The Story of W&L: China’s Great Internet Divide

This is the story of W&L, two representatives of China’s great internet divide.

The original post (Chinese-language) was written in July 2010 by Simon Shen (申音) and sent to me by TechRice reader Tim Wang (thanks Tim!). The English-language translation and all errors therein are my own.

See the end of this article for speculation as to the identities of W & L: “W” is suspected to be based on Wang Xing (Xiaonei/Renren (Facebook clone), Fanfou (Twitter clone), Meituan (Groupon clone) and “L” on Li Xingping (web directory site Hao123).

W&L

China does not have one so-called “national internet,” instead there’s a great divide. It encompasses the elite with ThinkPad laptops and also the grassroots with MTK shanzhai mobile phones. Our elites are on par with America, while our grassroots are on par with Vietnam.

I have two friends.

L’s company is in Shanghai, but he’s running it from Guangdong [southern China] most of the time. He graduated from a lesser-known university in southern China, where he studied literature years ago. My friend L makes mobile games. I’ve seen him use many different mobiles, but the most expensive was no more than 1000 RMB [~150 USD]. Rather than concepts of Web 2.0 or mobile internet, he follows the tens of thousands of migrant workers and the “ant people” [marginally employed university graduates] on the outskirts of cities. How does he follow them? He drinks beers with them over midnight snacks from street vendors, spends the night at internet cafes in the Foxconn factory district, and chats with the convenience store owners who got their BMWs by selling to them.

W is from Beijing’s Zhongguancun district [the “Silicon Valley” of China]. From early on he was a brainy talent with shining eyes, with stellar grades in math and science, outstanding critical thinking, equally fluent in English and Chinese. He graduated from a famous university in the Beijing capital-city, after which he went directly to a famous American university for a Masters, and then returned home to start a company. I’ve always thought he’s the Chinese edition of a Silicon Valley geek. He’s always the first with the latest technology, like iPad. Inside of China he’s still on Facebook, Twitter, Groupon, and Foursquare. What’s the future of the internet you ask, W’s websites are the future of the internet.

W enjoys more applause and fame than L. But the regret is, while he’s made many sites that investors think are super cool, but he’s never made big money. The reasons are the following: maybe his company is early, but it’s soon encircled by a crowd of copycats; maybe funds aren’t enough, so he’s annihilated by a strong, well-funded competitor; or maybe he touches on a high-voltage wire and is shut down by an internet regulatory body.

L’s business generates real revenues everyday, he can already play golf, but he has no desire to tell strangers about the money he’s making. No one would believe him anyways, how could he make several hundred thousand RMB a month? This all comes from workers making not even 2000 RMB [~300 USD] who use 300 RMB [~45 USD] to buy a shanzhai mobile phone. They play the games by L’s company, contributing a few hundred RMB in ARPU [average revenue per user] value. In other words, they happily turn over a tenth of their salary to L. I sometimes fail to understand–W’s customers are all in Beijing and Shanghai, elites with the highest discretionary income. Why are they willing to pay for the most expensive mobile phone, switch to the newest laptop, eat at the finest restaurants, but online they want everything to be free?

My circle agrees, only W’s doings are widely watched. He has the eyes of his industry peers, the media, marketers, word of mouth, and his site’s traffic is almost a steady upward slope. But the weird thing is, after not long his momentum suddenly stops, his heart starts to beat like that of an older man. I also asked L, and only a handful of his grassroots users own a computer or have a 3G connection. So how could this happen? L smiled and said, internet cafes are not the most effective channel. Next to the factory districts there are convenience stores, where the workers assemble after work. The boss supplies a computer installed with all the mobile games, MP3s, movies, and an old-style karaoke songbook. There’s no need to go online, with a USB cable workers can download what they wish. Even more convenient, there’s a pushcart setup that can wheel this equipment to the workers’ dormitories.

One time over a meal with L, he asked me: “Who is suitable as a spokesman for our game targeted at 450,000 Foxconn factory workers?” I guessed Jay Chou [a famous Taiwanese pop star], but L shook his head, he’s for city folk. So I guessed Chris Li [春哥 – highly popular winner of a talent show a number of years ago], but also incorrect, she’s only for students and young married women. Annoyed, I guessed FengJiao [当红的凤娇 – the star of a reality dating show], but that guess was also rejected. The correct answer is Phoenix Legend [凤凰传奇 – a singing duo that came to fame through reality shows that are popular in western parts of China], with hundreds of songs as evidence. And I felt jealous of L’s knowledge that far outstripped my own. I’m lucky I never suggested Han Han [韩寒 – racecar driver, blogger, and maverick]!

