(Chinese Version)

Let’s begin with the early development of both cities.

1. Resources: web portals and enlightenment

The previous phase of the Internet era was called cFidao. In this phase, the earliest Internet application in China was BBS. However, the very first Internet companies that achieved commercial success were web portal companies, Sina and Sohu, to be specific.

The situation in China back then was pretty similar to that of the U.S., given that Yahoo! and AOL were also the most successful cases at that time. Nobody knew how to commercialize Internet, and therefore the natural move for the players was to imitate traditional media. During that period, poor technology and immature Internet environment limited players’ options, and maintaining news sites was the best way for them to attract traffic.

In order to enter the news and media industry, the companies had to be in Beijing. Even in today’s China, Beijing is still the center of the media industry. The reasons behind this phenomenon are complicated. One is that major media companies, or government mouth-pieces, such as Xinhua News Agency, China Daily, and Economic Daily are Beijing-based. Beijing is literally the center where most media resources and professional talents are based. There are no other cities in China that have the equivalent advantages. Beijing’s influence is hard to match, leaving other cities far behind the road. China’s media control system contributed to this phenomenon as well.

The State Council Information Office of the People's Republic of China, the Information Office of Beijing and many other high-level news agencies have an ongoing staff flow, which ensures that companies in Beijing have better understanding of new policies. The very first group of web portals were born and raised under these circumstances.

Additionally, the only two commercial Internet nodes were in Beijing and Shanghai respectively. Also, the first node of CERTNET(China Educational Network) was in Peking University. As can be seen, Beijing has all the advantages and it’s still a giant in today’s China.

Were it not for these resources, I wouldn’t be able to get access to the Internet that early. In the 90s, Tianjin got the first C-level commercial node from Beijing, with Tianjin University and Nankai University both connected to the education network of Beijing University with a 9.6k broadband, making Tianjin the earliest city to enjoy Internet technology besides Beijing. Apparently, during that time, Beijing was where the Internet was. The closer you were to Beijing, the closer you were to the Internet.

Before Internet was even a thing, Zhongguancun had already become a center for hardware and electronic industry. In this case, it was natural for Beijing to become the very first Internet startup center in the country.

2. Foundation: Sohu + Tsinghua

I once posted a comment on my WeChat’s friend circle, which goes like “Sohu was a driving force that pushed Beijing to become the Internet startup center. Without Sohu, Beijing wouldn’t have today’s success.”

Sohu was the first Chinese Internet company that actually relied on venture capital to be established. Zhang Chaoyang, CEO of Sohu, brought financing from the US and founded Sohu in Beijing. This was rather of great significance.

Then Sohu acquired ChinaRen, making Sohu the first Internet company that was able to made acquisitions. All these incidents provided special experience for the Internet industry in China on the capital. And, it all happened in Beijing.

Sohu’s regarded as the Whampoa Military Academy in the Internet industry. In fact, somebody even wrote an article about this and collected all the information on entrepreneurs and industry leaders that used to work in Sohu that later became successful after leaving the company. Some of them became senior executives of other companies, others founded their own companies. In short, they all became industry leaders in the Internet industry.

I won’t repeat this view again, but we can look at this from another angle. Besides nurturing senior executives and entrepreneurs, Sohu also trained many professional talents and gave an important push to the industry.

Sohu(together with ChinaRen) originally recruited many interns from Tsinghua University who worked as part-time technical staff at that time. If you were a user of NewSMTH, then you would know the 9# BBS, and you would definitely agree with me that Tsinghua University had the best computer science program in China back then.

In terms of geek culture and information technology, which are the basic characteristics of Internet culture, Tsinghua University graduates were also the best of the best. Once Internet was finally commercialized by Sohu, these young students then formed the strongest technical team in China. After leaving Sohu, all of them became leading programmers in the industry. If we were really to list them down, we would probably find out that the number of these people match that of those entrepreneurs.

Many entrepreneurs and skilled programmers from Sohu also teamed up to found their own companies, such as Renren, Youku, and Kongzhong etc. These companies carry on the technological culture of Sohu. In today’s Chinese Internet industry, almost every big company has a few capable programmers from Sohu. The legacy of Sohu still exists. I also benefited from this as well. Many of my friends and current colleagues were originally from Sohu, and they are really good at their jobs and know exactly what they’re doing. They influence my technological development greatly.

