factors of virtual items

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3. Key services
QQ Pet

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QQ Pet
Virtual pet community

? QQ Pet is a virtual pet community game. If you users like, the pet can stay
on the desktop and accompany its host

? The host feeds the pet, showers it, takes it to see a doctor. The pet
expresses its emotions, studies, takes medicine, works, makes friends,
travels, marries. In short, does everything a person does in a human society.

? Main features
? Nurture and educate: study, feed, take shower, take medicine, see doctor, get
married, ��
? Outdoor activities: travel, make friends, see friends, drive a car. Reactive
functions enable QQ Pet to go to desktops of its host?s QQ buddy, and to be feed
and canoodled by them.
? Entertainment: play toy, send to buddy active emotions related to pet
? Pet status: desktop or hiding, customize pet?s dress, house, etc
? Pet levels: like the age, some activities are accessible according to the age, such
like getting married, go to university, work as a lawyer or an artist, etc

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QQ Pet Internet portal

Promotions

Log in

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? Breeding a pet
? Packages for pets
? Use case: a pet?s life
? QQ pet from 1 to 4 years old
? QQ pet above 20 years old
? QQ pet community
? Performance and key factors

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Use case: QQ life step by step, from 1 to 4 years old
Illustration explains QQ Pet functions

I was offered 300
Yuanbao. With this
One day, a new QQ
money, I can enjoy life for
pet was born
a while

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3. Key services
Additional services

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? Voice QQ: calling other users via QQ number
? Voice QQ service fees
? Little Q IM chat robot
? Internet portal main page
? details
? QQ levels
? QQ Group
QQ Group?s stickiness
?

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Internet portal details

Lower half
Upper half
Content Channels
Paipai Ad
Search

QQ services

News center

Woman/fashi
on/health
news

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3. Key services
Boosting online advertising: MIND

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Tencent MIND: online marketing/advertising

? In the last quarter of 2007, Tencent launched its MIND strategy to
accelerate its online marketing/advertising service.

? Until then, Tencent?s has been relatively weak in terms of internal skills,
solutions offered to advertisers and advertising revenues (10% of total)
compared to other large Internet players like Sina, Sohu or Baidu.

? Tencent MIND is the online branding and advertising philosophy of the
solutions provided by Tencent
? M: Measurability, measurable effect of online marketing/advertising
I: Interactive Experience, improve end-user?s experience by interactivity
?
? N: Navigation, ensure the precision of selected targeting end-user
? D: Differentiation, customize online marketing solution for different advertisers

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Tencent?s MIND is based on its interactive platforms
?
? QQ Skin
? QQ Skin examples
? In-IM advertising example
? Q Zone interactive online marketing example

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Tencent MIND: QQ Skin
in-IM advertising cases: Samsung, KFC, Lenovo

? Ad element is naturally integrated in the skin design.

Samsung KFC Lenovo
MP3 Juice PC
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3. Key services
Access solutions

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PC �C client software

? The registration is quite simple, and not restricted.
? No personal ID check
? One person may register different QQ accounts.

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? Browser-based IM
? Mobile IM: SMS version
? Mobile IM: WAP version
? Mobile IM: client software

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3. Key services
Payment systems

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? System structure
? Wireless value-added services (WVAS)
? Tenpay
? Internet value-added services (IVAS)
? What can we do with Q Bi?
? How can we get Q Bi?
? How many monetary functions has Q Bi?
? Benefits and issues brought by the usage of Q Bi as an online currency

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3. Key services
Economic value of QQ virtual assets
What kinds of QQ numbers are considered the best?
How is the value of numbers calculated?

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? Value analysis of QQ numbers
? Value analysis of users? online history, rank and gaming levels within QQ

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4. SWOT Analysis

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? Strengths
? Weaknesses
? Opportunities
? Threats

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5. User interviews

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Methodology

? A good way way to understanding a service?s reality is to ask its users.

? With this in mind, we conducted interviews over QQ chat with six different
users to get a sense of what QQ is about for them.
? Interviewees were selected to represent a reasonable variety of profiles (age,
gender, activity, experience with QQ).
? Questions revolved about their general usage and their feeling and social links
within QQ.

? Illustrating the social impact of QQ
? Among other things, we could verify how strong was QQ?s influence on Chinese
netizen?s lives: from maintaining social ties, to creating new ones, sometimes
even leading to marriage!

? Interviewees were rewarded for their time with Q Bi.

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User interviews

Chen Tingting

Female, 21

University
student

QQ number:
12507XXXX

Note: the last four QQ numbers are masked for privacy reasons
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User interviews

Why did you
register to QQ?

