Forbes Asia Magazine dated March 14, 2011 Charles Chao, with a new Chinese version of Twitter, Sina Weibo, gambled on a politically sensitive Internet service. So far his move is paying off. In June 2009, as the government temporarily blocked Twitter and shut down a Chinese Twitter clone, Fanfou, for the sensitive 20th anniversary of the Tiananmen Square crackdown, Charles Chao sat in a conference room at Sina Corp. headquarters in the heart of Zhongguancun, China's Silicon Valley, and killed his popular Internet portal's ambitious plans for a social networking service, Pengyou. But Chao's problem with Pengyou (meaning "friend") wasn't that it was too politically sensitive--China already had Facebook clones like Renren (to IPO soon in the U.S.) and Kaixin001, in which Sina is invested. Rather, in the same moment he nixed Pengyou, Chao gave the go-ahead for a new Chinese version of Twitter, Sina Weibo, at a time when the government seemed most wary of microblogs. The former journalist and accountant, more cautious loyalist than agitating newshound, was willing to gamble on a crowd-based information-sharing service in a society where both crowds and information are sensitive. So far his move is paying off. Weibo, launched in August 2009, was the Internet phenomenon of China in 2010, reaching 50 million users by the end of October--and is likely fast approaching 100 million users now. (Twitter has more than 200 million users globally.) Chao, 45, and other top Sina executives invited movie stars, singers and famous business and media figures to join the platform. Some now have millions of followers. And with the help of Beijing, Sina Weibo had effective first-mover advantage: The chief competition, Fanfou, back up after the Tiananmen anniversary, had been taken offline indefinitely after the July 2009 riots in northwest China's Xinjiang region; Twitter and Facebook, too, had been blocked and have remained so since then. Filling this government-manufactured void was Chao's government-trusted sandbox for cynics, celebrities, influential bloggers and media elites. It has become China's most potent incubator for subversive Internet memes, much to the consternation of bungling local officials across the country. From a deadly fire in Shanghai to a fatal hit-and-run by the son of a police official (producing the catchphrase, "Sue me if you dare, my dad is Li Gang!") to a recent online campaign to find and retrieve kidnapped child beggars, Weibo has forced authorities to reckon with popular opinion in a way unprecedented in Communist-ruled China. Other big competitors joined the fray since Sina's entry: Social networking giant Tencent has the most serious challenger in its QQ microblog, with more than 100 million users but far less activity; rival portals Netease and Sohu have their versions, with far fewer users; search king Baidu has tested out a real-name service that hasn't gone far; Hong Kong's Phoenix media group has a little-used service; and the Communist Party's mouthpiece, People's Daily, also has a lightly trafficked microblog. None of these has achieved anything close to the buzz of Sina Weibo, though they are working hard to attract users.
Tencent has leveraged its user base of hundreds of millions of users to push traffic to its microblog and has assiduously lobbied the same celebrities that use Sina to allow them to operate what are essentially mirror efforts on QQ--and Sohu has followed suit. This strategy hasn't helped competitors catch up in user engagement, as Sina's top microbloggers are most likely to respond to fans on Sina Weibo--a fact evident in the far larger number of retweets and comments on Sina's platform. Nevertheless, Sina's competitors are spending to ramp up what is seen as a must-have social networking product; Sohu, declaring social media a critical battleground for China's Internet portals, is spending millions of dollars on an advertising campaign in first-tier cities to draw users to its microblog. Chao hopes his Weibo's market-topping success will one day remake Sina, already China's leading news and entertainment portal with a successful display ad business, into a dominant social networking platform like Tencent. Much as Tencent did in building on its free QQ instant messaging service in its early years, Chao has put off monetization of Weibo to draw in more users, layer on more Facebook-like functions and improve the service's user "stickiness." (Weibo's interface already has some of the feel of Facebook, and though he didn't disclose metrics, Chao says the average Weibo user stays on the site much longer than the average Twitter user.) Analysts at the emerging markets investment group Mirae Asset believe that strategy will ultimately pay off, estimating Weibo could generate 5.8 billion RMB a year in revenue by 2015 (by then $1 billion assuming modest currency appreciation); Sina, which is traded on Nasdaq, is expected to beat $105 million in 2010 earnings on more than $400 million in revenues. But Weibo's market-leading position also makes it even more of a gamble, as Beijing's nervousness about information sharing and the madding online crowd has not waned. In fact, it has intensified in the wake of the so-called Jasmine unrest in the Middle East, making Weibo a critical choke point for social control. Weibo is a rambunctious sandbox, yes, but with walls and adult supervision: Play with the outside world is limited (there is still no English-language interface, for example), and what goes on inside is monitored and censored rigorously. Try searching for posts related to "Egypt" in the last few weeks and Weibo would tell you that, pursuant to "relevant laws, regulations and policies, the search results have not been shown." Individual posts discussing Egypt did get by the censors, but posts touching on any of the topics deemed most sensitive by Beijing, like the banned Falun Gong movement, would get excised immediately. Nascent attempts to organize protests on Feb. 20 modeled after Egypt and Tunisia's uprisings gave Chinese Internet users a more comprehensive sampling of these controls: Not only were posts related to this movement blocked or wiped, and not only were searches for the keyword "Jasmine" blocked, but also the ability to search any keywords at all was blocked on Sina Weibo. Plus, it appeared for a while that users could not share photos or retweet, or forward, others' posts on Weibo. Monitors at all of China's social
