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RenRen IPO’s biggest hurdle might be PengYou

With RenRen’s IPO date looming on May 4, investors are salivating over the first major social networking site to hit American stock exchanges. The so-called “Facebook of China” may face stiff competition in the months to come, though, as both Baidu.com, Inc. (NASDAQ:BIDU) and Tencent Holdings Ltd. (HKG:0700) have moved to aggressively ramp up their social marketing efforts in China.

China’s largest search engine, Baidu.com, is well-known among investors. Shares in the company debuted on the Nasdaq in 2005, and they’ve risen more than 1140 percent since. Earlier this month, Facebook announced rumors surfaced that Facebook struck a deal with Baidu to launch a new social networking site in the country (per MSNBC). No launch date has been announced (if it does indeed come to pass), but the companies will reportedly work together to build a new social networking site from scratch, as Facebook.com remains blocked by the Chinese government.

A partnership makes perfect sense. Baidu currently owns 73 percent of the search market in China but has struggled to succeed in the social networking space. The site’s reach should help it heavily promote a new social networking venture much the way Google has done with its Chrome Web browser. Facebook benefits from Baidu’s close working relationship with the Chinese government – something its needed to get past the Great Firewall.

Time is of the essence, though, and Tencent already has a head start on Baidu. Tencent operates the world’s largest online community with its wildly popular instant messaging platform, Tencent QQ. QQ claims more than 636 million active users. To put that in perspective, that’s more than twice the population of the U.S.

Tencent’s earliest foray into social networking started in 2009 with the launch of XiaoYou, a Facebook-like platform targeted at students. XiaoYou allowed users to create profiles based on nicknames (rather than real names) much like MySpace.com. We saw how well MySpace played out here, and Tencent must have taken notice.

The company scrapped XiaoYou last summer in favor of a new “real-name” social networking site dubbed PengYou (per TechRice). When PengYou launched public beta testing in September, invites were extended to employees at publicly-listed Chinese companies, including Fortune 500 companies in China, TechRice writes. By December, the site fully opened up to the public, and an Open API was released so that developers could write custom software for PengYou.

The site allows users to sync up with their QQ accounts and their SINA Weibo microblogging accounts (think the “Twitter of China”). Investors like those ideas. Late last week, analysts at Goldman Sachs actually downgraded SINA Corporation (NASDAQ: SINA) from Neutral to Sell citing a belief that SINA’s Weibo won’t be able to compete with full-scale social networks like PengYou.

“In our new analysis, we believe the most likely outcome is for Weibo to become an alternative loosely-engaged social network weighted toward its distinctive social media elements, and for Tencent Pengyou to become the dominant social network in China by leveraging its much larger QQ community and more developed platforms,” Goldman writes.

Since its launch in December (just five months ago), PengYou has grown rapidly. The social network’s currently ranked by Alexa.com as the 26th most-visited site in China. That puts it in striking distance of RenRen.com, which is ranked as the 15th most-visited site in China. It’s clear we’re witnessing the start of what promises to be a dogfight over social networkers in China. Tencent, Facebook and Baidu have entered the race late, but the finish line is a long way over the horizon.

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2 Comments

  1. David Cromwell

    April 26, 2011 at 1:06 pm

    In my personal opinion, whoever wrote this article is very misinformed. Baidu and Facebook have NOT made any deal, as they have been announced as rumors. AND Tencent’s Pengyou is much more of a blog site, whereas Renren is almost identical to Facebook. Seeing as to how Renren will IPO on May 4th (approximately over 630 million) and is much farther ahead (in terms of timing for IPO, user base and growth rate) than any SNS in its class (I consider Sina, a Twitter-like website to be different), Renren will be the clear winner here. China is looking for a Facebook, and that is exactly what Renren is, not Pengyou.

  2. Thanks for the clarification on the fact that the Facebook/Baidu deal hasn’t been confirmed by either company. I haven’t been able to find official sources denying the deal either, although I did update the text of the article above to point out that the deal is “rumored” to have went down.

    That said, I disagree that Pengyou should be classified as a “blog site.” TechRice has a great write up on it, and it looks like the site is a direct and deliberate competitor to Renren: http://techrice.com/2011/01/05/pengyou-tencents-latest-real-name-social-network/

    As pointed out in the article above, Goldman Sachs has even went on record as saying they believe Pengyou will become THE dominant social network in China. That said, I’m still bullish on RenRen, but I don’t think it’s going to be a walk in the park for them to hold onto their leadership position — especially when Tencent’s gunning for them.

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