In general, Sohu’s indeed the Whampoa Military Academy in the Internet industry. It’s well-funded, it has amazing technical staff and it’s good at doing business. Professional talents that left Sohu chose to stay in Beijng mostly, and they stayed in the Internet industry. The new generation that’s been brought up by these people would also be the leading force in the future, there’s no doubt of it. There’s no company that’s quite like this in China. No other companies could have such great impact on this particular industry and it will probably be the only company that could pull this off. This is another side of the history of Internet industry in China, which many people might not be aware of.

3.Business: practical VS visionary

Well, we have reviewed the brief history of Sohu, the Internet giant in Beijing. Now let’s have a look at Shanghai now. Among all Internet companies in Shanghai, Sdo is the most competitive one. Different from those companies in Beijing that had been struggling for a long time before they finally made profits, Sdo started to generate revenue soon after 1999, the year in which the company was founded. The company then started to earn more and more money at a fast speed. Ctrip, another Shanghai-based company also started to make profits in the early stage.

It fits the profiles of two cities, doesn’t it? Shanghai’s companies are more practical and they aim to make money, while Beijing’s companies focus more on the broader picture, on the industry layout. Thus, another conclusion can be drawn naturally: there must be more industry parties in Beijing while Shanghai lacks communication within the industry. Industry leaders that focus on the industry layout and don’t really care about making money would be more willing to have conversation with other industry insiders, and to find more opportunities and collaborate with other companies. But as for companies like Sdo, they are just like banknote companies and all they care is to make more money.

Besides the lack of communication with other industry leaders, making money at a high speed also left these companies stuck in a single business model. Web portals in the early stage all had tremendous amount of products, including news section, CMS, email service, forums, and advertising system etc. Their product concept was simple “Everything you have, I need to have them as well, regardless if they would make money or not.” Because of that, these companies needed more and more personnel as they needed different teams to manage different products.

Meanwhile, companies in Shanghai were busy expanding their main businesses to make more money at a quicker pace. Sdo focused on making games and Ctrip focused on booking service of flight tickets and hotels. Many years have passed and they are pretty much doing the same thing right now and no other business is brought forward. Professional talents from these two companies also stuck with their own area. Clearly, Shanghai is more monotonous in terms of business model and professional talents.

All these factors cast shadow on the future development of Internet industry in Shanghai. In this particular industry, companies that make money fast can’t compete with those that focus on accumulating users in the long run, since Internet is all about the network. Connecting more users could bring bigger network effect, and companies that provide free services and don’t focus on making money are easier to attract users to build a huge user base.

Even today this model still exists, but the situation has changed a bit. In today’s Internet industry, many well-funded companies that burn a lot of money defeated many similar companies that’re not very well-funded. This is also the biggest difference between Internet economy and traditional business model.

These naturally formed characteristics have been influencing the whole industry and they still do nowadays, making Internet companies in Shanghai less energetic and less diverse then those in Beijing.

4. Regions: Collaboration VS Acquisition

Although the Internet industry in Shanghai is not diverse enough, Zhejiang province and Jiangsu province make up for it. In Hangzhou, we have an Internet giant that’s famous worldwide, the Alibaba Group. In Nanjing, we also have Tuniu(Its CEO once worked in Beijing as well). Additionally, we have many small but competitive and cool companies as well.

Just like traditional economy, professional talents within Jiang Zhe Hu region (Jiangshu province, Zhejiang province and Shanghai) can move around easily, which helps companies find new blood to boost their business. And companies in this region more or less help each other out, they develop and grow as a whole. The startup scene in Hangzhou is better in Shanghai, and I believe it would have great impact on Shanghai in the future. The pearl river delta region is similar. Guangzhou has WeChat, Vipshop and YY.com. Shenzhen has Tencent, one of the most powerful Internet companies in the world. Even Zhuhai, a small but delicate city, also has great companies such as Meizu(if Xiaomi is counted as an Internet company, then Meizu is surely on the list as well) and Kingsoft.

But things are quite the opposite for Beijing. There’s literally no room for neighboring cities to grow with Beijing. People who want to enter the Internet industry have no other option but to go to Beijing. It’s also the same as traditional economy. Beijing drains all the resources from other neighboring cities and utilizes them to develop, leaving nothing for these cities to grow.

Tianjin’s also the earliest city that enjoys Internet service, but Internet industry couldn’t thrive on the soil of this city. Most companies in Tianjin failed. Ten years ago, there were still a few Internet companies in Tianjin, but none can be found today. Now, Tianjin only has branch offices from companies in Beijing.

Tianjin is a metropolis and municipality and has the best education resources besides Beijing and Shanghai. However, its advantages were all taken away by Beijing. Beijing has the excellent resources of two municipalities, while Shanghai only stands as one city, and therefore it’s not surprising that Beijing can surpass Shanghai in the short term.

