China Tech Newsletter – April 15, 2015

Ninebot E Personal Transporter (image: Ninebot)
Ninebot E Personal Transporter (image: Ninebot)

Ninebot, Beijing- headquartered personal transportation device maker, announced the signing of an agreement to acquire its US-based competitor Segway. Financial terms of the acquisition were not disclosed.

Segway’s first two-wheeled battery-powered electrical vehicle was unveiled in 2001 and many latecomers to this industry including Ninebot (founded in 2012) are believed to have modelled Segway’s products. Through the acquisition Ninebot will obtain more than 400 Segway’s patents, according to the press release.

Ninebot also announced today a US$80 million round of funding raised from Xiaomi, Shunwei Capital Partners (the VC firm co-founded by Xiaomi CEO Lei Jun), Sequoia Capital and WestSummit Capital. It is expected Ninebot products will soon be available on Xiaomi’s online store as the fast-growing Chinese smartphone maker has been adding new gadgets produced by companies it has acquired or invested in onto its store.


JD.com launches JD Worldwide, a cross-border e-commerce platform for international retailers to sell goods directly to Chinese consumers. 450 stores have been established on the platform offering goods from more than 1200 brands.

On the platform there’s also a “Best of eBay Deals” channel that features selected eBay sellers from the U.S.

The service is supported by favorable trade policies in China’s e-commerce free trade zones that JD “employs bonded warehouses to ensure the fastest times for customs clearance and delivery to consumers”, according to the company.


Alibaba Group announced to transfer the operating rights for Tmall online pharmacy business to its healthcare arm Ali Health (00241.HK) in exchange for shares and convertible debt. After the deal, which is expected to complete in the third quarter this year, Alibaba Group will hold 53% a stake in Ali Health, up from current 38%.

There are 186 Tmall shops selling over-the-counter drugs, medical devices, contact lenses and other healthcare products that are allowed to be sold online in China. The total sales revenue in the year ending March 2015 was RMB4.74 billion (about USD765m), according to the company.


Rongdu Science and Technology, peer-to-peer lending software developer, announced RMB66.25 million (about USD11m) financing from Hundsun Technologies Inc. (600570.SH), the developer of financial services software in which Alibaba’s Jack Ma has more than 20% a stake, and Yunhan Investment (our translation), the venture capital firm founded by core members of Hundsun. (announcement in Chinese)

Hundsun and Yunhan now hold a combined 46.9% stake in Rongdu.


Legend Holdings, the parent company of Lenovo Group, has reportedly filed for Hong Kong IPO to raise USD2-3 billion(source) .


Baidu has acquired enterprise security solution developer Anquanbao. Terms of the transaction were not disclosed.


Personal finance app Suishouji announced Series B+ round of funding led by Source Code Capital and participated by Fosun, claiming the amount is over USD10 million. The company announced Series B round of funding seven months ago. (source in Chinese).

China Tech Newsletter – April 14, 2015

Le MAX
Le MAX (image: LeTV)

LeTV, the online video and smart TV company, unveils its long-hyped smartphone Super Phone (our translation). It comes in three models.

EUI, the custom Android system developed for LeTV phones, has integrated all the services and video content of LeTV which are also available for its smart TVs.

The company touts its bezel-less design as selling point. But the bigger difference must be in pricing strategy, the same with that for its smart TVs, that LeTV phones charge an annual fee for content and service consumption.

The company also unveiled a VR headset. But no details are available for now.


Alibaba launches Xiao Pu, a tool for easy store management through the Mobile Taobao app for sellers. The company claims it takes less than five minutes to upload an item with the newly available capabilities.


Alibaba and Youku-Tudou, in which the former has a stake, launches the “View and Buy” program which enables viewers to buy items shown in a video without pausing to the playing video.

When uploading a video onto Youku’s UGC platform, video owners now are able to choose relevant goods that are available on Alibaba’s marketplaces to show next to the video. The program is powered by Alimama, Alibaba’s contextual advertising service. Youku will share revenue cuts from purchases with video owners.


