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Annual Review

The year of 2010 was the most eventful year for Chinese Internet industry: from the copyright disputes among video websites and the "sales war" among group-buying websites at the beginning of the year, the confrontation between the Qihoo 360 Technology Co. Ltd. (Qihoo 360) and the Kingsoft in the middle of the year, to the fierce "war" between the Qihoo 360 and the Tencent in the second half of the year, followed by the alliance of baike.com and cloudary.com.cn against Baidu, the competition between jd.com and dangdang.com in the e-commerce field, and the fight for Weibo users that continued from the previous year.

Meanwhile, online public opinion demonstrated its overwhelming social influence in the rescue work for victims of Wangjialing mining accident, the anti-fraud campaign launched by Fang Zhouzi, self-burning as a protest against forced demolition in Yihuang, and the Li Gang incident (in a hit-and-run incident, a drunk driver yelled at his pursuers, "Go ahead, sue me if you dare. My dad is Li Gang", referring to the deputy director of local public security bureau); all of these events mattered.

In April 2010, Google made a formal exit from the Chinese market, the request for google.com.cn would be automatically redirected to google.com.hk and the server for the former was relocated to Hong Kong. In May, the case of copyright infringement of Microsoft against an Internet bar in Dongguan was heard. This much-watched case ended with reconciliation in November 2010. The verdict demanded Dongguan Network Communication Co., Ltd., the defendant, to purchase 700 authentic sets of Microsoft Windows operating system and compensate the plaintiff RMB100,000 in lump sum. It showed China's determination and efforts to protect the copyright, which were further proved in many other cases. The dispute between the Tencent and the Qihoo 360 made waves in the industry and pushed administrative departments to roll out related regulations and Internet associations to actively organize their members and Internet enterprises to develop industry-wide norms, so that government administration and regulation could be conducted side by side with self discipline of the industry, and government departments and industry organizations would pay more attention to protecting netizens' rights and interests. Meanwhile, more and more administrative regulations on the Internet were rolled out, contributing to the legislation for it. The Ministry of Industry and Information Technology released the work plan for verifying the authenticity of online registration information; the Ministry of Culture issued the notice on improving and strengthening content management for online games and that on cracking down on illegal music websites; the State Administration for Industry & Commerce started to implement the interim measures on the administration of cyber transaction services; the Tort Law of the People's Republic of China was put into effect; the State Council Information Office released the white paper on the Internet in China, proposed the basic policy of active utilization, scientific development, management by law and safety guaranteed, and strived to improve regulations, regulate administrative supervision and create a healthy, harmonious interconnection environment via the administrative system incorporating self discipline, technical support, public supervision and mass education. The Internet industry was included into the strategic emerging industries in the 12th Five-Year Plan and would receive more support for its development. The 12th Five-Year Plan specified to accelerate the development of industries related to e-commerce and e-governance and comprehensively improve the informatization level. The new-generation mobile communication, next-generation smart Internet terminals, Internet of Things and new-generation information technology industries were listed as strategic emerging industries.

The war between companies and national policies all indicated that from 2010, the Chinese Internet industry would embark on the track of steady, sound and creative operation.

Key Events

Jan.Group-buying websites sprang up in January, with over 2,000 of them competing in the market

In January 2010, China's first group-buying website manzuo.com was launched. Other similar websites started to spring up from March. By the end of 2010, there had been over 2,000 group-buying websites with 18.75 million users.

They offered consumers big discounts and convenience in small-amount payment, which could attract users but could not guarantee the quality of commodities, so they might increase the sales of the service and goods providers, but were not so helpful for building up the high-end image. Group-buying websites sprang up like mushrooms, some good and some bad, leading to suspicion over their credit.

Still group-buying websites flourished across the country in that year. Group-buying is becoming a new way of consumption for the younger generation. But things will go in the opposite direction when they reach a certain limit. Saturation will lead to elimination in the market. In the next step, group-buying websites needed to learn how to survive in the competition and avoid elimination.

Mar.23Google Search exited from Mainland China on March 23

On January 13, 2010, Google announced on its official blog that it's considering to close down the Google China website and its office in China. On March 23, it announced to move the search service from Mainland China to Hong Kong, marking the exit of Google Search from the market of Mainland China.

Google’s exit affected the state, the industry and users. For the state, its exit was the result of cyber freedom vs. cyber security. Obviously Google lost the game, which was predictable and inevitable. Any multinational corporation must abide by local laws and regulations, and Google, a highly competitive one, is no exception. If it intends to use its business influence to change a country's policy, the result is obvious.

As far as the industry was concerned, Google's exit reshaped the search engine market in China. Without doubt, Baidu made the biggest gains from it and other search engine companies were eager to take the second place in the market. Data released in August 2013 showed that Baidu still dominated the search engine market, followed by the 360 Search launched in 2012, and Sogou, while Google fell to the 5th in Mainland China in terms of market share. It thus can be seen that after Google’s exit and the reshuffling of China's search engine market, the industry is not affected on the whole but Google's market performance was noticeably damaged.

