(Chinese Version)

Editor’s note:

Renren Inc.’s poor performance over the years is putting the shareholders on edge. An investor named Jerry Jefferies even directly dissed Joseph Chen right at the analyst meeting implying that he should take the blame and resign for the poor performance of the company. When Renren Inc. first became listed it gathered an IPO of 5.53 billion dollars, but up to now its market value has shrunk to 95.5 million dollars, almost 80% less than the original value. It’s obvious that Renren Inc. has been going down since 2011.

Early this year, Renren took down its internal message service, which consequently caused speculation that the company is going to shut down the whole website. At present, according to the fourth quarter and fiscal year 2014 financial results released by Renren Inc., the company made a revenue of 17.2 million US dollars, a 38.5% decrease from the same period in 2013. The results also showed that the company’s net income was 35 million dollars, signifying a 65% decrease compared to the same period in 2013. Such terrible performance put the shareholders on edge. Jerry Jefferies even dissed Joseph Chen right at the analyst meeting asking him to resign.

“The internet market in China is different from that in the U.S.” in response to his investors, Joseph Chen stated. “Therefore, Renren is facing a fierce competition that’s entirely different from what Facebook is encountering. Our situation is also worsened by the rise of Wechat, an extremely popular social network platform in China. ”

Renren used to possess a market value of 5.53 billion dollars, but it has shrunk by 80% to 95.5 million dollars. Obviously, Renren has been going down since 2011. So, what happened exactly?

Renren was being held back by its flat investment strategies, burning its money and energy

It’s known to all that Renren, formerly named Xiaonei, used to be MySpace’s Chinese equivalent among college students. It’s a platform for college students to mingle and share campus culture online. Apparently, Renren was not satisfied with where they were, for this campus-based social network platform is limited by the vertical structure of Renren. Renren lacked the appealing elements to attract more users. In short, Renren wanted so much more. In this case, it changed its original name Xiaonei (literally “on-campus network”) to Renren (literally “people”). However, Renren didn’t realize that it was stepping into uncharted water where Wechat and Weibo were already thriving. This was one of the biggest mistakes Joseph Chen has ever made. Renren tried to get back to its on-campus zone back in 2013 but then found most of its users gone.

Renren’s biggest advantage was that it had products similar to Facebook (Renren), Groupon (Nuomi) and LinkedIn (JingWei Name Card). But this once-booming product line might be a taboo to be brought up for Joseph Chen now, since Renren has been losing a lot of money from the time Nuomi came online. In 2012, when Renren was speeding to win the mobile market, it lost even more money in a short time. Nuomi had become a huge burden that Renren desperately wanted to get rid of.

After selling Nuomi to Baidu, Renren subsequently started to make net earnings for three straight quarters. However, besides groupon service, video-sharing service was also burning a lot of money. As the sales performance went down, Renren sold its video-sharing website 56.com as well. Just as Joseph Chen said, “The size of 56.com’s no comparison to other video-sharing websites. Other websites have the money to buy popular contents like House Of Cards, and invest a sum of money that might be over millions of dollars. But we can’t do that, Renren simply doesn’t have that much money.”

Online gaming and video-sharing sectors are both facing decelerated growth. As for video-sharing websites, they need to invest incredibly large amounts of money on buying copyrights and bandwidth. Youku, the strongest video-sharing website in China, as well as its western counterpart Youtube, makes no profit. Video-sharing websites are giant black holes. They suck up as much money as offered. And groupon services also require great investments and personnel. Its offline management is very energy consuming. Cleary, Renren had neither the money and resources, nor the proper operation team to support groupon services. This series of expensive flat investment strategies no doubt exhausted Renren and slowed the company down. They also caused great harm to the cash flow and dragged down Renren’s stock price. This deprived Renren’s core social network services of opportunities to grow in the long run. Therefore, in a fast developing Internet era, Renren couldn’t find a long-term profit model, which eventually cost the company to lose money continuously.

Besides selling its own products, Renren also has been making a great deal of investments on companies like eLong and Vipshop to make profits in recent years. In March 2012, Chen sold his shares of elong to Expedia with 72.4 million dollars, earning approximately 51 million. Because of Chen’s talent for manipulating the stock market, he literally boosted the company’s financial performance by also selling the shares of Vipshop, which he bought at an extremely low price. Renren had been losing money from 2009 to 2013, but thanks to Chen, the loss-making process was finally slowed down in 2013.

