In episode 30 of TechBuzz China, co-hosts Ying-Ying Lu and Rui Ma talk about Renren Inc., the closest Chinese analogue to Facebook. The former near-monopoly on the Chinese social networking space, which had formerly raised $800 million in its 2011 IPO, recently announced that it would sell all of its renren.com social networking assets to Beijing Infinities Technology, a holding company, for a mere $20 million in cash and $40 million worth of stock. This episode explores: what happened?
Rui and Ying-Ying follow the winding history of Renren, starting with the background of its founder, Joe Chen; through its acquisition of Wang Xing’s Xiaonei social network; through its NYSE listing– which, by the way, Rui’s investment banking firm at the time played a small role in. Though the public offering was successful, even hailed as a “prelude to Facebook’s IPO,” things started going downhill from there. By 2016, total revenues had dropped by half to $63 million, and the company was consistently reporting losses of active users. This decline has been so stark, in fact, that when CEO Joe Chen announced in a post on Renren.com that the company had been sold, the post only had about 800 views after 12 hours.
What are the reasons for this outcome? What roles have poor strategic decisions, the founder’s vision (or lack of vision) and ethics, and Renren’s insistence on continually bandwagoning onto the latest hot trend played? How is it that by 2017, 75 percent of Renren Group’s revenues were coming from used car sales and financing; and that in contrast, Renren.com business made up just 9 percent of the Group’s revenues in Q2 of this year?
Listen to the newest episode of TechBuzz China and join Rui and Ying-Ying in analyzing the rise and fall of one of China’s most iconic internet brands. Throughout, our co-hosts also lean into an unspoken question that is perhaps on many of our listeners’ minds as well: What lessons can Facebook and other U.S.-based social platforms learn from this incredible story?
As always, you can find these stories and more at pandaily.com. Let us know what you think of the show by leaving us an iTunes review, liking our Facebook page, and tweeting at us at @techbuzzchina to win some swag! Finally, a huge shoutout to our new listeners over at dealstreetasia.com.
(Y: Ying-Ying Lu; R: Rui Ma;)
[00:00]: On Nov. 14, Renren Inc. announced that it would sell all of its renren.com social networking assets to Beijing Infinities Technology, a holding company, for $20M in cash and $40M worth of stock.
R: This triggered a wave of intense nostalgia on the Chinese interwebs because Renren, even today, is probably the closest Chinese analogue to Facebook, which is still banned in China.
Y: You might have heard of this company before, because if you long-time Techbuzzers remember, our episode on Meituan covered its origin story briefly. It was Wang Xing’s first attempt at cloning a US internet business, and copying Facebook was exactly what he was going after, down to the pixel.
R: And if you go back to the press releases around Renren’s IPO, which was in May of 2011, that was exactly what Wall Street and everyone else thought of it as well. In fact, when it successfully IPO’ed on the NYSE, it was said to bode well for Facebook.
[01:02] Y: Reuter’s coverage, for example, called it “Renren’s big day, a prelude to Facebook IPO.” And yet, the company that was once worth north of $9B is today just barely hovering above $100M in market cap. Once a high-flyer in the Chinese internet space, CEO Joe Chen is now known as the head of one of the “biggest train wrecks” in China tech.
R: Yeah, at one point, Renren was the third largest listed Chinese tech company, behind just Tencent and Baidu. Alibaba, if you’ll remember, didn’t list until a few years later. In today’s episode, we will talk about what happened to Renren? And what can we learn from this disaster, if anything?
[03:44] R: OK, I understand that except for long-time China watchers or investors, Renren is probably not something you have heard of. And that’s natural, because it’s been dead for a pretty long time. Well, not completely dead, but pretty dead. Don’t you think Ying-Ying?
Y: Right. I agree. Let’s start from the beginning, as we always do. Rui, could you tell our listeners a bit more about Renren’s founder, Joe Chen?
R: Sure, Joe Chen, or 陈一舟, is from the province of Hubei. He moved to Delaware in his 20s to pursue an undergraduate degree at the University of Delaware. Given how difficult it was to leave the country at that time, it would seem that he must have been a really good student. Actually, almost certainly so, because he then went on to a master’s program at MIT and subsequently received an MBA from Stanford. Fellow Hubei entrepreneur 周鸿祎, the founder of Qihoo, has always said that Joe is the smartest Hubei person he knows, even ahead of Lei Jun of Xiaomi.
