Investor craze for video sharing to fizzle in China
Venture capital heavyweights have placed high profile bets on China's YouTube inspired video sharing Web sites, but funds now appear to be moving on to online companies with more traditional business models.
China's video sharing sites which blossomed last year after Google Inc. bought top online video sharing site YouTube for $1.65 billion (835 million pounds) are struggling to build convincing business models, since the more popular they become, the more bandwidth costs tend to balloon as traffic gets heavier.
Some private equity houses also say too much venture capital money is chasing too few deals in China especially in the technology sector driving up project prices and prompting investors to broaden their horizons in search of higher returns.
"We recently invested in non IT sectors, where the prices can be much more reasonable," Chen Hao, a managing director at Legend Capital, told a forum recently.
Compared to YouTube, China's prominent video sharing sites such as Tudou.com, Yoqoo and Rox.com.cn command only slivers of the country's vast online market. They also face yawning gaps between their large inventories and low ad revenues.
"The entire consumer Internet category has received a huge amount of funding and everyone is struggling to get revenue," said an entrepreneur with a decade of China experience in the consumer Internet field, who has worked with a major portal.
"What you're seeing now is companies who normally invest in tech, Internet concepts, they're also trying to get into the offline space," he added.
Most small firms risk extinction unless they diversify or join forces with other online firms in China.
"If video sharing sites rely on their own resources and capabilities, I don't see much prospect for profit," said Liu Bin, chief analyst at Beijing based research firm BDA China.
Funds are starting to favour online companies with more traditional business models such as online payment, e commerce and digital music, as well as offline businesses such as consumer retail, healthcare and medical devices, market watchers said.
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