networking services were working extra hard to scrub their sites of anything remotely inflammatory. The message is clear: The revolution will not be tweeted, even if that means hamstringing Weibo. Chinese President Hu Jintao and the nation's security chief, Zhou Yongkang, both talked up the need for tighter management of the Internet in the days surrounding the revolution that wasn't. A week earlier, according to respected China scholar Perry Link in an account that is probably impossible to confirm, members of China's ruling Politburo held a secret meeting in which they discussed the need to control microblogs and even shut down parts of the Internet if deemed necessary. Chao is aware of the politics, and, not surprisingly, he doesn't enjoy talking about it. In the same Beijing conference room where he approved the creation of Weibo, he reluctantly told FORBES ASIA that his company has at least 100 staffers devoted to monitoring content 24 hours a day (many believe the figure is much higher). He professes ignorance of the blocking of the search term "Egypt" on Weibo--"I never searched that; I don't get that experience. That is what you are experiencing?"--and he says he plays no role in cleansing the site of sensitive content when a big news event breaks. "I'm not involved," Chao says. "I'm not going to talk too much about it, because it's not something that I think people should be talking [about] too much, I think, because it's a very complicated situation. I think in general, Weibo is a very free platform." All Chinese Internet companies have to play by the same rules, monitoring themselves, if they want to stay in business. That goes for foreign operations in China as well: Google lobbied hard to get into China, then ultimately decided to abandon its censored search engine after four frustrating years in which the company felt targeted by Beijing, in part for not doing a good enough job of self-monitoring. Could Beijing similarly go after Sina, or even shut Weibo down? Chao dismisses that notion, arguing it would be unprecedented for that to happen to a company as established as his: "In the last ten years have you seen any big company being shut down by anybody?" China's business mantra, though, has always been less "too big to fail" than "too government to fail." A huge market presence does make it more difficult for the government to shut a service down, but for an Internet site purveying content, close, trusted relations with top leaders and regulators are always vital. In that respect Chao and Sina have an interesting trump card: He is close friends with President Hu Jintao's son-in-law, Mao Daolin, who, before marrying into China's First Family in 2003, was CEO of Sina. Mao and Chao, both Shanghai natives, had become friends in Silicon Valley in the 1990s: Chao, having left China in 1989 after a stint as a TV journalist to take a master's degree in journalism at Oklahoma University, had quit his media career to become a CPA at PricewaterhouseCoopers, working on technology investments, mergers and acquisitions;
Mao, with a graduate degree from Stanford University, was involved in technology deals as vice president of Walden International Investment Group. In 1999 Chao was looking to make a move when Mao, newly COO of Sina--forged that year by merger and headquartered in Sunnyvale--lured him to the company as a vice president. In 2001 Chao became CFO, Mao took the helm of the company and Sina officially moved its headquarters to China. Chao, though, was an outsider at the company he would help build. After multiple rounds of venture capital investment and the departures of early founders, Sina has no founding billionaire in charge like Robin Li at Baidu, Jack Ma at Alibaba and Pony Ma at Tencent. Chao, as a self-described professional manager, owns only a tiny sliver of the company. To gain more control of Sina he partnered with private equity funds in 2009 to engineer a management-led purchase of 9% of the company by a vehicle controlled by Chao, New-Wave Investment Holding. It is unclear how much of that equity personally belongs to Chao, but it is likely his overall stake in Sina is worth no more than $100 million, or 2% of the company's $5 billion market capitalization. Whether that stake grows more valuable depends greatly on the future of Weibo, a unit which has grown to 600 employees out of the company's 3,400. "I see this as the growth engine for Sina," Chao says. Though Sina has not yet begun selling Weibo-only advertising, it has begun bundling Weibo with its other services in package sales, and the company is renowned for its strong ad sales force. Analysts say advertisers want Weibo's retweets, at a time when the market for online ads is surging. Estimated to surpass $4 billion in 2010, online ad sales are expected to approach $6 billion this year and continue growing at 30% to 40% a year. How much is Weibo worth, then, compared to Twitter's estimated valuation in the $4 billion neighborhood? Investors, unable to buy into privately held Twitter, had seemed to bet on Weibo hopes instead, running up Sina's stock 170% from early July to mid-February, over a period when the company's revenue streams and projections remained largely unchanged. But the stock has taken a hit since then, as Goldman Sachs and Deutsche Bank showed skepticism, the latter's note emphasizing the political risks facing the Weibo platform. That risk, while real, should not be overstated, says Susquehanna International Group of the U.S., which via an affiliate holds a small stake in Sina and values Weibo at $2 billion, as does Mirae Asset. "The likelihood of the government shutting down Weibo is zero," says Zhao Chunming, senior analyst at SIG. "I think if they do shut it down, then China will become Egypt. So that's actually a risk the government can't afford." Zhao says the government will instead keep a tight leash on Weibo, which he understands has "hundreds" of censors, not just 100, and will need to update its technology to scale up censorship: "It is very likely the government is going to do something to the platform, so there is some regulatory risk here. It could cause headline risk to Sina."
There is another barrier to Weibo's potential growth: the disconnect between China's Internet and the rest of the world. The same walls that keep Facebook and Twitter out also effectively keep Sina and its Chinese brethren in. Chao met with Mark Zuckerberg on the Facebook founder's visit to China in December, and the two "talked for a long time," as Zuckerberg seeks to understand a market he wants desperately to enter. Chao, for his part, says he wants to take Weibo out into the global market, where Facebook and Twitter dominate, but he says his focus for now "is still in China." When will the two social webs, the rest of the globe's and China's, truly connect? On that subject, Chao is more philosophical than prophetic.