China’s e-commerce giant Alibaba and Qihoo 360 have teamed up to launch 360.etao.com, an online shopping search engine that rivals similar products by Baidu, China’s biggest search engine.
Qihoo’s new relationship with Alibaba is noteworthy because Alibaba dominates China’s $190 billion e-commerce market through two of its portals, Taobao and Tmall, and is on its way to becoming the first online retail company in the world to handle $1 trillion a year in transactions.
The launch of 360.etao.com, which currently points to Alibaba’s vertical shopping search engine Etao, is part of aggressive efforts by Qihoo 360 to chip away at Baidu’s dominance in China’s search market. Baidu has 67.2% market share and Qihoo 360 holds 14.9%, according to data from analytics firm CNZZ.
Qihoo 360, which launched its search engine just nine months ago, declared in February (link via Google Translate) that it intends to double its current market share to 20% this year. Other competing products Qihoo 360 has produced include vertical search engines focused on music, software, doctors and mapping services.
Qihoo has sought allies among China’s most important Internet companies. One of its current partners is Sina, which runs Sina Weibo, the country’s largest and most influential microblogging platform. The two companies signed a strategic browser game agreement in January.
Baidu has not been sitting idle. It recently launched security software designed to compete with Qihoo 360′s products (before entering the search business, Qihoo was best known for its antivirus software) and is reportedly trying to increase its share of the search market by purchasing Sogou, Internet company Sohu’s search engine. Baidu also prevailed in a lawsuit that accused Qihoo 360 of engaging in unfair business strategies.
The biggest difference from one year ago with China’s mobile startups is that the local market is actually viable.
China now has more active iOS and Android devices than the U.S., up from about 40-50 million in circulation the last time I visited in late 2011. What that means is local entrepreneurs can finally build real, scalable mobile software businesses.
iDreamSky, which started four years ago, is one of the companies riding this wave.
They started back in 2009 and have grown to about 200 people through publishing some of the West’s best-known mobile games like Halfbrick’s Fruit Ninja and Imangi’s Temple Run in China.
The Chinese market isn’t like the rest of the world. There are myriad Android app stores, run independently of Google. There are different social media channels through platforms like Tencent’s WeChat and Sina Weibo. Then there are different local tastes for music and art.
“Finding a partner that knows how to localize your game doesn’t mean just translating the game in Chinese,” said co-founder and executive vice president Jeff Lyndon. “It’s also about adding unique content.”
He said in Fruit Ninja, iDreamSky added Chinese blades for cutting the fruit and localized backgrounds.
They also changed the monetization strategy in Temple Run. The Western version of the game asks players to buy virtual gems to revive their character. But in the Chinese version, Temple Run will ask players to either buy virtual gems or directly pay 2 renminbi (about 33 cents) to revive their runner.
Lyndon said re-routing players through a separate interstitial to choose packs of gems deterred Chinese players. “It’s counterproductive to impulsive buying behavior,” he said.
While other top local developers like Chukong have revealed that they’ve been making between $6 million per month, mainly from the Chinese market, Lyndon said top foreign indie games could realistically gross $4 million to 5 million per year before iDreamSky’s take.
The company splits revenue 70-30 with the developer getting the bulk, but they graduate their take to 50-50 for better-performing games. Their network has grown to about 15 million daily actives in China.
They’ve raised roughly $10 million from Redpoint Ventures and Legend Capital and compete with companies like Chukong, which publishes games while developing its own first-party titles. Yodo1 is another publisher that recently took funding from Singtel.
“There’s a new batch of the competitors, but the market is big enough for all of us to survive,” Lyndon said.
But he said one advantage that iDreamSky has is that it doesn’t have a dual role. It only publishes games; it doesn’t make its own titles. Having a dual model can sometimes lead to conflicts of interest if a studio promotes its own games over a third-party title, or even borrows ideas liberally from a third-party studio, he said.
“We have a very strong mandate,” he said. “If we want to be a publisher, we should never be a developer.”
He added that the market is changing rapidly. Tencent’s WeChat, which blew up over the last year and grabbed 190 million monthly active users, is poised to be a major distributor of mobile games. South Korea’s Kakao has pioneered this model; games distributed by the Kakao messaging platform dominate the top-grossing charts in the country.
“WeChat is going to be one of the biggest trendsetting elements of 2013 for the Chinese market,” he said. “Once it opens up, as Kakao and Line being have already shown, WeChat will deliver the same results or even better.”