As far as users were concerned, they still loved the user experience provided by Google and were loyal to the brand. Though Google's search service was transferred from Mainland Chinese to Hong Kong, mainland users could easily access google.com.hk, so its exit had little impacts on ordinary users.

Jun.8The State Council Information Office released the white paper on the Internet in China on June 8

The State Council Information Office released the White Paper of The Internet in China for the first time on June 8, 2010. According to this White Paper, the Chinese government has fully recognized the irreplaceable role of Internet in accelerating national economic growth, promoting scientific & technological progress and facilitating the application of information technology to social services, highly valued and actively advanced the development and application of the Internet.

This White Paper intended to introduce the basic facts about Internet in China, explain China's basic policies and viewpoints regarding Internet and help the general public and the international community gain a comprehensive and objective picture of Internet development and administration in China.

It contains about 13,000 words and is divided into the Foreword, Endeavors to Spur the Development and Application of the Internet, Promoting the Extensive Use of the Internet, Guaranteeing Citizens' Freedom of Speech on the Internet, Basic Principles and Practices of Internet Administration, Protecting Internet Security, Active International Exchanges and Cooperation, and Concluding Remarks.

Mar.1The real-name system was applied to online games from March 1

On June 22, 2010, the Ministry of Culture officially released the Interim Measures for Online Games which provided to apply the real-name system to online games and was scheduled to be put into effect on August 1. Under the regulation, players need to enter their true identity information to play an online game.

It requires three systems: firstly, the registration system for players to provide their identity information; secondly, the inquiry system open to the general public on which parents could check whether their children are playing games and what games they are playing; thirdly, the verification system that the public security organs use to verify the registration information. Once the registration information is found false, the registered player's level, experience and inventory would all be cleared.

The ultimate purpose of adopting the real-name system is to limit the time minors spend surfing on the Internet by technological means, keep minors from playing player-killing games with leveling up and regulate the online game environment. The practice is welcomed by experts and parents. Experts believe that the Interim Measures for Online Games can take measures such as "raising the threshold", "overseeing the use of virtual currency" and "protecting juveniles" provided in the Measures to further develop the strength and overcome the weakness of the online game industry to ensure its sustainable and sound development. Parents see the real-name system a very good supplement to the Online Game Anti-Indulged System For Adolescent used before and can limit teenage addiction to online games. But some players are worried whether the real-name system can be well carried out and whether their personal information submitted can be kept confidential.

The real-name system represents the inevitable trend of Internet development, but in its implementation, the protection of personal information should not be neglected. The next challenge facing the state and enterprises is how to protect users' personal information and prevent information leakage and account theft via technology and policies.

Aug.30Super-Internet-Bank was launched on August 30

On August 30, 2010, the Super-Internet-Bank, the second generation online banking system developed by the People's Bank of China as the lead organization, was officially launched in Beijing, Tianjin, Guangzhou and Shenzhen, and then 10 other cities including Shanghai, Changsha, Hangzhou and Nanjing on December 15.

The rapid rise of e-commerce platforms and online shopping and the continuous development of third-party payment platforms such as Alipay and Tenpay paved the way for the birth of the Super-Internet-Bank. With Internet development and the increase in inter-bank payment, the original banking system, in particular the inter-bank payment system, was not sufficient to meet users' demands and the original cumbersome business process rendered the banking services low efficient and costly. In contrast, the Super-Internet-Bank can provide real-time inter-bank transfer, inter-bank account inquiry and billing inquiry for corporate and individual clients, as well as services that previous payment systems could not provide, such as inter-bank debit, third-party payment and third-party pre-authorization, laying a solid foundation for commercial banks to provide creative services for clients in areas of e-commerce and inter-bank capital management.

Thanks to its convenience, fast response and low cost, the Super-Internet-Bank took over traditional payment business in no time and paved way for later development of mobile payment and The Internet Finance. But its risks were also exposed in the meantime. Cases in which the user's account was hacked after using the Super Internet Bank emerged one after another. In such cases, it took less than one minute to transfer hundreds of thousands of yuan from one account to another, astonishingly "convenient" and "efficient" for hackers. That’s why we say that profits and risks always co-exist in financial business.

Sep."Force demolition in Yihuang" was live broadcast on Weibo in September

In September 2010, in a self-burning incident triggered by forced demolition in Fenggang town, Yihuang county, Fuzhou, Jiangxi province, three were badly injured. The sisters of Zhong family were intercepted on their way to Beijing to appeal for help. Their journey was live broadcast on Weibo. Later thanks to Weibo, incidents such as the Li Gang incident, Fang Zhouzi's questioning of Tang Jun’s (former President of Microsoft China and Shanda Interactive Entertainment) academic degree and the war between 360 and QQ reached a wider audience. Meanwhile, Weibo also demonstrated its explosive communication effect as an open new media platform in the rescue work for victims of the Wangjialing mining incident and in drought-relief efforts.

Weibo, literally meaning microblog, is an emerging open social networking service on the Internet. It was new to most Chinese just one year ago. It was first introduced into China by fanfou.com and digu.com. From the second half of 2009, sina.com, sohu.com, 163.com and people.com.cn started to launch or test their Weibo feature successively. Weibo attracted users such as social celebrities, pop stars, companies and common people and became one of the hottest Internet applications in 2009. It reached an unprecedented high in terms of user coverage and influence in 2010. Following the popularization of blogs in 2005, Weibo set off another wave of popularization.

