Subscribe3 Reasons Why Tencent’s Qzone, the Largest Social Network in China, is a Failure
（This is a guest post by Kai Lukoff. Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff. You can find more information on China Social Game at the end of this post. )
Qzone, “the largest social network in China,” and Tencent’s other SNS (QQ Campus and Xiaoyou), are failures for three reasons:
- Squandered Opportunity: Chinese internet giant Tencent was enviously positioned to dominate social networking, but blew its chance. QQ Campus failed. Xiaoyou is far behind the competition. Qzone does not reach any new demographics.
- The Site’s Design and Features are Lousy: The Qzone website is an unintuitive eyesore. Its applications are of poor quality and frequently inaccessible.
- Is Qzone Really No. 1? Tencent’s claim of 305 million active users is highly suspect; even its classification as an SNS is questionable. Its competitors are encroaching upon its core user base of young teens.
Does this mean Tencent will soon collapse? Absolutely not.
Qzone is Tencent’s “Windows Vista”
Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist that thrives despite a terrible product and lack of vision.
Microsoft remains massively profitable despite releasing a terrible OS and missing out on all the new innovations (mobile, mp3 players, search, and social networking) that its competitors have seized upon (Apple, Google, and Facebook). Microsoft suffered from a stifling, dysfunctional corporate culture.
Benjamin Joffe, Tencent expert and CEO of internet market research firm +8*, told China Social Games:
Tencent is definitely not the best in terms of products or innovation – similar to Zynga in that sense – but their ability to deliver a ‘good enough’ mass market service and integrating it within their ecosystem is impressive.
Tencent is certainly massively profitable: 2009 revenues, just announced, were 1.82 bn USD, though it’s unclear what portion of the “internet value-added services” is attributable to Qzone.
Like Microsoft, Tencent will continue to profit in spite of the junk it produces. But Qzone does dampen Tencent’s star, opens the door for its SNS competitors (RenRen and Kaixin001), and questions its corporate culture.
#1 Squandered Opportunity
Tencent’s had awesome resources for building a social network:
- Instant user base. QQ Messenger has 485 million active users, which Tencent uses to cross-promote new services, like Qzone, on young Chinese netizens.
- High brand awareness. QQ is the first introduction to the internet for most Chinese.
- Many complementary sites. QQ Games, for instance, could be beautifully integrated with Qzone, but is instead poorly slapped together.
- Regulatory environment experience. As an early internet giant, Tencent knows how to reach the right government contacts and manage user-generated content.
- Financial capital. Tencent has deep, deep pockets.
In addition, Tencent had long aimed to expand from its core demographic of young teens to include a more mature audience. Social networking was clearly the perfect chance to do so.
Despite all these advantages, Tencent squandered the opportunity. Qzone never gained an audience beyond young teens. Instead, RenRen, which completely copied Facebook (as Tencent also could have done), attracted the student demographic. Kaixin001 has snapped up the valuable white-collar demographic with a simple, user-friendly site.
Most damningly, even users who start on Qzone almost all “graduate” to the other networks. In September of 2008, Tencent finally tried to retain users with QQ Campus, which failed and is now shut down.
In June 2008, Tencent finally responded with the SNS Xiaoyou (classmates), but the site has virtually the same lousy interface as Qzone, except with a decent skin. The apps and games are even fewer and lesser than those on Qzone. The first five times I tried to join Xiaoyou, I was rejected because “The system is busy, please try again later.” Competent websites optimize splash pages to convert users; Tencent is clearly not concerned with such trivialities. It’s a fitting illustration of the embarrassingly poor quality of Tencent’s SNS properties.
“The system is busy, please try again later.” A warm welcome to Tencent’s Xiaoyou SNS.
In addition to Tencent’s failure to expand, anecdotal evidence suggests RenRen is encroaching upon young teens, Tencent’s traditional turf.
Tencent saw the social networking trend coming from across the Pacific Ocean, but still blew its chance. Tencent had all the advantages in the world, so resources were not the issue. The problem was Tencent’s poor execution and strategy.