Ant Financial Services Group, the finance arm of Alibaba Group, released “Vitanmin” project claiming to make data, technologies and distribution channels it has available to other financial institutions.


Mojing, a VR headset maker in which video software provider Baofeng has a stake, announced US$10 million funding from film production company Huayi Brothers, TELLING, Aisidi, and IERVC.

China Tech Newsletter – April 13, 2015

Tencent signed a cooperation agreement with the Shanghai municipal government on connected smart city.

WeChat, the massively popular messaging app developed by Tencent, recently began testing City Services (our translation) which enables citizens to see real-time traffic camera feeds and air quality data, file taxes, book doctor appointments, pay traffic fines, buy long-distance bus tickets, among others. Shanghai is among the first few pilot cities.


Tencent’s market capitalization reached US$200 billion for the first time.


Alibaba’s Taobao has added equity crowdfunding onto its crowdfunding site Taobao Crowdfunding (our translation) which was launched in March 2014.


The management, CEO and chairman Deng Yuqiang and COO Zhi Zhu, of Sungy Mobile have proposed to take the company private. It’s less than 16 months since it launched IPO on the NASDAQ. Since reaching a peak price in March 2014 its shares began falling in price and now is trading 75% lower than IPO price. The company’s president and CFO have resigned in the past year.

Sungy Mobile touted its big user based outside of China. But there have been concerns surrounding its capabilities of further monetizing the user base since its IPO.


Tiange, the Hong Kong-listed interactive video platform, has acquired 70% of Gusi Health (our translation), a healthcare software developer. Before this deal Tiange had acquired about 34% a stake in another healthcare application developer SeeHealth.

China Tech Newsletter – April 10, 2015

PPTV, the online video streaming service in which Chinese retail giant Suning has a controlling stake, is reportedly developing smartphones. A few leaked pictures are circulating the web.


Ride-sharing app 51 Yongche announced Series C round of funding led by Chinese search giant Baidu.

(Note: Inflating funding figures or user metrics are believed to be popular in today’s China.)


A dozen of famous Chinese entrepreneurs initiated an environmental protection fund named Taohuayuan. Jack Ma, chairman of Alibaba Group, and Pony Ma, CEO of Tencent, service as co-chairs.


About China Tech Newsletter

China Tech Newsletter compiles hand-curated business news from the China tech market.

China Tech Newsletter – April 9, 2015

Cloud service provider UCloud announced approximately US$100 million in Series C funding led by Legend Capital (the VC firm of Lenovo) and joined by VMS Legend Investment Fund I, DCM, Bertelsmann Asia Investments and GX Capital.

Eight months ago the company announced US$50 million Series B funding. It has data centers in mainland China, Hong Kong and the U.S. UCloud was founded in 2012 by former Tencent executives.


AutoNavi, the mapping company Alibaba Group has acquired, launched LBS+ initiative that provides developers with mapping functionality, development tools for location-based services, location data analysis services, cloud services, among others.


Kujiale.com, which provides interior designs and web-based tools for users to design their home on its site, announces US$10 million in Series B funding from GGV Capital. The site received multi-million dollar in the previous round.

(Note: Inflating funding figures or user metrics are believed to be popular in today’s China.)


About China Tech Newsletter

China Tech Newsletter compiles hand-curated business news from the China tech market.

China Tech Newsletter – April 8, 2015

Meitu, the developer of the massively popular photo editing and sharing app Meitu Xiuxiu (or Meitu Pic), releases its fourth Android phone M4 and a couple of gadgets. The selling point of the new model is the ability of taking selfies in the dark.

The company claims combined 980 million users, having its apps in 680 mobile devices. Meitu Xiuxiu has had 440 million users. Meipai, a video clip sharing app, has had 130 million users. These numbers show big jump since two months ago.


