Can Ushi.cn Outcompete JingWei and LinkedIn?

The Chinese internet has seen a string of failed business networks, both foreign and domestic. When Ushi.cn conducted its market research in 2009, Chinese netizens had no idea what business networking was: “So it’s like Kaixin001 without Happy Farm?”

But Ushi has been growing steadily since its launch one year ago and gained buzz following last month’s blockage of LinkedIn in China for a few days. But as LinkedIn prepares to IPO in the U.S., Ushi.cn now faces new competition from JingWei and maybe even LinkedIn itself.

I recently interviewed Ushi co-founder and CEO, Dominic Penaloza (卢汉森). As a Chinese-Filipino entrepreneur and private equity investor in China and Hong Kong since 1993, Penaloza has experience with both Western and Chinese culture.

Cultural Differences: Protect the Hierarchy

China has yet to see a business network that reaches a big member base like LinkedIn. But, “business networking is such an innate Chinese thing,” says Penaloza. He believes early attempts failed in part because they were direct clones of early stage LinkedIn that did not account for Chinese cultural differences.

For example, it’s critical to provide controls for site contact permissions in China. Early stage LinkedIn was comparatively open and Penaloza says he received 2-3 unsolicited messages (spam) a week. In China, the hierarchy is more acute with a limited senior guys, a chunk of middle managers, and a vast mass of ambitious junior-level employees: “For example, if out of a 100 people in the U.S. you have 10 who are very aggressive, in China you might have 20. Moreover, those 20 Chinese guys are each willing to expend far more energy to get to the senior guys.” That meant that senior people on the first batch of Chinese LinkedIn clones might receive 30 or more unsolicited messages and/or connection requests per week, thus quickly scaring them away.

At Chinese conferences, it’s all-too-common for card sharks to assault you for a name card without having anything to say. One online version of this practice, mingpian.com (name card), allows users to get the name card of any two people in the system (much to the dismay of senior execs) in exchange for the user uploading one new name card. To build a sustainable ecosystem, the challenge is to build an environment that wards off the shark attacks and keeps the big fish in.

The Catalyst at Launch: Charter Members

Ushi launched with 100 charter members. These senior executives are the business equivalent of hot girls at a party–essential to getting things started. New members could originally join by invite-only, a popular launch practice for social networks to increase user quality and build an air of exclusivity.

In exchange, charter members received recognition on the site, an advisory role, and the first crack at investing, though many participated simply as friends of the founders. About 70% are in venture capital and tech, a similar demographic mix to LinkedIn’s initial users.

In total, Ushi now has 140,000 members according to Penaloza. The invite process (getting a new member to accept an invite and verify email address) is one of the greatest challenges for the site–it’s taken over a million invites to reach that number or about a 10% acceptance rate.

Each new member potentially has far greater value for a business network than for other sites like dating ones where profiles are generally short-lived. There will be stretches of dormancy, but each user could potentially require business services for as long as 40 years.

Still, there’s a big difference between low-activity and dead users. Some of Ushi’s older competitors like Tianji and Wealink claim millions of ‘users’ but rank behind Ushi in traffic.

New Competition: JingWei, RenHe, and LinkedIn

Ushi is facing fierce new competition. Oak Pacific Interactive, the parent firm of the social network RenRen, and Zhaopin (one of China’s largest job sites) have recently launched JingWei (经纬). Another more recent Chinese competitor, RenHe, is not far behind according to traffic rankings.

Moreover, Penaloza would be shocked if LinkedIn does not move into China after its IPO, when it can devote significant resources to the effort. For now, Penaloza thinks Linkedin is smart enough to know that China is a unique market and localization needs to go much further than throwing up a Chinese language version.

But big backing is far from a recipe for success. In Japan, CU, a business social network launched by Yahoo!, an internet giant there, shut down after one short year.

In China, Ren Mai Tong (人买通), by e-commerce giant Alibaba has also failed to gain any traction since its launch in 2009.

And if LinkedIn decides to enter, it should be warned that foreign Internet firms have an atrocious track record in China. Publicly-listed German business network Xing.com has a Chinese-language version but closed down its local office in China in 2009.

Building a business network depends highly upon the first group of seed users, and growing the network from circle to circle, so backing from big traffic, mass-market sites may not be a big competitive advantage.

And for big companies it’s also a question of the caliber of the talent they assign to these new ventures–can they take the best people off their core services? OPI, Zhaopin, and LinkedIn still have their work cut out for them in this market.

Ushi.cn: It’s Business Time

As to competitive advantages, Penaloza cites team, team, and team. Much of Ushi’s team worked together on another social networking startup of Penaloza’s, WorldFriends, which is “a mix of Facebook and Match.com.” On top of that Penaloza says, “To my knowledge, my co-founder, Zhang Yue, is the only guy in the world who’s designed two business social networks.” Zhang Yue was the original product director at Tianji, another competitor in China. Finally, Penaloza also credits a strong technical team for ensuring that the Ushi site has never gone down, a problem that plagues many social networks.

Kaixin001 is in decline as the fun and games of Happy Farm die down. Now Ushi’s challenge is to convince Chinese internet users that it’s business time.