Most Chinese internet experts likely disagree with my assessment of Qzone as a “failure” though, or at least with the degree of disappointment. Benjamin Joffe comments, “Considering Tencent is already reaching everybody with its IM service and Qzone started off as a blogging service, its revamping into a social network does not seem that bad… I am not sure what you would measure Qzone’s success or failure against, but in terms of reach it seems fine to me.”
#2 The Site’s Design and Features are Lousy
Qzone is a lousy website: it’s ugly, unintuitive, and buggy. The site is simply unattractive to the Western and Chinese eyes in our office. Nor is the site truly customizable like MySpace, though the superficial skin can be changed for a fee. The site is very basic (for a social network), but not in a user-friendly way (like Kaixin001).
Qzone is a lousy, juvenile version of MySpace
Instead, Qzone relies upon tons of small text for explanation. Finally, the pages and pop-up boxes are often jumbled after loading and the homepage is inconsistent. Qzone is a lousy, juvenile version of MySpace.
Qzone is a closed platform and its apps are of poor quality. Of China’s big three social networks, Qzone’s apps are by far the worst: it offers the fewest, the ugliest, and the least innovative. Bizarrely, even Treasure Hunter, Tencent’s first game on Facebook, has higher production values than any of its games on Qzone.
Qzone’s apps: poor selection, poor quality, high price.
Benjamin Joffe comments,
Applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as IM or MMOs and there is a learning curve – even for Tencent.
Moreover, Qzone apps are frequently inaccessible to users. Upon installing, a Qzone user is often told, “This application is full as too many users have already entered today. Please try again tomorrow or become a yellow diamond member.” This pay-to-play model on social games is surely a loser.
The online game market has shown time and time again that freemium works far better: get users hooked first and then charge for virtual goods. In fact, that’s Tencent’s own model when it comes to virtually all of its other services: QQ Show, QQ Messenger, etc. Perhaps Qzone’s comparatively young and rural users are so extremely naïve that they pay Qzone when they can play the same—or better—games for free on the other networks. But is this a successful business strategy in the long run?
“Please try again tomorrow or become a yellow diamond member.” Where all other SNS do freemium, Qzone pushes pay-to-play. Successful in the long run? That’s doubtful.
#3 Is Qzone Really No. 1?
Every SNS in China claims to be the largest: Qzone, RenRen, Kaixin001, and 51.com. There is simply no trustworthy data on users or revenues.
The short and sweet is this: Qzone has the most users, RenRen has the most active users, and Kaixin001 has the most highly active users. 51.com user’s are the most rural. This picture is supported by the Alexa and ChinaRank rankings, as well as a survey by the Chinese Internet Network Information Center.
Tencent’s official numbers are ludicrous. Qzone claims 305m active user accounts. China has 384m internet users, which makes this claim highly suspect. Qzone likely takes an extremely “liberal” approach to defining both “active” and “user.”
Benamin Joffe says,
Tencent’s number are no more suspect than others – at least Tencent is a market-listed company and they’d better not throw out too much exaggerations. What I suspect however is that many users might not even know they have a Qzone page, that would come with their IM account – or that any abandoned page is counted. We’re not talking about active users here since all SNS want to show off their highest number to claim to be #1.
The majority of Qzone users are extremely casual. Qzone attracts a comparatively young and rural demographic and requires only minimal sign-up: one account can be used across multiple QQ services.
Even the classification of Qzone as an SNS is questionable. It has tons of dormant, skeleton profiles that are pulled from QQ Messenger. In that regard, it’s similar to MSN Spaces, which also has a ton of “users,” but has low value and retention rates.
Another wildly-circulated sham is that “QQ Farm may reach 50m RMB in monthly revenues.” The source is a so-called “analysis” by MainFirst Securities HK, which also includes the patently false claim that Five Minute’s Happy Game was “licensed to Kaixin001 with revenue shares.” When China Social Games contacted the analyst whose name is on the report, he replied, “I don’t confirm anything the writing in there.” Much of the Qzone story is coming from fiction writers and spin doctors.