For foreigners, Lyndon said there’s a limited window to break into the Chinese mobile gaming market (which might be a bit of a self-serving thing to say.)
He said local developers are getting increasingly better at catering to the local market, and they already dominate the charts with the exception of titles like King’s Candy Crush Saga.
“The Chinese market has changed dramatically. It’s getting harder for Western developers to come in,” he said. “If you don’t come into China earlier, you might not be able to come in in after next 24 months.”
One interesting thing to watch is how social networking platforms mature divergently as businesses around the world.
Sina Weibo, the public microblogging platform that has had a huge impact on online discourse in China, is veering down a path toward e-commerce and transactions after Alibaba took a stake worth $586 million in it last month. The platform is one of the two more influential social networks in China today, with the other being Tencent’s messaging app WeChat.
But unlike WeChat, Sina Weibo’s growth has slowed over the last year and its parent company Sina has had visible issues in monetizing the platform. (It feels a little bit like the heat Twitter had a few years ago for taking longer to bring in revenue-making products like promoted tweets and in-stream ads.)
“Weibo is pretty mature right now,” said Alibaba CTO Wang Jian in an interview. “It’s not in a fast growth period.”
In the Sina’s last earnings report, the company said Weibo made just under $50 million in revenue, or about 12 percent of overall advertising revenue. But investments in the company contributed to an $8.5 million operating loss for Sina last year.
Now with Alibaba’s investment, it looks like Weibo will take a different money-making path than its Western counterparts, which are more dependent on sponsored stories or in-stream ads.
“I think the best way to monetize Weibo is through e-commerce, not by ads,” Jian said. “That’s what I believe. That’s my personal thought. Weibo has a very good chance to integrate with the Alibaba business.”
It’s a win-win deal. Alibaba, which is veering toward an IPO, is China’s dominant e-commerce company and has an extremely data-driven culture. But it hasn’t been as successful with its own homegrown social networking efforts. At the same time, Sina isn’t widely considered to have the same caliber of technical talent as China’s other flagship Internet companies.
While Jian didn’t give a lot of detail on how they would integrate the two platforms, one could imagine that users could get targeted offers on goods and services related to things they’ve posted status updates about.
“We just need time to find out how to have a synergy of data between the two companies,” Jian said. “Weibo just gave us a new challenge for that.”
As for Aliyun, the smartphone OS that Jian is overseeing, Jian says that he doesn’t think the platform will fit Weibo — which is sort of hard to believe considering that Weibo is a mobile-centric product.
“I don’t think Aliyun really fits the Weibo deal,” he said.
While Tencent’s WeChat, which has surged to 190 million monthly active users over the past year, isn’t a direct competitor, Jian says it is in terms of other metrics.
“If you’re thinking about time that people spend on their devices, then you can say it’s a direct competitor. If you look at it from just a media perspective, I don’t think it’s direct competition. Two years ago, everyone spent time on Weibo, and now Weixin (WeChat) is becoming that app. It’s really a time spending problem.”
Chinese Internet companies Baidu, Tencent and Qihoo 360 are reportedly competing to purchase Sogou, Sohu‘s search business. Sina Tech’s report cites unnamed sources in the investment industry (link via Google Translate) and Sogou CEO Wang Xiaoquan has already taken to his Sina Weibo account to brush off the report as “unreliable,” but it’s worth noting that rumors of two recent acquisitions–PPS by Baidu and Alibaba’s purchase of a stake in Sina Weibo–both turned out to be true.
According to Sina Tech’s sources, Sogou, the third largest search engine in China, is currently stymied by a development bottleneck and can’t grab any more market share away from Baidu and Qihoo 360. Baidu has 67.21 percent market share and Qihoo 360 holds 14.94 percent, compared to Sogou’s 9.15 percent slice, according to data from CNZZ. The company has been considering a sale for the past six months, with Qihoo offering $140 million including stock and cash options, while Baidu is offering an undisclosed but higher amount of cash. Meanwhile, Tencent has entered the fray mainly because it doesn’t want Qihoo 360 to get its hands on Sogou.