Alibaba Group launches business unit for automobile. A marketplace for new cars, used cars and auto-related products and services will be launched. Over 50 car brands, 10,000 auto 4S shops and 20,000 auto service stores have got on board, according to the company.

Alibaba’s Tmall, the business-to-consumer marketplace, held its first Car Shopping Festival in 2014, during which over 3000 cars were sold in half a month. 50,000 more cars were later ordered during its annual shopping festival in November.


Today is Xiaomi’s annual “Fan Day”. 2.11 million phones, 38,600 smart TVs, 79,000 WiFi routers and other gadgets had been sold by 11pm that generated a total of RMB2.08 billion (about US$335M) .


Sesame Credit, the online credit scoring service developed by Ant Financial Services Group (the finance arm of Alibaba Group), begins to power Huabei and Jiebei, two online  credit services of Ant Financial, and Haoqidai, a consumer credit service of MUCFC.com (a finance company jointly established by Chinese telco China Unicom and China Merchants Bank).

Users scored over 600 can take out month-to-month loans of up to RMB30,000 for shopping on Tmall or Taobao with Huabei, or 12-month loans of RMB1000 – 50,000 with Jiebei. Offerings from Haoqidai requires Sesame Scores to be higher than 700.


Drone maker DJI, or Dajiang, launches two new models, Phantom 3 Professional and Phantom 3 Advanced.


58.com officially launches its on-demand moving service which became available in 15 big and mid-sized Chinese cities during the testing phase.


7. Wowo Ltd. got listed on the NASDAQ. Starting off as a group-buying service, the company now positions as a marketplace for local lifestyle services.

The company only raised US$40 million in the IPO while having raised a total of some US$150 million in financing by 2012.


Mazhan.com, an online investment loan lender, announces US$10 million funding from Bluerun Ventures.


Qingchifan, a meal sharing service, announces US$17 million in Series B round of funding, led by Vertex Venture Holdings and joined by Sequoia Capital.


Qufenqi.com,  which provides undergraduates with installment payment options, announces approximately US$100 million new funding, led by Chinese gaming company Kunlun, aka Kalends, and joined by Bluerun Ventures and Source Code Capital.


Qingqing Jiajiao, a mobile app connecting private tutors and K-12 students, announces US$15 million in Series B funding, led by Sequoia Capital and participated by TBP and IDG Capital Partners.


Yirendai.com, the peer-to-peer lending site of CreditEase, will reportedly be spun off and IPO in the U.S. (report in Chinese)

(Note: Inflating funding figures or user metrics are believed to be popular in today’s China.)


About China Tech Newsletter

China Tech Newsletter compiles hand-curated business news from the China tech market.

A Brief History of Digital Music in China

As expected, free online music providers in mainland China rolled out subscription-based premium services at the beginning of 2013. Although Chinese users still have access to pirated digital music, the most visited legitimate music services can already meet the needs of mainstream users’. When even the public enemy, Baidu, established a legitimate music service and also launched a five-yuan monthly subscription last month, the music industry targeting at China market came to believe that the spring, finally, is coming.

In the long winter the music industry has been through, they tried out all kinds of monetization approaches and worked hard to make what seemed impossible to happen. It’s unknown whether premium offerings would finally satisfy the industry who always cried poor mouth after the emergence of pirated digital music, but what’s for sure is the previous value chain has changed completely.

The Internet isn’t the only culprit 

The Internet wasn’t the first in China that disrupted music industry with piracy. In cassette tape and CD times, the pirated were widely available. Nor was the Internet the first that used copyrighted music for free — Karaoke clubs were sued now and then for not paying royalties since 2007 when a regulation that requires so went effect. About one year ago TV station just began paying for broadcasting copy-righted music.

Back in 1990’s, a pirated cassette tape was at about half price of the legitimate. But my middle school classmates and I’d rather buy the latter anyway for the quality. The album choicesin the brick-and-mortar stores in my hometown were limited, so we’d buy directly from music labels in cities like Shanghai through mail orders.

