A New Market

As Chinese social networking sites slowly open up to third party developers， some say it could signal a new trend in the Chinese Internet sector by SEBASTIAN COHEN

Chinese Internet companies have not traditionally been advocates of open platforms. This has been particularly evident with Chinese SNS (social networking service) platforms. The dominant SNS player in the US， Facebook， has saved millions of dollars in research and development (RD) by opening its platform to third-party developers， who share a portion of their proceeds with the SNS site in exchange for using Facebook as a laboratory to test their product and build a market following. By comparison the SNS market in China is more fractious – there are at least four major players who have differing demographics. Thus it has made more sense for the different Chinese SNS companies to be more proprietary about their offerings， at the cost of higher RD expenses.

“Generally， the Chinese market is behind the trend compared to the US and other [currently] more advanced Internet markets， but as new pieces of those ecosystems make their way into China， new models have to be adopted to compete and succeed.，” says Ellis Rahhal， chief technology officer of mobile location service company Mobile Native.

Over the last few years China’s four SNS providers have all slowly begun opening up their systems to differing degrees. RenRen (人人)， China’s second largest SNS platform and the most popular among Chinese students， began opening up its platform to third-party developers several years ago， however by leveraging the size of their network they were able to insist on a 56% cap on the revenue that game developers could earn. Game developers who were eager to enter the Chinese market in any way they could were quick to agree to RenRen’s terms. US gaming company RockYou! launched a game in 2009 on RenRen’s open API and a few months later were followed by PopCap Games who made a limited offering available on the Chinese SNS platform.

A more recent adopter of the open platform business model has been Kaixin001 (開心網(wǎng))， the leading SNS among Chinese office workers and， not coincidentally， the SNS on which users spend the most time and money. Until August of last year the company developed and maintained all of its own games， which seriously limited their ability to publish new games in a timely manner. “Kaixin001 fell behind in the quantity and quality of games，” noted analyst Kai Lukoff of iChinaStock， which he attributed to Kaixin001’s closed platform. The fact that Kaixin001 has the most profitable demographic (white collar workers) among the different SNS platforms and that its users are the most actively involved in their domain， makes it imperative for them to offer popular games.

Having seen the writing on the wall， Tencent (騰訊)， China’s largest online company with its tentacles in a variety of businesses from gaming to e-commerce， began the process of opening its gaming zone to third party developers in 2009 and then gradually opened up other segments of its Internet empire until founder and CEO Pony Ma stated late last year that the entire Tencent QQ platform would be opened up to third party developers. At the Tencent Partners conference held on July 15 in Beijing， Ma laid out what he called “Eight Choices” that spelled out the terms for the company’s new open platform policy. Some of these statements such as， “Our partners’ success has priority over our own achievements，” and， “On Tencent’s open platforms， we will#8239;support#8239;innovative applications rather than copycats，” sound more like they were formulated for public relations benefits rather than any actual strategic planning on the company’s part.

Though Tencent began opening up their platform two years ago， the company seems to have put a major PR push behind their opening up policies following a recent and very public spat with anti-virus provider Qihoo 360 (奇虎360). As Kai Lukoff notes， “A nasty public spat with Qihoo 360 opened Tencent’s eyes to the way other Internet firms detest it for its monopolistic ways. It’s since announced a major ‘open strategy’ across its eight platforms and has#8239;become the destination of choice for the social game developers I know.” Of course， Rahhal maintains that some skepticism about Tencent’s “openness” is warranted， “since there are so many details and rules on ‘open’ platforms， including Facebook and Apple， what this means is still not completely clear.”

But if PR is the sole reason Internet companies in China are opening up their systems to third parties， why is it becoming such a widespread phenomenon? In 2010 Taobao (淘寶網(wǎng))， China’s largest consumer-to-consumer (C2C) e-commerce platform with over 85% of the C2C e-commerce market， instituted the Taobao Open Platform which allows third party developers to come up with applications which could be incorporated into the Taobao system and use Taobao data， such as a mobile application which tells users which Taobao sellers are in their area， or a program called SoTuGou which allows mobile users to take pictures of a product and then returns search results on what Taobao products match the criteria in the picture. Considering how far beyond the world of gaming this trend goes， it seems that the development of an open Chinese Internet is already well underway.

And of course as the platforms open up， a network of independent application developers will emerge similar to the one that developed around Facebook or the Apple store in the US. Chinese gaming companies have been very adept at developing applications for distribution on Western networks， and now these same companies may be able to look to the domestic market.

“Some of this openness is lip service — every Internet firm in China now claims to have an ‘open platform’—but there’s certainly a very real competition to build an ecosystem that’s mutually beneficial for developers and the network itself，” says Lukoff.

The issue of remuneration for developers improves greatly as a greater percentage of companies operating in the Chinese Internet space open up. When Kaixin001 opened its system in August of 2010， it kicked off its developer relationship by offering developers increased revenue shares. RenRen had previously been the only social network to open its API and it stipulated that developers sign an agreement to not distribute their games on Kaixin001 for at least six months. Kaixin001 opened their system by offering developers a greater revenue share than RenRen – a 60-70% revenue share that goes up to 80% if they sign an exclusivity agreement. Kaixin001’s white collar clientele pulls in more revenue per player than RenRen can， thus it only makes sense for Kaixin001 to try and offer the best (most addictive) games on its platform exclusively.

So is this shift to an open platform fueled by altruism， collective PR savvy， a cultural shift， or something else? “Don’t be fooled here， the objective is still profit， it’s just that Chinese networks are now recognizing openness as a superior tool to achieve it，” says Lukoff.As for the issue of cultural shifts within the Chinese society， Rahhal warns， “Cultural shift in China is a much larger issue and this is one small piece that both influences and receives influence.”

So while the causes may be hard to identify， the effects are easier to envision. The development of a robust domestic ecosystem for third-party games and other apps could turn Chinese developers into even more formidable companies as they enjoy preferential access to their enormous home market and figure out how to leverage this onto the international app scene where they have already found some success.