Social networking friends weibos, e-commerce

Microblogs, social networking and e-commerce websites have staked out the hottest commercial sectors on the Chinese Internet. Might a combination of the three set the net on fire?

The overnight success of venture capital-financed, shopping-oriented social networking websites suggests smoke already may be rising.

The websites Meilishuo and Mogujie burst onto the web late last year to provide social-savvy links between China's microblogs, or "weibos," and e-commerce providers such as the B2C giant Taobao.

Industry watchers call this cyberspace integration a first step toward "the socialization of e-commerce."

Users connect via social networks to form shared-interest communities, chat about products and services, and swap consumer reviews or personal experiences. The phenomenon's commercial value is clear when an online discussion about a product starts on a social networking site, expands with weibo postings and links, and ends with a sale through an e-commerce company.

"This is the wave of the future," said Long Yu, managing director of venture capital fund Bertelsmann Asia Investments. "Socialization will become the e-commerce trend."

It's a future that's been embraced by venture firms including Bertelsmann. In November, for example, Meilishuo announced that it had successfully raised US$ 20 million from investors, bringing the company's value to an estimated US$ 150 million.

At the Intersection

Meilishuo was launched in April 2010. Since then, its popularity has exploded. The site received up to 1.9 million unique log-ons and more than 56 million page views every day in 2011, a 20 percent increase in page views from the year before, according to iResearch Consulting.

Hu Lei, vice president of Meilishuo investor GGV Capital, said the network is building an immense marketing sector whose "business model puts it at the intersection of e-commerce and online social networking."

The original idea concocted by the site's architects was to create an online community for women who buy clothing, cosmetics and various fashion products, said Meilishuo CEO Xu Yirong. The plan was to encourage consumers to share buying experiences and post product reviews. Links to online shopping outlets and product photos could be shared through the site on microblogs, too.

Xu calls it an electronic version of a fashion magazine that generates business at cyber-speed. Moreover, the site encourages consumer loyalty by strengthening interactions, which in turn creates a good environment for advertisers.

"When investors get together, they often mention Meilishuo," Xu said. "The Meilishuo model has to a large extent already been imitated."

Xu said his site currently counts more than 6 million users, and has cooperation agreements with nearly 40 e-commerce sites.

Meilishuo makes money with every member purchase through an e-commerce site. About 80 percent of the products cited on Meilishuo are sold on Taobao; Xu said his site helps generate up to 700 million yuan worth of business for Taobao every month.

It's a valuable niche. Products designed for fashionable women – from handbags to high heels – account almost 25 percent of the 400 billion yuan in daily transactions handled by Taobao, noted Li Yanzhu, partner and chief marketing officer for Mogujie.

Most Meilishuo and Mogujie users log on with their Sina or Tencent Weibo accounts. Microblogs have a vast pool of potential social networkers. Sina Weibo counted more than 250 million registered users and Tencent Weibo more than 310 million last year.

Xu Zhibin, a Tencent Weibo technician, said these social networking websites "appeal to female users, the ones with high purchasing power, from weibo platforms."

On the other side of the networkers' equations are e-commerce sites, which have likewise boomed and attracted investor capital.

"E-retailers do not lack platforms or products, but many have been unable to achieve good business volumes," said Wu Chuanbin, an independent analyst who follows e-commerce.

Most e-commerce businesses could benefit from more clearly targeted channels for sales and marketing, Wu said. So their executives and investors have been seeking ways to best make use of the enormous numbers of microblog users and the targeted nature of social networking sites.

Social networking sites are well known for bringing people together and attracting loyal followings. In China, they've also altered consumer purchasing behavior by providing information far beyond basic marketing materials, said Zhuang Shuai, an analyst with the China Electronic Commerce Association.

Friends, classmates, relatives and work colleagues linked by networking sites share product details and are happy to make recommendations to one another. These sites have thus increased the scope of how consumer information is spread by word-of-mouth and the way shoppers emulate other buyers when making product selections, Zhuang said.

Satisfying Consumers

Like Meilishuo, Mogujie targets fashion-conscious female shoppers. The platform gives users a friendly place to organize for the slice of the marketplace they love, said Li Yanzhu, the site's partner and chief marketing officer.

The website classifies, organizes and displays products based on site-user behavior and preferences, helping consumers find exactly what they want.

Li said more than 90 percent of Mogujie links lead to Taobao, and up to 10 percent of all network users who follow a link buy something. Thus, the network daily generates more than 4 million yuan worth of business for Taobao every day, for which the e-commerce site kicks back about 100,000 yuan to Mogujie every day.

"At its core, this is a marketing channel for e-commerce," said Mogujie CEO Chen Qi. "It's also an entryway for users to shop online."

E-commerce businesses appreciate the attention, since more exposure means more sales. Microblogs are happy, too, since tying to social networks and e-commerce platforms allows them to monetize high user volumes.

In the early days of microblogging in China, e-retailers marketed wares by posting photos and product descriptions on weibos. The system worked for awhile, said Xu, but later consumers lost interest.

Some companies are now exploring a business model that more closely integrates social networking and e-commerce sites. Xu thinks microblogs in their current form have too many limitations, such as an inability to match products and consumers.

E-commerce sites have faced targeting challenges as well. Taobao hit roadblocks while trying to expand into social networking because its consumer community has not been divided into specific groups, said Li.

Consumers in cyberspace can be picky. "A certain setting and ambiance are required to stimulate sharing and product recommendations," said Li.

"They want to find an appropriate setting" to talk about shopping interests, he said. "A girl on Meilishuo will discuss clothes and makeup to her heart's content, but she will not do so on a general microblog platform such as Sina Weibo."

Xu said his company is looking at vertical integration as "a very good opportunity" and "one of the Internet's future trends."

Investors are backing the initiative, since according to Xu they prefer highly partitioned website commerce domains that focus on high-demand areas such as clothing, food, transportation and entertainment.