Sina's microblogging power

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By Wang Shanshan, Caixin Online

BEIJING (Caixin Online) -- For nearly 10 years under an unchanged strategy, Sina.com's basic range of services lost the sheen of savvy, despite laying claim to being China's largest Web portal. But this year, the flare of the microblog trend, known as "weibo," catapulted Sina.com back into the spotlight.

Energized by the microblog business, Chief executive officer and president of Sina, Cao Guowei, said that Sina has now been able to consider entirely different syntheses of revenue streams and business models.

Survival of the smallest

Sina's /quotes/comstock/15*!sina/quotes/nls/sina (SINA 35.90, 0.00, 0.00%) microblog business was modeled after Twitter, the American social networking and microblog site which was founded in San Francisco in 2006.

A source close to Sina management told Caixin that the key trend for today's Internet development is the shift to interactivity from simple browsing. In line with the prevailing industry view, the source also said that Sina believes Social Networking Services (SNS) will play an indispensable role the future of Internet business.

Sina began to sense the threat posed by major SNS Websites in China in early 2009. The conundrum Sina then faced was how to compete with more mature SNS Web sites such as Kaixin001.com and renren.com, which each now have 50 million users.

"Initially, we designed the 'SNS plus microblog' framework. However, Cao thought there were too many functions, and the purpose of the product was unclear. We therefore simplified it and only kept the microblog function," said the source.

According to Ji Yun, who is in charge of microblog business at Sina's public relations department, Sina decided to develop SNS in April 2009, but the product design was rejected after deliberation. However, R&D for the microblog project started in July, and the product's internal testing began after just four weeks.

Endless testing

According to Sina, its microblog services currently have tens of millions of users and millions of postings everyday, with an exponentially growing population. It has been 10 months since internal testing started last August, and despite the popularity of the product, Sina microblogs have not had an official launch.

A source close to Sina's management confirmed that the public "beta" stage would go on indefinitely. In the summer of 2009, an Internet-industry regulatory agency said that the launching of microblog products would be regulated and subject to approval. Before new policies are announced, the microblog products of various Web sites will only be permitted to be operated under a beta version.

An exploratory period is necessary for both Internet companies and regulators to evaluate microblogs as a new product. Sina has spent a considerable amount of time to understand microblogs as a form of mass public media instead of a communication tool. Peng Shaobin, director the Sina Microblog Department, recently positioned microblogs as a public media platform.

In October 2009, Sina put a lot of effort into developing the content-filtering technology system to protect the burgeoning microblog product. It also used the strictest security measures which would block user IDs immediately if their postings violated government censorship rules.

"The political risks associated with microblogs are very high, as it is no longer point-to-point communication but information that is much more rapidly transmitted. Therefore, we need to be cautious in every respect," said the same source close to the Sina management.

The microblog team holds daily meetings to discuss deleted postings during the day. The postings are reviewed one by one, and the users who post them are permanently listed as "high risk." But, the source confirmed that the blocking rules had become much looser as compared to 10 months ago, and the number of deleted postings was negligible.

Profit model constrained

The financial report of the first quarter this year showed that advertising still accounted for 67% of Sina's revenue. In an industry conference, some analysts asked Cao when the commercial value of microblogs would be realized. Cao replied that the corresponding advertising systems would be developed as the number of microblog users grew and a critical mass was achieved.

In March 2010, Sina consolidated and expanded its existing product department and restructured it into the current Microblog Department. The team today consists of over 200 employees that specialize in technology, design, operations and marketing, among other areas. But Ji said the current staff size was far below what was required for future development and operations for the final microblog product.

Sina's management believed that a period of time would be necessary to expand the platform and educate the market before a significant number of users and advertisers could be amassed for microblogs to generate advertising revenue.

Ji said that the most important tasks now were to lower the barriers to entry and to build relationships with potential business partners. Sina Microblog is currently working with other Web sites such as Baidu /quotes/comstock/15*!bidu/quotes/nls/bidu (BIDU 72.46, +0.09, +0.12%) , Tudou, Dianping, etc. to develop a "one-click access" function. The role of the microblog may need to evolve from an information platform to an Internet service platform.

But in the eyes of Xie Wen, a senior Internet industry commentator, China's microblog business is far from mature. China only started to follow suit three years after Twitter's success, and the market is currently developing at an abnormally fast pace. This fully demonstrates that Chinese Internet companies are only focused on making profits and increasing brand awareness, but lack the capacity for innovation.

Will microblogs be a historical opportunity for Internet players in China like Sina? One of the most viable paths is to use the technological structure of the microblog as an improved foundation and integrate it with other services such as gaming, entertainment, e-commerce and other services. Xie said that Sina could develop a powerful advantage if microblogs are taken in that direction. However, such an endeavor will also be enormously difficult. See this report on Caixin Online.