[04:55] Y: Stanford changed Joe’s life. Or at least that’s been the story. His first startup was with two Chinese classmates at Stanford, including Nick Yang, and it was a company that focused on student communities, called Chinaren, ren 人 being the Chinese word for “people.” Founded in 1999, that site quickly became the largest community for Chinese people online, globally, and was acquired by Sohu for about $30M in stock just a year later.
R: Joe stayed at Sohu for a bit as a VP, but quickly moved on to start another company, Oak Pacific Interactive, or OPI, in 2002. OPI was apparently a nod to the plentiful oak trees on Stanford’s campus, and maybe Joe learned something during the dot com bubble and subsequent bust, because what he decided was that he wasn’t going to focus on only making products anymore, he was going to acquirethem.
[05:55] Y: One of his first acquisitions was Mop.com, a reddit-like forum, back in 2004. But, the most important asset he acquired for what I’ve been told was “next to nothing” was Wang Xing’s Xiaonei, a Facebook clone. The site’s name meant “on campus,” and it was targeted at students. Wang Xing, if you’ll remember, is today the CEO of Meituan-Dianping and this fire sale, back in the day, is now viewed as one of his early losses.
R: Right. Xiaonei was founded in December of 2005, and OPI, seeing its early success, also launched its own student-focused social network in April 2006, one of the few products it ended up creating. Just a few months later, Wang Xing ran out of funding and was forced to sell his company to OPI. It clearly wasn’t a happy collaboration because he stayed only eight months before leaving to start yet another social network– one we won’t go in more detail here.
[06:57] Y: Anyway, the new site created by the merger of OPI and Xiaonei was renamed Renren in July 2009, when it simultaneously opened its platform to users outside of college campuses. Now Renren 人人, as you have probably guessed by now, means “people people,” or simply “everyone.”
R: In 2011, Renren went public on the NYSE. I played a small role in the IPO, as my firm at the time was one of many investment banks who advised on the public offering. I mean, it was a successful IPO, imagine raising over $800M for a company that billed a total of only $118M in net revenues in that year, mostly by the way from the Renren asset. By 2016, however, total revenues had dropped by half to just $63M, and Renren accounted for just over half of that amount, which means that actually, the Renren business on its own had degraded by over 70%.
[08:00] Y:The loss of revenues is reflected in the corresponding loss of users. While Renren reported that it had 257 million activated users as of December 2017, notice that those are activated AKA registered users, not active users. For monthly active users, now that number has long been lower than 50M, and it slipped to barely 31M as of March of this year. 31 million may sound like a lot, but it’s nothing in a nation of 1.5 billion, especially when WeChat, for example, can get to 1 billion MAU and so many others are today at hundreds of millions.
R: It’s so few, actually, that when Joe Chen announced that Renren had been sold in a post on Renren.com itself, the post only had about 800 views after 12 hours, and it wasn’t until other news outlets picked it up that it became a trending news item. I couldn’t log on cause I couldn’t retrieve my old account anymore, so I couldn’t see the original post, but Joe must have special privileges, because I read that if you log onto Renren today, you would not be able to upload a status update. All you can do is upload a short video, or livestream something. In fact, the homepage that used to look eerily similar to Facebook? Gone. The first page you see now is basically one that bombards you with livestreams. Mostly of young girls who are performing in front of their webcams in the hopes of getting virtual gifts from their fans.
[09:36] Y: But let’s go back in time to the “beginning of the end of Renren,” which is when it was still super popular with students, as Facebook had been, but was struggling to spread to other age groups. That was right around when it got into social games and was actually doing okay, but ultimately lost the market because it tried to be a little too clever for its own good. I am talking about a specific incident: 真假开心网, or “who is the real kaixinwang”? That was the IP dispute that rocked China internet in 2009.
R: The story goes like this. In 2008, a Sina engineer named 程炳浩 Cheng Binghao left to create his own social network, Kaixinwang, which literally means Happy Web. It was a social network like any other, and it had the URL kaixin001.com. We are telling you the URL here, because it’s important.