The sale has been held up in part because of dissension within Sogou’s top ranks. CEO Wang Xiaochuan is reportedly at the head of the faction that wants to sell to Qihoo 360, but Sohu chairman Charles Zhang prefers Baidu’s offer. Sina Tech sources say, however, that Qihoo 360′s offer looks poised to triumph. If Qihoo 360 does indeed buy Sogou, the deal will boost the combined company’s market share to about 25 percent. Qihoo 360 will also reap the benefits of Sogou’s unique “smart input” method, which currently has 195 million active users.
“If the two merge it will really subvert the current structure of the search market. It’ll become a power struggle between two competitors,” said Sina Tech’s source.
A Baidu spokesman declined comment. Qihoo 360 and Tencent have also been emailed for comment.
Trustev, a Startup Battlefield company presenting today at TC Disrupt NY 2013, has developed a product to tackle online fraud using an algorithmic system of social signals, behavioural data and transaction history to create a “digital fingerprint” that lets companies verify that you are who you say you are when you are buying something online.
The problem that Trustev — based out of Cork, Ireland — is tackling is big, and growing bigger. E-commerce is booming, with sales topping $1 trillion globally in 2012 and still on the rise. But the market also has a dark undercurrent in the form of fraud — specifically around people using other people’s identities to purchase goods online. Currently ID fraud is a $20 billion problem and growing at twice the rate of the e-commerce market.
Beyond the very obvious issue of costing companies a lot of money, and consumers a lot of pain, there is another issue: traditional methods for trying to stem the problem are based mainly around human vetting.
Pat Phelan, founder of Trustev and its CEO, says that today 27% of all transactions online are referred to contact centers for review working out to 200 man-hours ever year. “At the moment, e-commerce is only 5% of all commerce, so as it grows you will run out of human beings to process all those transactions.”
And that’s not to mention the fact that current systems are inefficient. “Verification is a major operational cost,” he adds. “You have major cost centers created out of people Googling names, and trying to figure out if people are who they say they are.”
The social networks that Trustev tracks for identity signals include Facebook, Twitter and LinkedIn as defaults. In different regions, it plans to add others such as Orkut in Latin America, V-connect (from Vkontakte) in Russia, and Sina Weibo in China. Users check in to social networks when checking out to speed up the process.
Like other big data plays, the idea with Trustev is that it takes the mountain of data that is presented through these channels, and parses it and matches it up with other online activity associated with a person. This can also be used to help verify in a positive way, rather than simply to note when someone is not who they say they are.
A classic example is the case of a person travelling: some payment networks, when you go abroad, will automatically but bars on your payment cards, assuming that the use could be from someone who has taken your card number and is trying to use it elsewhere. A Trustev check could, however, note that you’ve recently travelled to New York because of some status updates in Twitter or Facebook, to confirm that this is really you (or not, as the case may be).
But the company also notes that it’s not just social data that is used. “Social is an option that we can use to augment the traditional tools,” he said. “But if you don’t have the social profile it doesn’t mean that Trustev doesn’t work. It will still use all the information on you that it can find.”
The company has already raised some $300,000 in angel funding from strategic investors including Telefonica, and it is already trialling its service with e-commerce companies and mobile operators as it gears up to raise money for its Series A round.
One of its latest partners, being announced today, is Magento, the eBay-owned e-commerce platform, which will mean that businesses that are built on that platform can select the Trustev service as a plug-in to provide its verification on transactions on the platform.
Pricing for how it works:
Perhaps unsurprisingly, because ID verification and fraud are very real issues online, we are already seeing a number of other companies emerging to tackle it as well.
Just today, PayPal launched a new effort to tackle verification of digital identities; and Airbnb’s launch of a new Verified ID service, to make sure that the people on its platform are not con artists, is an example of how sites themselves are also trying to move ahead to tackle this issue. Payment networks like Visa with V.me and MasterCard with PayPass are also interested in becoming the provider of secure digital identity online. And Max Levchin’s Affirm also appears to be, like Trustev, interested in using social signals to help build profiles of real people.
What other platforms besides Magento?
It’s a case of dropping in the code and can be used anywhere.
What is the process by which you do everything?
First we identify people, then we tag who needs to be reviewed (reduced by 75%), and then we will reject anyone suspicious with a message.
What besides Facebook Connect?
If someone doesn’t sign in with Facebook we have tools that we have built ourselves that work outside of that. You also see merchants that are not selling overseas because of this problem. This can help them sell abroad.
Why would the user want to do this?
We are not selling this to users, but we encourage site owners to get users to check in with Facebook to speed up the process. It’s projected that by 2015, 50% of people will be using social check-outs.