It’s also not true that you couldn’t sell digi-music directly to users. The ringtones China Mobile sold to consumers generated a fortune for the telecom company.

But it was the Internet that made illegitimate, free digital music ubiquitous. Specifically, Baidu MP3, the digital music search service launched in 2002 that made accessing pirated music so easy and flagrant, enraged the music labels and musicians who would claim they couldn’t make a living from music anymore.

Ringtones 

A8, a music vendor, and China Mobile’s provincial division in Guangdong were the first on record, in 2001, to sell ringtones for feature phones. 2003 seemed to be the year the nationwide operator started testing the business.

A ringtone download was for 1 yuan and 50% of sales revenues went to copyright holders. It is, so far, the most successful model for selling legitimate digital music in China. It is reported that it became a 20 bn-yuan business on China Mobile platform in 2012. And the 50% revenue cut is the highest rate music companies can get from digital sales through third-party channels.

Public Enemy — Baidu music search

Baidu, the largest search engine by market share and revenue in China, released a music search service in November 2002. From then on, Chinese users couldn’t find anything easier than it to get free music downloads, few of which were legitimate back then.

Music labels, big and small, ran after it. The law suits with the Big Four labels weren’t settled until 2011.

Struggling Legitimate Music Services

A8, 9sky.com and top100.cn were the first independent legitimate digi-music providers. They’ve been paying labels or copyright holders money and, at the same time, tried out all kinds of monetization models, without luck.

Around 2005 – 2006, several music services, including A8, tried to apply iTunes-style model. A8 charged 0.5 yuan — a reasonable price, for a song. A8 also had a 15-yuan monthly subscription service and even set up an original music platform trying to have musicians sell music directly to consumers on it.

9sky.com charged for both streaming and downloads at first but stopped charging for streaming later.

After all the consumer-facing efforts failed, A8, 9sky.com and top100.cn gave in charging users and turned to advertising from 2006.

A8 Digital Music Holdings Ltd. (HK:00800) went public in 2008 as the first and the only digital music company in China. But its earnings have kept decreasing since 2010. As a beneficiary of ringtone model in 2G – 2.5G mobile times, it, together with many others, hasn’t figured out a way to leverage 3G.

top100.cn & Google Music 

From 2006-2008, top100.cn, with support from Google China, managed to convince the Big Four labels and most of Chinese independent labels, by promising to share advertising revenues, to offer free downloads, including DRMed(digital-rights-managed) music, through Google China’s music search.

Google shut down the service in October 2012, saying it didn’t perform as well as expected. Chen Ge, founder of top100.cn, wrote a book about how hard he’d worked to make what’s impossible happen.

Rye Music 

Rye Music, later renamed Taihe Rye, is one of the few local labels that have been trying to leverage the digital all these years. It was founded by Song Ke, a veteran in music production and distribution industry, and Gao Xiaosong, one of the most famous Chinese-language musicians.

In 2003, the company bought the digital rights of a song, The First Snow in 2002, and made it into a ringtone. That song became a national hit and the millions of ringtone downloads made Taihe Rye a fortune.

In 2005, they tried to sell the digital version of a new song by a famous singer directly on their website. Four yuan for a download — a similar price for a song in a ten-song album then. Downloads reached one million soon. At the same time, servers and payment solutions became considerable costs, about 30% of the sales revenues. Finally Taihe Rye dropped the direct sales model.

In the same year the company launched Tailenet, an online community including all kinds of digital music services you can think of. “The timing didn’t come” … “how to collect money on the Internet was a big problem”, Song Ke concluded when looking back at its failure.

Going forward to 2011, digi-music became 80% of Taihe Rye’s business. In 2012, the founders of Rye  established Heng Da Music who bought a number of song copyrights and tries to come up with new models for digital music.