[10:35] Y: Unlike the mostly student demographic of Renren, Kaixin from the get-go went after white collar office workers. And their strategy worked, because after a year, the site had 70mm users, which is a lot for that time.
R: It was super popular — everyone in my office had an account, and I naturally did too. However, its rise did not go unnoticed by Joe, who then bought the domain kaixin.com, so without the “001” tacked on at the end, and he launched an identical social network, also aimed at, of course, the white collar professional. In fact, if you looked at English articles from that period, Kaixinwang would be referred to not as Kaixin or Kaixingwan, but Kaixin001 in articles.
[11:24] Y:While it’s argued that it was not Kaixinwang’s own original ideas to integrate games and other third party apps into its site anyways, it was a copycat itself, copying from Facebook, as others were doing — but in this instance, Joe Chen went one step too far. He might have gotten away with launching another social network, but to take an existing brand and just shave off a portion of the URL and launch an identical product? That was too much.
R: It was indeed very confusing when that happened. Like many others, I thought they were the same company. I thought maybe the owners of Kaixinwang were making money and so bought a shorter domain or something.
[12:09] Y:Cheng Binghao sued for abusive business practices. However, the case wasn’t settled for a year and a half. When the decision was finally delivered, the courts ruled in his favor, and forbid Joe Chen from using the name Kaixinwang and to also asked him to pay a fine of about $60,000 USD. However that’s no doubt a fraction of a percent of the economic harm that he had inflicted.
R:Recently, Cheng was in the news for responding to Joe’s comments that Kaixinwang would have failed anyway, because Tencent’s QQ got into the social gaming frenzy, and Sina Weibo also launched, taking with it a lot of the target demographic of white collar workers. Yes, if you’ll believe it, before WeChat was around, at one point, people would ask you not for your phone number anymore but for your Weibo account, which is like meeting someone and immediately asking them for their Twitter.
[13:04] Y: But the other very real pain for both Renren and Kaixinwang was the loss of their social games to Tencent. Do you guys remember Farmville? Well, that game was actually copied from a Chinese game called Happy Farm made by a Shanghainese gaming company called 五分钟, literally 5 Minutes. Geez, this story is full of copycats.
R: Happy Farm was ridiculously popular. Everyone in my office was growing virtual vegetables and trying to steal other people’s. People spent hours per day on this thing, like more than five hours!
Y: However, the game itself was not actually owned by Renren, it was in fact just a third party application, so when 5 Minutes decided to sell away its rights to Happy Farm to Tencent, that was the end of 5 Minutes, and a huge blow to Renren.
[14:01] R: Honestly, I still don’t understand why 5 Minutes did that, given that they were sitting on top of a gold mine. But I remember meeting with the team for investment purposes, and I think it was just a very young team, mostly just out of college, and they were simply overwhelmed with the operations required to keep running a game that had tens of millions of users. That’s a lot for back then. I think they just wanted to make games. But still, instead of dying, they could have been China’s Zynga.
Y: Renren and Kaixinwang did have some other hits, like the game Parking Wars, which was a clone, but that’s precisely the point, right? Social games are so easy to copy and what’s really important is having the user traffic. I mean, Tencent did pay for Happy Farm, but I don’t think they did for much else. They just began cranking out their own versions of popular games. It’s a volume business, and after QQ got into the fight, Joe and Cheng Binghao never had a chance. So, neither Cheng nor Joe won, but given that Kaixinwang was at least eventually sold for about $140M, far from what it might have fetched should it have succeeded, that’s still higher than Renren’s current market cap!
[15:14] R: Oh, but Joe apparently never forgot about the Kaixin.com domain, which by the way, the courts still allowed him to keep, because that is now the site of Renren Group’s other business, besides the old renren.com social network slash live streaming site, that is.
Y: Yup, Kaixin.com is Renren Group’s secondhand car sales business, which is basically a dealership plus a financing business. By 2017, 75% of Renren Group’s revenues was coming from used car sales and financing, and actually nearly 60% of it was just the used car sales portion. Can you guys imagine? This is a formerly multi-billion dollar social network and it’s now primarily selling used cars. No wonder people mock it as the greatest trainwreck of Chinese internet. By Q2 of this year, Renren.com business made up just 9% of Renren Group’s overall revenues.