How about your
contacts list?

Do you know all
of them offline?

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? Usage of Q Bi
? QQ and you
? Pros and Cons of QQ
Perception of QQ?s values
?
? Other Internet usage
? Image of QQ

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6. Experts insights

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Experts interviewed in this section

Name Title Company Description
Catherine GM, Investors Tencent Tencent is the company operating
CHAN Relations QQ

Tangos Chief Editor China Web Leading English website covering
CHAN 2.0 Review Internet innovation in China

Kaiser Group Director, Ogilvy Leading advertising agency.
Editor of the ��Ogilvy Digital Watch��
KUO Digital Strategy China
blog on digital media in China.

Mr. A CEO A Competitor to QQ

Song LI CEO SinoFriends Founder of the leading mobile
content provider, sold to Sina in
2003. Now operating both mobile
and Internet community services

Mrs. B Partner B China-focused Venture Capital firm

Mr. C CEO C One of the leading Chinese user-
generated content community sites

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Exclusive interview with Catherine Chan
General Manager for IR at Tencent
? Q. How would you define Tencent/QQ's core competence?
? Large user base and sticky community experiences
? Better understanding of user needs, continual innovation and focus on R&D and
long term development
? Ability to develop diversified products based on core IM platform to cater to user
needs.

? Q. What were the strategies to reach the quot;tipping pointquot;?
? We launched QQ in February 1999 for users to free download on the website, it
gained popularity soon and registered users grew to millions quickly. In April
2000, QQ registered user accounts reached 5 million.
? By July 2007, QQ peak simultaneous online user accounts reached 30 million

? Q. How would you describe the influence of QQ on the Chinese society?
? As of July, 2007, Tencent?s active IM user accounts reached 273 million,
covering most of Chinese internet users.
? In June 2007, Tencent was awarded the ��Best Chinese Lifestyle Brand�� which
shows QQ has become a part of people?s lives. Through its various online
platforms, Tencent fulfills the user?s different needs for communication,
information, entertainment and e-Commerce on the Internet.
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? Exclusive interview with Tencent
? QQ global?
? Next steps of QQ
? View on policies on virtual money
? View on policies for WVAS
? Social responsibility
? What about the penguin?

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How would you define the characteristics of China��s
Internet industry?
? Low penetration (12%) indicates great growth potential
? Still in early stage of development, reflected by the fact that wireless and
online games have well developed but online advertising and e-Commerce
are still in their infancy.
? Unique Chinese culture. For the time being, major internet companies like
portals, game operators, ecommerce services are local companies.

1. Lack of innovation
2. Entertainment-oriented
3. Internet is still mainly a channel for getting information, rather than a
tool to use in their daily life and work.
4. Big Internet companies still dominate the market.
Tangos Chan
China Web 2.0 Review

? Entertainment-focused to the point of distraction; both more- and less-
regulated than the industry in the U.S. (more in terms of acceptable content; less in
terms of things like P2P and pirated media)
? Ferociously competitive because of the relatively low level of disposable income
? Plagued with very bad and unreliable metrics
? Less obsessed with privacy issues. Kaiser Kuo
Ogilvy

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How would you define the characteristics of China��s
Internet industry?
? The Chinese Internet industry is by and large an online media industry at
the moment, online commerce (which generates transaction-based
revenues) for real goods is not here yet
? Online commerce for virtual goods, on the other hand, is well proven
(QQZone, or those online games that are free to pay but sell virtual items).
? C2C ecommerce sites for real goods are essentially free thanks to
Taobao.com and B2B sites for real goods do not really exist (Alibaba,
despite its marketing itself as a B2B ecommerce site, is really a B2B online Song Li
CEO, SinoFriends
media for classifieds because it does not generate revenues from
transactions)
? B2C sites are in a very tough business in general because margin is
usually very low after taking care of warehousing and delivery logistics.

Focused on young people and entertainment. Few business models and still in
a growing stage, and having huge potential.

? Early stage with an entertainment focus
Mr. A
? Low monetization
Company A
? I see a future in user behavior-based
lead generation, RIA, AJAX and
It is large but in ubiquitous video services
Mrs. B
a chaotic state. Mr. C
Company B
Company C
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How would you describe the influence of QQ on the Chinese
society?
The 1980s and 1990s generations grew up together with QQ, the
style of entertainment in QQ has significant influence on them.

They developed a QQ lifestyle and a new kind of language,
which is called Words from Mars (��), it is mainly used in
QQ chatting and QQ?s Qzone.
Tangos Chan
China Web 2.0 Review

QQ has has largely defined the way that young Chinese people
communicate with one another online, creating by its convenience and its
sheer ubiquity a preference for IM over email.

