NetEase closes down microblogging service

Analysts cite dominance of Sina Weibo in sector as main factor

NASDAQ-listed Internet firm NetEase Inc on Wednesday closed its Weibo operation, or microblogging service, as competing social networking website Sina Weibo now enjoys "absolute dominance" in the sector, said analysts.

The news came three months after Internet giant Tencent Holdings announced it would dissolve its Weibo operation team, which was then integrated into the company's news team, though it still kept its Weibo service.

According to a notice on NetEase Weibo's website on Wednesday, current users of NetEase Weibo will be relocated to the company's Tumblr-like social networking platform Lofter, which enables users to be friends with people with similar interests.

"It is a strategic decision. NetEase will allocate resources to quality services," Yang Xuebin, a senior analyst at Beijing-based iResearch Consulting Group, told the Global Times on Wednesday, noting that services like e-mail and mobile Internet apps are NetEase's current business focus.

It is still not clear whether NetEase will boost investment in Lofter, as such websites are still not widely accepted by China's general public, according to Pang Yiming, an analyst at Beijing-based consultancy Analysys International.

IT guru Kai-Fu Lee's Internet startup incubator Innovation Works also invested in a similar website in 2011, diandian.com, but the website only has some 6 million users at present, according to media reports.

But Yang believes that there is a market for such websites like Lofter in China, as it has targeted a very special niche market - mostly young people with artistic interests.

At present NetEase's revenue is mainly generated from Internet gaming, advertising, e-mail and e-commerce, according to NetEase's financial report for the second quarter released on August 13. The company earned revenue of 2.95 billion yuan ($475.8 million) in the second quarter, with a net profit of 1.2 billion yuan.

Data about the number of NetEase's current Weibo users is not available. But the company announced in 2012 that the total number of its registered Weibo users have surpassed 260 million.

Calls to NetEase went unanswered on Wednesday.

Currently Tencent, as well as Internet firm Sohu.com Inc, still offer Weibo services. But "Sina Weibo now has absolute dominance in the sector and it is not very likely that its rivals could break the dominance," Pang said, noting that it is a rational decision for NetEase to give up on Weibo.

Sina's Weibo unit, which landed on the NASDAQ Stock Exchange in April, now boasts monthly active users of as much as 156 million during the second quarter, according to its quarterly financial report announced in August.

Sina's Weibo reported net revenue of $77.3 million in the second quarter, up 105 percent on a yearly basis. And net losses narrowed 56 percent to $15.4 million during the period, according to the financial report.

Advertising is a major revenue generator for Sina Weibo. But analysts said that Chinese microblogging service providers still do not have a very mature business model to earn money.

Though Sina Weibo may have no rivals left in the microblogging sector, the social networking website has encountered stiff competition from other forms of social networking applications. Many users have turned to Tencent's instant messaging service WeChat, as it provides more private communication with their close friends.

Data from the China Internet Network Information Center in July showed that in the first half of this year, the number of active microblogging users in China fell 5.43 million from the end of 2013 to 275 million. While at the same time, active users for instant messaging services such as WeChat rose 28.42 million during the period to some 459 million.

"But it is unlikely WeChat will replace Weibo," said Yang, noting that Weibo is still an important platform for people to follow the latest news, updates on celebrities and information on important public accounts.

NetEase has also been promoting its WeChat-like messaging service YiChat, which was launched in August 2013.

Internet giant Alibaba also launched a similar service Laiwang in September 2013.

However, just like how Sina Weibo dominates the microblogging sector, it is unlikely that other instant messaging services like YiChat can break WeChat's dominance any time soon, analysts said.