MySpace China Looks for Answers after Setback

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An Eroding Advantage

When it entered the market, MySpace China could count on a cash advantage thanks to its deep-pocketed owners, but that edge is eroding because of big investments in local SNS operators. In July, for instance, Giant Interactive Group (GA), a Shanghai online game operator, announced plans to invest $51 million in a 25% stake in 51.com. In April, Japanese Internet power Softbank led a group of investors that paid $430 million for a 35% stake in Beijing-based Oak Pacific Interactive, which operates Xiaonei, an SNS site that resembles Facebook and focuses on China's student population.

As the local players become stronger, some in the industry are dismissive of MySpace China and its high-powered backers as paper tigers. "Everybody knows it's a U.S. brand," says Brad Greenspan, former CEO of eUniverse, where MySpace got launched, and now chairman of BroadWebAsia, a West Hollywood (Calif.) investor in Chinese Internet sites. "If you want to spend time on a site that's about you, it's harder to pull that off with a U.S. brand. It just doesn't feel authentic." In China, SNS "is entirely a local game," boasts Joseph Chen (personid=7924927), chief executive of Xiaonei owner OPI. Not only are Chinese users reluctant to switch to a newcomer but many young Chinese students without strong English skills don't even know how to spell the name MySpace. "You tell a typical kid in China who has never heard about MySpace and ask the person to spell it, 90% of the time the kid has no clue," says Chen.

Such criticism is not merited, argues IDG-Accel's Zhou. The MySpace China business "is on track," he says. Zhou also points out other SNS operators aren't having an easy time of it, either, as they continue to struggle to find a business model that works. "Even in the U.S., Facebook and MySpace are still trying to figure out how they can monetize their social resources," he says. "MySpace in China is thinking of a new way to do that." According to Zhou, the company expects to have answers about what that new way will be soon.

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau.