Social Networking

Social networking hits Hong Kong. Well actually, social networking has been a by-product of the information age in a number of countries. Hong Kong and the mainland are no exception.

Back in March, CityIN, a social network in Hong Kong went public. The site’s purpose is to match people based on common interests. This has proven to be one of the great benefits of the internet and an offshoot of the way I met my own wife. Packets of information flowing between users can provide a link between people that would have been impossible any other way. Social networking can unite people on either side of the earth who would have never met otherwise. It can do the same for two or more people in Hong Kong, a city of more than 7 million people.

CityIn will compete with rival Jijija. Jijija’s creators are capitalizing on the business opportunities offered through social networking. The new medium can connect businesses and customers. When you already know what your customer likes, it’s that much easier to locate them.

The social networking phenomenon has not escaped the attention of venture capitalists. Indeed, it is one of the big benefactors of VC funding. Heyspace, a Guangzhou and Hong Kong based social networker, recently raised venture capital funds for its expansion efforts. In February, Heyspace raised $10.75 million of an anticipated $20 million first round effort.

Foreign social networking heavyweights like MySpace and Facebook are still the global leaders, but Hong Kong social networking startups are making in-roads and established Chinese social networking sites still dominate the local market.

As of the first quarter, Xanga was the most visited social networking site in Hong Kong. Xanga acts as the user’s on-line journal or diary and offers users a photoblog, videoblog and audioblog as part of the service. Xanga began offering these services in 2000. In February, Xanga partnered with CSL to provide direct access to its offering through a dedicated mobile application.

Xiaonei, 51.com, Mop, Woku.com, Tianya.cn, Xiaonei.com, Tudou.com, Rox.com.cn and Baidu Space control most of the social networking scene in China and have been funded in large part by venture capital. Xiaonei raised $430 million from Softbank Corp., 51.com received some of its funding from Intel Capital, Redpoint Ventures and Sequoia Capital China. Tudou has received $85 million from IDG, Granite Global Ventures and General Catalyst.

International Data Group and China Broadband Capital Partners funded MySpace China, which is having some problems gaining market share. Like all investments, the investor has to thoroughly understand the local market before investing. The usual venture capital practice of due diligence needs to consider social networking in the context of the existing trends and practices and not purely numbers.

Last year, Hong Kong billionaire Li Ka-shing invested $60 million in Facebook. Facebook recently overtook MySpace as the most popular social networking site in the U.S. Whether or not Facebook can dominate the Chinese market is some ways away.

Social networking has brought billions of investment dollars to the companies who are pioneering the field. It is a cultural and lifestyle choice for millions of young people and quite a few older folks also. It is one of the primary areas of focus for investment capital and it will not go away anytime soon. It will be a part of the daily routine for young people throughout China. The people spending the money know this. It’s not so much a matter of whether or not to invest in the sector, but deciding which social networking company knows its market best.