Despite Tencent being a publicly listed company, no one knows how much revenue Qzone brings in. Benjamin Joffe comments:
The business side of things is a bit more tricky. As far as I understand, the revenue model with Qzone is avatar (QQ Show), social games and ads – they drive a huge number of pageviews in a way that advertisers are used to count (it’s harder with IM) but their huge inventory also devaluates the potential in CPM.
The split of their SNS targeting different demographics is to focus the value and address market betters – similar to what RenRen does within its service at signup.
Second Chances: Can Qzone Still Conquer the Mass Market?
Qzone could still turn it around; China’s social network wars are far from over. Microsoft’s vast resources means that it often gets a second or third chance to make up for past mistakes: Vista became Windows 7. MSN Search became Windows Live Search which became Bing.
But barriers to entry are higher in social networks though; once your friends are all on Facebook (or RenRen or Kaixin001), why switch to a network with fewer users?
Nonetheless, Tencent should not be dismissed lightly. Marc van der Chijs, a Chinese internet entrepreneur and CEO of Spil Games Asia, told China Social Games:
Tencent is the ‘800-pound gorilla’ lurking in the shadows, they have so much traffic because of their QQ messenger that they can theoretically take over this whole market if they wanted to. Not sure if it’s because of a lack of vision, or because they are comfortable with growing their current business.
They are making tons of money with virtual items, so there is no real need to go head-to-head with the competition in the SNS market. They can afford to wait and then either take over a competitor or enter with a fully-developed product.
Don’t underestimate them. They are smart guys who know what they are doing.
Tencent’s smart guys may swoop in and turn Qzone around one day. But given Tencent’s tremendous resource advantage to start with, it’s been a failure thus far.
About The China Social Games Blog
China Social Games (@CNsocialgames) is a blog dedicated to tracking the hottest games, networks, and trends. It recently released a report for sale (590 USD) on the Top 10 Social Games in China. Though already wildly popular in China (and on Facebook), social gaming is still in its infancy, so the market is evolving, innovative, and competitive. China Social Games offers up-to-the-minute coverage.
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You cannot review the aesthetics of a chinese website from a westerner perspective. it is known that the reason chinese websites are full of jumble of words is that chinese words take longer to type, and users prefer to navigate though mouse, not type input into search box. also chinese do not have as many nice looking fonts as english (yet?). Yes it is buggy though…
I have the same feeling with zgz. This post doesn’t give proper support for the conclusion of ‘Failure’.
Agree with Zgz, author should be more localized, should have more data to prove your point. not just give these words to show your insight.
Not quite get it.why it is a Failure? In fact, QZone seems doing great and started generating $$$… For the site design, I guess we can not judge it based on western-aesthetics, Lousy interface does not mean it is not working in china…
QQ instant messenger, QQ.com, QZone are the 3 keywords for Tencent…
Good title bait, but flawed supporting points. If hundreds of millions of email accounts, high brand awareness, complementary sites, and government/ regulatory relations were all “awesome” resources for building a social network, then we would expect Google’s, MSN. Yahoo, and MSN to have built the world’s top SNS. Tough to name one with the exception of Google’s Orkut that made it anywhere. Orkut made it all the way to Brazil, where its pretty much stayed put. The fact that QQZone has made huge inroads into its home country of China is a lot better than Google managed.
Perhaps it would be more interesting to talk about why most of the top SNS worldwide; facebook, myspace, kaixin001, etc. are startups. Or why it might be more efficient for QQ to invest in a start-up, like what Sina did in the latest round with kaixin001.
Thanks all for your comments!
I fully admit I cannot view the website through Chinese eyes. But two of my Chinese colleagues shared my feelings after reviewing the website (admittedly n=2). And nobody likes bugs.