In the past, W earnestly believed technology could change society, but now he knows you can even stay away from the government, but the government will still inquire about you. L was once angry, but now he’s practical. A good businessman knows how to read the news. He closely follows official personnel changes, the crackdown on pornography, and even participated in a few “friendship association” labor meetings, though his aim was to promote his games. Upon the string of suicides at Foxconn, he solemnly told me, “this is our fault”. I was startled. He said these youth jumping off buildings are the customers who feed me. Usually the mobile phone is the only entertainment for these workers, their only connection to the outside world. It’s our responsibility to give these workers happier lives.

All my investor friends have high praise for W, but all more comfortable investing in L. Because in their hearts they know: in China, you target elites to make noise, but you target the grassroots to make money. Are not Tencent and Baidu perfect examples?

A Shanghai comedian says: “I drink coffee, but Northerners eat garlic. Coffee is an imported product, very Western, but garlic is good for the body. This year garlic producers are earning a lot of money, but I haven’t heard of coffee makers making money. Is not China’s internet the same?” [Note: The stereotype is that Chinese Southerners fancy themselves as more civilized, sophisticated than Northerners. More W than L.]

I suddenly thought if W and L switched placed, would the result be the same? Would they each understand each others’ markets? But then I realized that’s improbable.

W seeks an “elegant, American-style internet.” American’s information revolution started in the 60′s, and those 1950-1990 are all of the digital generation. There’s no big internet divide, their business and lives, work and entertainment, cannot be separated from the internet. That’s why Mark Zuckerberg and Steve Jobs of the 1950s, Jeff Bezos of the 1960s, and Larry Page of the 1970s all compete with each other.

At the same time, America’s societal structure is like an olive, there’s not so much inequality, regional differences, rural-urban divide, so one can say American has a “national internet”.

We once thought Chinese society was like a pyramid, but it’s now becoming a nail. Between W&L, one is at the tip of the nail, while the other is far away at the head of the nail. China does not have one so-called “national internet,” instead there’s a great divide. It encompasses the elite with ThinkPad laptops and also the grassroots with MTK shanzhai mobile phones. Our elites are on par with America, while our grassroots are on par with Vietnam.

In reality, China’s “digital generation” exists in the north and a few big cities, in the tens of millions of 20-40 year-old middle class citizens. The remaining hundreds of millions use only QQ. If the internet can’t change this staus quo, can it provide a societal and economic revolution?

I believe L sees the essence of China’s internet. The insatiable desires of the elites, a limited group being chased by far too many entrepreneurs. On the other hand, there’s a huge number of “digital peasants” who have no way to use the internet to change their fate, no way to access the internet and improve their lives, they can only get drunk on cheap entertainment. L’s business suits China’s condition, but can he break outside the country?.

I’ve always believed there will finally be a day when W can make something that represents the future of the internet, make Americans sit on their butts and look up to China and learn. But will his trials today wreck his willpower?

According to the philosopher Plato’s theory of the cave, everyone is born into his own cave, we only see a reflection of real life cast by the sun’s shadows. But everyone believes the shadows in their cave are the real world, because we’ve never seen anything else. But the real world is outside of the cave, in the sun.

The elite readers of this blog must admit, there’s a huge group (laborers, recent grads, about 300 million), who live in a completely different world. If you can follow this group, you’ll have more opportunities. But in all likelihood, we’ll never emerge from our own caves.

Identities of W&L

There’s much speculation as to the identities of W & L.

Many believe W refers to Wang Xing (王兴), the founder of Xiaonei (early Facebook clone, sold to Oak Pacific and renamed Renren), Fanfou (early Twitter clone, shut down by government after Tibet riots in 2009) and Meituan (Groupon clone). With Meituan, one of China’s largest group-buying sites, Wang Xing should finally make his bank. See Gady Epstein’s excellent Forbes article on “The Cloner”.

L is speculated to be Li Xingping (李兴平), founder of Hao123.com, an internet directory used by many Chinese, especially those new to the internet, as their homepage and a list of the most popular sites on the Chinese internet. Sites can pay to be featured in the listings and thereby attract significant traffic. Hao123 was sold to Baidu in 2004.

Wang Xing’s profile strikes me as a better fit for W than Li Xingping is for L. But the author, Simon Shen, ultimately says, “There’s no need to make this a guessing game. These are no more than two representatives, with elements from others as well.”

This post was originally published on TechRice.