Weibo's rise was attributed to its features of "decentralization" and mobilization, which allowed it to fully demonstrate the power of onlookers, and its short (within 140 Chinese characters) and real-time information was welcomed by users to fill in their increasingly fragmented time. Without doubt, as we enter into the age of mobile Internet, Weibo will remain the hottest spot of innovation and the trendsetter for the next two to three years in the Internet industry.

Oct.The fight for the domain name "kaixin" ended in October

In March 2008, kaixin001.com was officially put into operation. Half a year later, China InterActive Corp purchased the domain name kaixin.com with a high price and launched a website bearing the same name. In May 2009, kaixin001.com sued it for unfair competition, demanded it to stop using the domain name kaixin.com and claimed RMB 10 million for compensation. The case was first heard on October 28, 2009, without any verdict made. It was heard for the second time in June 2010, in which the China InterActive Corp requested the court to verify whether kaixin.com was a well-known and particular name by October 2008, but the request was rejected. In September 2010, kaixin.com and renren.com were merged, allowing their own users to log onto each other's website with their original account. The case was finally settled in October 2010 with the decree that China InterActive Corp shall stop using the domain name kaixin.com and compensate kaixin001.com RMB 400,000.

This lawsuit was a historic fight in the rapid rise of SNS websites, lasting from May 2009 to October 2010, for about one year and a half. When it's finally settled, the SNS had faded and was replaced by Weibo. It really didn't matter who's the winner.

Nov.Zhang Chaoyang triggered the Weibo war in November

Sina Weibo had been the most visited and well-known weibo platform since its launch in September 2009, taking a considerable lead in the market. But sooner or later, other competitors would enter the market to end the one-horse race. In mid November 2010, Zhang Chaoyang, CEO of Sohu.com Inc., posted "It's a good day and let’s launch the weibo war" with his weibo account, declaring Sohu's entrance into the weibo market under Zhang's supervision. In just two weeks, Sohu Weibo attracted a growing list of celebrity users including Zhao Benshan, Li Lianjie, Sun Honglei, Cui Yongyuan, Zhu Jun, Yuquan, Liu Xiaoqing and Li Yong.

At the end of 2010, the commercial value of weibo was revealed, attracting the eyes of Internet giants. And weibo platforms were fighting fiercely for users by continuing the celebrity strategy adopted in the blog era and luring celebrity users, despite its uncertain profit-making mode and development prospects. But things are changing rapidly in the Internet industry. It's common for a hot application to be replaced before its ripe time by another more creative one. WeChat, launched in 2011, dealt a heavy blow to weibo platforms. It tells us that the sustainable development of an application requires not only courage but also long-term strategic planning and continuous technological breakthroughs.

2010Letv.com and youku.com went listed in August and December, respectively

Letv.com was listed on Shenzhen Stock Exchange (SZSE) on August 12, 2010, with the opening price of RMB 49.44, RMB 20.24 higher than the offering price (RMB 29.2), up by 69.32%. It was China's first listed A-share online video company. On the night of December 8, 2010, youku.com was listed on the New York Stock Exchange (NYSE), with the closing price of USD 33.44, up by 160% from the offering price of USD 12.8, and beat Sohu and Shanda in terms of market value. This was the biggest first-day gain for IPOs in the United States in the past five years.

The online video industry has long been troubled with limited development space and intense competition due to the high demands on technology and creative content and the high entry bar set by the government. The listing of letv.com and youku.com indicated that the industry was maturing. With the increasing influence of online videos, video websites' status as an important distribution channel for audio-video programs will be consolidated, which will promote the development of upstream and downstream firms including content providers and technical service providers and push the government to adjust its regulation policies.

Nov.Qihoo 360 vs. Tencent in November

Qihoo 360 Technology Co. Ltd. (Qihoo 360)launched a privacy software program known as "360 Total Security" on October 29, 2010. On November 3, Tencent accused the program of hijacking QQ's security module and decided to disable its QQ services on computers installed with the 360 software. On the next day, the regulator stepped in and both sides agreed to restore the compatibility of their software.

This war marked the climax of 2010 in the Internet industry, throwing the copyright dispute among video websites, the fighting between group-buying websites, baike.com and cloudary.com.cn vs. Baidu, and jd.com vs. dangdang.com all into the shade. It's a you-or-me battle between 360 and Tencent, forcing netizens to choose side, either to uninstall QQ or 360's products. The Ministry of Industry and Information Technology had to step in and mediate between them.

The war also reflected how intense the competition was in China’s Internet industry. Driven by profits, more and more Internet companies are fighting for users but neglect to improve the user experience and innovation centered on users. In this battle, Qihoo 360 and the Tencent turned their users' computer desktops into a battlefield and hurt their interests and the user experience.

After that, there were experts calling on for benign competition and win-win cooperation among Internet companies. The wish is shared by hundreds of millions of Internet users. When will it be fulfilled?