ZGZ, Luyi Chen, and Silent – I’d be curious to hear your thoughts on the design. How do you and your friends feel it compares to RenRen or Kaixin001 or 51.com?
Gang Lu – I’d love to find out how much money Qzone is making. I don’t think that their advertising (surprisingly little on the site) and games (poor games, few virtual items, and free on other sites) are making much. The X-factor in my mind is the Qzone yellow diamond membership–I have no idea how many people are paying for that. Their games Tencent’s official numbers are clearly inaccurate and their financial reports don’t tell you this information. Do you have any sense of how big Qzone’s revenues are and where they come from?
Matt Lovett – The Google/Yahoo/MSN point is valid. When you look at the way those companies failed in social networking, it certainly makes Tencent look better. Another message there is that there’s only room for one player; it’s of little use to be the “second-best” mass market SNS. Maybe that’s a little different in China, but I do expect that we’ll see consolidation in the future (and I don’t think it’ll be around Qzone).
I’d argue that Tencent’s resources were better than any of those companies though, in particular its dominant QQ messenger. With its avatars and QQ show it had already created a quasi-SNS. I think it really was an awesome fit for creating a dominant SNS.
Most frustrating is that Tencent saw the real-identity SNS trend coming (and had far more lead time than Google), but failed to capitalize. I think this come down to poor execution (especially on the QQ campus, xiaoyou front).
My impression is that China’s internet giants, in general, are loathe to invest in startups, they’d rather do/copy it all in-house. Qzone and Kaixin001 don’t even allow 3rd party app developers. Qzone is experimenting with licensing and may still open up, which I think would help it a lot (esp. in terms of monetization).
Finally, an open question to all: what do you think of Qzone (or Xiaoyou’s) chances to expand beyond teens?
Interesting approach and some valuable data in your post.
That said, overall I think that QQ – much more than QZone or any other Tencent property – IS the SN. SNs are about connecting people, and QQ does that possibly better than any other web service on Earth, with Twitter being right there with it (yes, I thought deeply about that last statement). Sure Kaixin001 and RenRen are much closer to Facebook, but that in my mind doesn’t make them a better SN.
[...] two faces of QZone: Who is right? Is QZone really failing (Kai Lukoff) or really successful (Ben Joffe)? Let’s see which foreigner will win in this [...]
Qzone IS lousy. don’t know why people, a lot of them, can bear loading such buggy pages with loads of dysfunctional scripts.
[...] piece was also cross-posted to ChinaWebRadar, where it sparked some lively comments: You cannot review the aesthetics of a chinese website from [...]
Benjamin Joffe of +8* posted his complete commentary on this piece here: http://www.plus8star.com/2010/03/19/sorting-failure-from-success-in-social-networking-the-tencent-case/
From an insider’s point of view, I’d could give the same answer to pretty much all the questions mentioned above – “it’s complicated”… Therefore, it would be hard to discuss these just by leaving comments.
One thing though, here’s a direct quote from Tencent’s 2009 Q4 reports — “Revenues from community value-added services, which were
less sensitive to seasonal fluctuation, increased 18.1% QoQ to RMB1,292.1 million, which was
attributable to the growth in Qzone, QQ VIP and QQ Show partly offset by the decline in QQ
Pets. Qzone registered significant growth during the quarter as a result of increased user
engagement and monetization driven by the popularity of social networking service (“SNS”)
applications. Subscriber base of QQ VIP expanded, thanks to our ongoing enrichment of
online and offline privileges which enhanced user loyalty and stickiness”
Oh, a proper intelligent management is needed for good working of a social networking site.
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That’s very good!
[...] 文章来源：http://www.chinawebradar.com/1378/3-reasons-why-qzone-fails.html（译文出处：译言） [...]
[...] piece was also cross-posted to ChinaWebRadar, where it sparked some lively comments: You cannot review the aesthetics of a chinese website from [...]
Clearly,you are great!You know more than Ma Hua Teng
Opponents of the Qzone back to their proper place palms.