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Monday, March 06, 2006
American Idol, Venture Capital, and Making Money

I am sure that anyone reading this is fairly curious to find out how the title of the post, could lead to any sort of structured thought. I will give it a try...but, no guarantees.

A couple data points to start:

1) Recently, the finale of the Chinese version of American Idol (known as Super Girl) was held. There were 400 million viewers for the finale. That is more people than the
US and Canada combined. However, only 8 million of the 400 million voted, primarily because you had to pay to vote. While the show itself is meaningless, it demonstrates exactly what business in China feels like. The volumes are impressive, the opportunity is enormous, but, it is nearly impossible to monetize...at least right now.

2) I read last week that over the last 20 years, 90% of the returns in venture captial came from 200 companies. That's right...20 years...200 companies...that's it. The message: it is really hard to generate excessive returns betting on immature markets/companies.

3) I am struggling to identify foreign companies that are currently making money in
China. There are many companies making money as a result of China (i.e. cost benefits, etc.)...but, I am talking about companies that are making money IN China. I can think of a few, with most being confined to infrastructure (raw materials, telecom systems, etc), but, not many.

When you look at they dynamic of Super Girl, mixed with the dynamic around venture returns (by the way, start-ups in the US are often more "mature" than "established" companies in China), it is not hard to see why few foreign companies are making money IN China.

How will this change? When will it change? I think it alot further off than hype artists would lead you to believe.

I am sure that anyone reading this is fairly curious to find out how the title of the post, could lead to any sort of structured thought. I will give it a try...but, no guarantees.

A couple data points to start:

1) Recently, the finale of the Chinese version of American Idol (known as Super Girl) was held. There were 400 million viewers for the finale. That is more people than the
US and Canada combined. However, only 8 million of the 400 million voted, primarily because you had to pay to vote. While the show itself is meaningless, it demonstrates exactly what business in China feels like. The volumes are impressive, the opportunity is enormous, but, it is nearly impossible to monetize...at least right now.

2) I read last week that over the last 20 years, 90% of the returns in venture captial came from 200 companies. That's right...20 years...200 companies...that's it. The message: it is really hard to generate excessive returns betting on immature markets/companies.

3) I am struggling to identify foreign companies that are currently making money in
China. There are many companies making money as a result of China (i.e. cost benefits, etc.)...but, I am talking about companies that are making money IN China. I can think of a few, with most being confined to infrastructure (raw materials, telecom systems, etc), but, not many.

When you look at they dynamic of Super Girl, mixed with the dynamic around venture returns (by the way, start-ups in the US are often more "mature" than "established" companies in China), it is not hard to see why few foreign companies are making money IN China.

How will this change? When will it change? I think it alot further off than hype artists would lead you to believe.

posted by Rob @ 5:38 AM  
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