In the long run, places that have better regional economy will have more opportunities to grow and have greater potential. The famous Silicon Valley is actually a city belt made up by many cities, extending to the south all the way to Los Angeles. If San Francisco took all the resources in that area, there probably wouldn’t be a Silicon Valley at all. Jiangzhehu and Pearl River Delta will eventually outperform Beijing as regional economies in the future in terms of the total volume, resources and diverse options.

5. The future

In the beginning of 2010, I moved from Beijing to Shanghai. At that time I was exploring the field of cloud-based searching service with Tinyfool in hopes of kick-starting our own startup. Unfortunately, very few companies in Beijing would invest in our project. But Shanghai gave us the possibility. In the end, I just felt like going to live in Shanghai for a period to actually understand this city.

Shanghai has evident advantages in O2O and cloud computing, whose prospects are presently quite definite and clear. O2O business model depends to a large extent on the competition in offline services. In traditional industries, the business service level of Shanghai is far higher than that of Beijing. Cloud computing, in the final analysis, will serve the enterprises. Shanghai’s enterprises are featured by greater spirit of business cooperation, and greater willingness to purchase services. 

The core of cloud computing, games, private life, and tourism is inherently services, in which Shanghai has greater advantages. You will instantly have your own judgment by directly experiencing the cab services and public transport of Beijing and Shanghai, and trying Uber in both cities.

In 2009, Sdo decided to establish the Institute of Innovation, which was dismissed somehow later. The Institute of Innovation was a big gift bequeathed by Sdo to Shanghai’s Internet industry, even to the Internet industry in east China.

In 2009, Institute of Innovation attracted talents from all over the country to Shanghai by introducing salaries that were much higher than the standard salary in the industry. It was the first time for Shanghai to gather so many flexible and enterprising professional talents from diverse fields. After the Institute got dismissed, many of these talents chose to stay in Shanghai, while only some of them went to Hangzhou or Beijing. Whether it’s starting their own businesses or serving as senior executives in other companies, these talents became the backbones. This is the same case as Sohu’s influence on Beijing.   

During my stay in Shanghai, I successfully established a company and found financing for it. At that time, I had some contact with a county government of Shanghai. It was an interesting experience. We made an appointment to visit to the county. On that day, the deputy county mayor who was in charge of investment invitation was personally waiting for us with his car and umbrella at the exit of the subway. We were just an ordinary startup company at the time! This kind of thing could never happen in Beijing. The professionalism and service awareness of Shanghai citizens and officials are certainly best in class.

Objectively speaking, the achievements of the Internet companies in Beijing are out of proportion to the city’s advantages in policy, fund, talent pool, and huge population base. Among the three most powerful Internet giants (Baidu, Alibaba, Tencent) of the previous generation, only Baidu was founded in Beijing, and it’s the weakest among the three. In my opinion, Feng Dahui’s comments on Baidu are quite accurate: “Baidu is basically an advertising company of medical products.”

In an environment of fair competition, Alibaba would not necessarily be the loser if it battled with Amazon or Ebay by itself; and Tencent would surely prevail if it challenged Facebook on its own. But If Baidu challenged Google, we all know the result would be a fiasco. The new-generation giant is undoubtedly Wechat. Beijing boasts of a constellation of companies while its flank is being attacked by a company from Guangzhou. (I consider Wechat an independently operated Internet company of Tencent in Guangzhou.)

Fortunately Beijing still has Xiaomi, an enterprise in Zhongguangcun. If Xiaomi didn’t emerge like a dark horse, Beijing would not have any leading next-gen Internet company. In terms of the ratio of Internet enterprise capitalization and population, Guangzhou, Shenzhen, or Hangzhou are the most successful cities in the country.

Internet has been in China for only 17 years since 1998, and it still has a long way to go. Believing that Beijing has triumphed over Shanghai in Internet sector is a hasty judgment. You can never predict the future from history.

Last week, I expressed the viewpoints mentioned in this article at a party with friends and the former colleagues of Sdo Institute of Innovation. On that occasion, I asked my colleagues and friends whether we could end this “Beijing vs. Shanghai” debate once and for all, hey told me that even though my arguments were logical, it was still not enough to end the debate and it would rather spark more discussions. I guess there’s just no ending for this, I might as well just tell everybody what I know and let them think for themselves.

 (The article is published and edited with authorization from the author @Huo Ju, please note source and hyperlink when reproduce.)

Translated by Garret Lee(Senior Translator at ECHO), working for TMTpost.