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Mary Meeker on China

April 16th, 2004 · No Comments

WSJ writes about Morgan Stanley’s Mary Meeker, dubbed “Queen of the Net”, and her growing interest in China:

After the U.S. Internet bubble burst in 2000, Ms. Meeker fell off the analyst radar screen and was assailed as having overhyped Internet stocks. But now, in the thick “China Internet Report” released Wednesday, Ms. Meeker is back, pleading that “investors still underestimate the impact the Internet will have in changing business process and consumer behavior on a global basis — and we believe that China is emerging as a market that helps prove this point.”

“The overall market opportunity from the Internet in China will prove to be quite significant over time,” she maintains. Moreover, she’s turned to China to prove her long-term theories about how the Internet can change business — especially through economies of scale, provided here nicely by China’s 1.3 billion potential consumers.

“One of the elegant things about the Internet is that you can get a little bit of money from a lot of people. That can create a pretty compelling business model,” Ms. Meeker says. Most Chinese people are poor but, Ms. Meeker argues, not too poor for the Internet. She points to the early success of Chinese online gaming companies, such as Shanda Interactive Entertainment, the owner of which became one of China’s richest men by charging cents for subscription access to games played by thousands at a time.

Ms. Meeker argues that simple math on a Chinese scale points to profit, even for companies following some of the same paths as U.S. dot-coms, such as online advertising and e-commerce. “If Internet user growth in China continues to grow at 30%, and usage grows higher as broadband becomes more pervasive, it’s fair to say the revenue growth from Internet companies should at least be commensurate,” she says.

Not everyone agrees. Ten-year veteran Chinese technology analyst Duncan Clark took issue with her assumptions that business models that have sustained U.S. dot-coms could work in China. “E-commerce can be a great window, but can you collect?” asks Mr. Clark, managing director of BDA China. “Now people are using sites just to say, ‘Let’s meet at this street to pay each other off.’

The 217-page report is accessible from here.

Another story in the WSJ discusses how online gaming is propelling growth of the Chinese Internet companies:

Highflying Chinese Web portals such as NetEase.com and Sohu.com tanked with the dot-com crash, but launched a spectacular comeback last year on the strength of selling text-messaging services. Those services, called SMS, for short messaging service, allow customers to send news, messages and pictures to cellphones through the portals. But now SMS may be playing second fiddle to sword fighting. This year, the prices of several Chinese Internet stocks have surged on the back of new revenue from selling online games.

Many of China’s online denizens aren’t slacking office workers but kids who, because of Beijing’s one-child policy, are frequently looking to entertain themselves at Internet cafes or home. Some 53% of Chinese Internet users are under age 24; in the U.S., only 29% of users are 18 to 29.

Online games, in which players subscribe to an Internet service that simultaneously delivers a game to thousands, are a natural because they don’t require users to have an expensive console. Last year, 15 million Chinese subscribers spent $160 million to play against real-life friends in virtual games, according to IDC analyst Jun-Fwu Chin. In 2008, he expects 54 million subscribers, who will spend $823 million. Further, online game companies have already proven they can make money by selling subscriptions for pennies. On April 2, Shanda — owned by one of China’s richest men, Tianqiao Chen — filed to have an initial public offering on Nasdaq, as Shanda Interactive Entertainment, that it hopes will raise $200 million. The company reported net income of nearly $28 million for 2003.

India will come on the radar as the broadband access infrastructure gets built, and is complemented by low-cost access terminals, affordable software and locally relevant content.

Tags: Emerging Markets

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