Young Chinese people don��t ask one another for email addresses;
they ask for QQ numbers. It has created a powerful channel for the viral
Kaiser Kuo
spread of news and information, of entertainment, and even of brand
Group Director,
Ogilvy & Mather Advertising messages.

Young people
QQ brought the
think that ��QQ��
entire young
has the same
generation to
meaning as ��IM��.
Internet, i.e.,
millions of users Song Li
Mrs. B
CEO, SinoFriends
Company B
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? What made QQ so successful?
? Professional opinion of QQ services
? Weaknesses
? Competitors and their advantages
? What is needed to make QQ global?
? Influence on society
? Favorite Internet services
Next steps in China?s Internet
?

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Appendix

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Glossary and Links

Glossary Links
Services and technologies Tencent www.tencent.com
QQ www.
2G services SMS, IVR, CRBT and others
2.5G services WAP, MMS and Java/brew
Telecom operators
CP Content Provider
SP Service Provider China Mobile www.chinamobilehk.com
SMS Short Message Service China Unicom www.chinaunicom.com.hk
MMS Multimedia Message Service China Telecom www.chinatelecom.com.cn
IVR Interactive Voice Response China Netcom www.china-netcom.com
RBT/CRBT Ring Back Tone / Color Ring Back Tone
China Mobile?s WAP portal
Monternet Internet and mobile companies
China Unicom?s WAP portal
Uni
Hurray! www.hurray.com
MMOG Massively Multiplayer Game
KongZhong www.kongzhong.com
MMORPG Massively Multiplayer Online RPG
Linktone www.linktone.com
PCU Peak Concurrent User
Netease www.163.com
PHS Personal Handyphone System
Pica www.pica.com
VAS Value Added Services
Sina www.sina.com
WVAS Wireless Value Added Services
Sohu www.sohu.com
WAP Wireless Application Protocol
Tom Online www.tom.com
UCC User-Created Content
WangYou www.wangyou.com
UGC User-Generated Content

Government and Associations
Operators and Authorities
MII www.mii.gov.cn
CMCC China Mobile
VASC www.vaschina.org
CNC China Netcom
MCSC www.mcsc.com.cn
CU China Unicom
Mobile Monday Beijing www.mobilemonday.cn
CT China Telecom
CNNIC China Internet Network Information Center
MII Ministry of Information Industry
MCSC Music Copyright Society of China

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About +8*

The future has already arrived. It is just not evenly distributed yet.
William Gibson
Science fiction author & father of the cyberpunk genre
Coined the term quot;cyberspacequot; in 1982

The company Our focus
? [+8*] (Plus Eight Star Ltd.) is a consulting boutique ? ?Innovation Arbitrage?: bridging differences in market
operating from Beijing, China maturity worldwide, using Asia as a source
? To learn more about us, please visit www.plus8star.com! ? Strategic consulting on best practices in mobile and
Internet services in China, Japan and South Korea

Our services Local expertise and global perspective
? Provide strategic analysis to operators & content providers ? Multicultural team covering the 3 markets
? Hands-on experience with local companies
to anticipate their markets
? Bring best practices in business models, service design ? Large network of contacts
? Hands-on experience with local companies
and marketing to Internet and mobile companies to
? Cross-market & cross-cultural awareness
accelerate their business
? Other services range from M&A advisory, market entry,
partners identification to negotiation support

Co-Founder & Organizer | Mobile Monday Beijing Founder and CEO | Benjamin Joffe
? Leading Information and networking event related to mobile ? 8 years in Japan, Korea and China
? Tel: +86 1371 880 3321
services in China
? 16 sessions since March 2006 ? Skype: benjamin0123
? 2000+ members, 50+ presentations ? Email: benjamin@plus8star.com
? www.mobilemonday.cn

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There is more to know that QQ!

? Cyworld is also very relevant to you
? A broadband country since the late 90s, South Korea is today enjoying super-
high speed broadband and its society has evolved accordingly, making Korea
today the most ?Internet literate? country on the planet and a perfect laboratory for
new broadband Internet services.
? Among Korea?s success stories, the online community Cyworld has been the
shiniest star: over 30% of South Korea?s population, and 90% of Korean netizens
in their 20s have a personal page on the service.

? What you will learn
? The critical elements that made Cyworld a success
? The money-making services and payment systems generating 200 million USD
? Original services that could help differentiate and plan some great innovations!

? Pricing
? Company license | USD 2,000 (PDF report)

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�ݺ�ߣ

Inside QQ

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