QQ Music 

Along the way of building a full-fledged web service surrounding QQ, the instant messaging product the company started with, Tencent launched QQ Music and, later, a subscription-based premium service, Green Diamond, in 2006. QQ Music would become one of the largest online music services with 200million active users by June 2012. The subscription-based premium offering, called QQ membership, actually was the business model that brought Tencent its first income. QQ Music membership was just one of over twenty packages, covering offerings from games to online storage.

QQ Music subscription is for ten yuan a month, offering high-quality music download and others — for instance, music can be used as background music in Q-zone, a facebook-like social network under Tencent, or songs can be sent as gifts to contacts on QQ IM. Tencent shares user payments and advertising revenue with copyright providers.

Other value-added offerings were added to have more users or premium service subscribers. From 2008, services like online album debut, online shows and offline convert ticket sales were added onto the platform. Subscribers have privileges of buying concert tickets in advance or at discounts. QQ Music even started organizing offline concerts and events.

Big players share most with labels.

So far Tencent’s music service is a well-positioned example, but still it is estimated it cannot be profitable. For those Internet giants, however, profitibility of a music service isn’t a concern at the moment, and they are the major revenue sources for digital music to music companies for they have a majority of users.

Baidu established a legitimate music service in May 2011 and launched a five-yuan monthly subscription in Jan. 2013. The president of Haidie Music said Baidu Music and QQ Music contribute the majority of its digital revenues, the rest, a small part, is from advertising revenue cuts from third-party music sites such as 9sky.

Xiami, a business trial for digi-music ecosystem

Xiami was founded by a team of engineers from Alibaba in 2008. The business model Xiami came up with was based on peer-to-peer file sharing. On Xiami, any user can upload MP3 files — no matter where they get them — for others to download. But downloads are not for free.

One download is for 0.8 yuan. By its rule, 0.4 is supposed to go to copyright holder(s), 0.2 to the content provider and 0.2 to Xiami. Users are encouraged to promote songs with rebates; for instance, a user earns 0.1 when anyone downloads a song from a list he/she built. Transactions are conducted with Xiami’s virtual currency.

Wang Hao, one of the founders and CEO of Xiami, expected this model to encourage users to use Xiami more and at the same time not to seed other free music sites. He also expected copyright holders to be happy as they would get a dividend from every download of their music property.

Embarrassingly, Xiami’s revenue from downloading in 2010 was only RMB 400 000  —  merely 0.5 percent of its registered users ever downloaded songs. At the same time, some local record labels don’t buy Xiami’s idea and requires Xiami to pay millions in royalties.

In October 2010, Li Zhi, an independent singer, sued Xiami. Li Zhi accused Xiami for selling his songs without paying him a single penny. Xiami finally took down all songs by Li Zhi.

Advertising became another revenue source later. The latest news is it was acquired by Alibaba to form its music division.

Douban FM

Douban FM is an algorithsm-based music recommendation service. It turned out to be a popular service, one of the most well-known by the interst-based social network. In Jan. 2013, Douban FM PRO, a ten-yuan monthly premium service, was introduced to offer higher-quality of music and ad-free experience. Which is expected to be another category of payments, apart from royalties, that would go to music companies.

For not too long, almost all music services added a similar feature.

Along the way, a variety of companies also tested the water and failed; for instance, Aigo, the electronics manufacturer. There are also other music services, Kuwo, Kugoo and Duomi, that have considerable user bases. Most recently, big e-commerce players, 360Buy, Suning and even Alibaba (by acquiring Xiami), started selling digital music.

The music production industry also changed their way of publishing music, such as releasing singles, rather than albums, is another change that adapted to the digital age.

Sources,

  1. http://tech.sina.com.cn/focus/0800.HK/index.shtml
  2. http://tech.sina.com.cn/i/2012-09-24/14087650344.shtml
  3. http://tech.sina.com.cn/i/2012-12-03/07197851084.shtml
  4. http://tech.sina.com.cn/i/2012-12-20/13477907124.shtml