Sites battle to be China's Facebook

The top social-networking service in the world's biggest internet market was created by graduates of a prestigious university to help students communicate with one another.

And it's not Facebook. Renren.com leads China's surging social-networking market with more than 160 million registered users, according to Analysys International in Beijing.

Competitor Kaixin001.com has more than 93 million.

Their edge over billionaire Mark Zuckerberg's service: a government that blocks Facebook access.

"Our service is basically the same in terms of functions and features," said Donna Li, a general manager at Renren. "We are more tailored to the China market."

With Facebook's valuation topping US$63 billion ($81.2 billion), Renren and peers may be the next investment opportunities in a market with more internet users than the combined populations of the United States and Japan.

Those sites and competitors Tencent Holdings and Baidu have room to grow as the online advertising market is projected to triple to almost US$13 billion ($16.8 billion) by 2014.

"Advertisers have really warmed to new social-networking sites very quickly," said Steven Chang, chief executive officer for China at Zenith Optimedia, the media unit of Publicis Groupe. "A lot of advertisers are willing to do business with the new social-media sites because many of them actually use the services."

Renren, or "everyone" in Chinese, is probably preparing for an initial public offering, according to Michael Clendenin, managing director at consultants RedTech Advisers in Shanghai. The site's biggest investor is Japan's Softbank.

Kaixin001.com, founded by former Sina executive Cheng Binghao, was also seeking a listing, Clendenin said.

Online advertising in China is likely to have totalled US$3.9 billion last year and may climb more than 30 per cent annually to US$12.9 billion by 2014, according to a Susquehanna International Group estimate in December.

The portion spent on social networking is likely to double to 24 per cent that year from 12 per cent in 2010, according to the Pennsylvania firm.

China's social-networking sites have not competed against international websites since 2009, when the Government banned access to Facebook and Twitter.

Internet users can circumvent the firewall through means such as AnchorFree's virtual private network service that assign an anonymous address traceable back only to the company and not the user. Using VPNs results in slower internet connections.

Zeng Guojun, a cosmetics salesman in Guangzhou, uses Renren to communicate with his friends in China, and Facebook for international news and information.

"Renren has copied most of Facebook's features, so they now do almost exactly the same things," said Zeng, 29.

Zuckerberg, 26, visited Baidu and Sina offices in December, fuelling speculation Facebook is seeking increased access in China.

Facebook might "potentially" win advertising sales from Chinese companies, said Jayne Leung, head of the company's sales operations in Hong Kong.

Facebook, which claims more than 500 million users worldwide, is valued at US$63.7 billion, according to secondary exchange SharesPost.

Renren's roots trace back to 2005, when graduates of Tsinghua University in Beijing founded Xiaonei.com, or "inside school".

Advertising on Renren had more than doubled each year since the site started selling space in 2008, Li said.

Renren has a blue-and-white user interface that resembles Facebook and carries advertisements for Daimler's Mercedes-Benz and China Mobile Communications' phone service.

Renren users post messages via a dialogue box in the centre of the page and access games, applications and other options on a menu on the left-hand side.

Renren aims to increase user numbers through its music, wireless and location-tracking services, Li says.

The website also aims to boost sales through Nuomi.com, an online commerce affiliate.

Government censors monitor the internet and block access to content deemed unacceptable. Facebook users may join groups supporting Tibet independence and Liu Xiaobo, the jailed Chinese dissident awarded the Nobel Peace Prize last year, yet no such forums are found on Renren or Kaixin.

Renren planned to take advantage of those restrictions on international rivals, Li said.

"We don't know when Facebook will enter, and what they'll do, but we are confident. We want to be the dominant player in social networking."

- Bloomberg