[16:15] R: How did that happen? Well, Joe launched many products after Renren.com, but none of them were any good, except for maybe this Kaixin Auto business. What is true though is that even after that dispute with Kaixinwang, Joe never stopped copying. You want a standalone messaging app like Wechat? Renren made one. How about a beautifying selfie app like Meitu? Yup. A user-generated content-driven travel site like Mafengwo that we talked about back in episode 27? Yes again. Most of those were made and failed without so much as a splash in 2012-14, which is why you probably have never heard of them, because we certainly haven’t either.
[17:02] Y: But has Renren stopped trying to bandwagon onto the latest hot trend? No. When P2P finance was all the rage? Renren had a product. How about blockchain? Joe announced an ICO project called Renrencoin to much fanfare at the beginning of the year, driving the stock price up 14%, but then only to get in trouble with the authorities by the end of the week and having to halt the project. He did however raise $100mm in 3 days. But that was still a dumb idea.
R: Yeah, it was really dumb, because he had to give it all back. The Chinese government has made it clear from the beginning that blockchains are welcome but anything resembling coins or securities are not. Anyway, Joe and co. are either terrible product managers, or just have terrible luck. But I think after eight years of literally zero hits though, we can safely say it’s probably the former.
[17:59] Y: All is not totally lost though. Joe has had more success with his investments. He made a big push into fintech when it was hot, investing into SoFi and Lending Home, and owning about 13% of each at the beginning of this year. Actually, Renren Group was so successful as an investment company, having invested into 44 companies and 6 funds, that it was supposedly in danger of triggering some NYSE rules that would have made it become, well, an investment company.
R: In order to avoid that happening, in April, the company decided to spin off its investments into an entity called Oak Pacific Investments, reducing its number of outstanding shares by 79%. Investors, however, were not happy and complaints were filed.
Y: These were the most valuable parts of Renren Group, after all, and what’s left is … well, a dead social network, a used car business, a real estate website and some SaaS businesses in the US. Well, and now that dead social network ren ren.com business is gone as well.
[19:11] R: As for Joe, he will still have a grasp on Renren, but a few layers removed. For one, he is one of the main owners of Oak Pacific Group, which in turn is a minority shareholder in Infinities Technology, the company that bought Renren.com. Maybe he, too, is nostalgic for the past and doesn’t want to let go just yet, because I can’t see this company coming back from the dead.
Y: Me neither. Well, what did we learn today, Rui?
R: We learned that although at one point Renren was worth over $9B on the NYSE, it was always a copycat and never really invested in truly innovative things. It was a follower, and tried to capitalize on every major new trend, from livestreaming, to P2P, even to blockchain, and now has found a tiny bit of success in secondhand cars. But due to the lack of a strong product management team, it has unfortunately mostly failed.
[20:05] Y: We also learned that its lack of product innovation is really due to the lack of vision of the founder, Joe Chen, who, despite being an entrepreneur once upon a time, now fancies himself as an investor. And while he has made some successful investments, such as SoFi, these paper gains were probably not enough to offset the market’s lack of confidence in the management’s ability to lead its core business.
R: Finally, we learned that even once great, OK, maybe not great but at least popular, internet products can die. I mean, Renren was once mentioned in the same breath as Facebook. But look at where it is now. In China earlier this year, people logged onto renren because there was a viral challenge asking “What You Were Like at 18” and who knows, maybe that will be the only reason I log on to facebook.com one day. To retrieve a decades old photo.
Y: That’s scary. But it could happen. Or maybe not, because as many have already pointed out, Renren shouldn’t ever have been called the Facebook of China. It was really more of a MySpace.
[21:08] Y: OK, that’s all for this week folks! Thanks for listening. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter at thepandaily, at techbuzzchina, and my personal Twitter account is GINYGINY.
R: And my Twitter is spelled RUIMA. We won’t be back next week because it’s Thanksgiving. So Happy Thanksgiving everyone! We’ll be back the week after. TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Shaw Wan and Kaiser Kuo. Our intern is Wang Menglu.