As social networking products live through content production, Renren lacks the effective mechanism

From my perspective, one of the main factors that caused Renren’s decline was the lack of effective content production mechanism. Content production is a core competitive edge for social networking products. Wechat and Weibo both have the effective mechanism to boost content production for users and product design.

For instance, with a 140-character limit, repost function and fans culture, Weibo is able to create a content production mechanism for sub-culture and social networking. The design of Weibo targets celebrities and major verified users to attract users and increase its impact. It stimulated Weibo to create contents continuously. Wechat, on the other hand, features information sharing. It enables users to share content within their friend circles. It’s a mechanism that focuses on content generated among acquaintances and friends. Wechat’s mechanism enables the streaming of information and helps to build the formation of user habits. Meanwhile, it emphasizes platform building based on social networking, and also attracts a lot of celebrities and grassroots we-medias to use Wechat as a platform to produce content, create profits, and increase their impact.

Unfortunately, Renren achieved none of those things. In a way, users now label Renren as an information-sharing dustbin that produces low quality content. The best move for Renren right now is to manage the core assets of its platform, i.e. creating values out of student users, who really care about up-to-date campus news, but Renren didn’t hold firm to campus culture to produce quality content.

At the time when Weibo created frenzy, Renren started to emphasize the nature of news content. But the news it updated lagged far behind Weibo in terms of timeliness. Many users complained that they had already seen the same content for a dozen times on Weibo before it started to get popular on Renren. And when Wechat was rising among social media, Renren’s mobile client began to imitate Wechat. Apparently, there could be only one Wechat, and the real one won the battle.

The truth is, Renren failed to create an effective campus-based mechanism for content production. Renren didn’t make use of its active users and didn’t figure out a way to keep them either. What’s more, it failed to establish a profit-making model based on diverse networking cultures and content.

In fact, Renren is a great platform for major verified users, but its poor product design made Renren look pretty messy in terms of platform planning and management. Some developers said they felt very uncomfortable when working on products designed for Renren. They had to go through very complicated process to finish the production, from programming to verification. Most developers consider it as a painful and torturing process. Renren’s extremely tough verification system also made it difficult for users to promote their products and increase their influence, thus it didn’t succeed in attracting major verified users or winning the support of third-party developers. It eventually lost the chances to create original quality content.

Renren failed because of its greediness. At a time when the company had no firm user basis, no content production mechanism, nor the capacity to build user environment, Renren went way too far by neglecting the campus-based platform and entering a social networking sector that was too obscure. It twisted the identity of Renren, and once that happened, the company won’t stand a chance at winning users’ favor. In the end, most users stopped producing content.

Business thinking sometimes just doesn’t work that well in managing social network companies, that’s why Renren is losing its core value

Everybody in the industry knows Chen as an excellent investor who has been investing in several projects in recent years. That’s true, and there’s nothing wrong with investing around, but investing might not help the company grow in terms of making and promoting products. Renren is losing its edge, and it’s time for this once enormous social networking giant to enhance its core strengths.

If Renren were to benchmark Facebook, it must reflect on its latest acquisitions. Facebook spent 19 billion dollars on acquiring popular instant messaging application WhatsAPP. After that, Facebook also bought Divvyshot, a website providing photo-sharing services, besides Hot Potato, a social activity service provider, and WhoGlue. These acquisitions made by Facebook were all targeted on certain social networking areas. It’s obvious that Facebook is trying to build up its core strengths and reinforce its social networking platform. Facebook is also dedicated to improving user experience in sharing content, drawing more new users to its platform and expanding the core platform, eventually increasing its influence as a leading social networking company.

Let’s see where Renren is now. Its investments didn’t make much contribution to enhancing its influence as a leading SNS social networking company or optimizing its core strengths. It can be inferred that Renren’s investment strategies were mostly from Chen, an investor by heart who acts and thinks like a businessman. These investments were aimed at making profits instead of changing the game for Renren. Ultimately it resulted in a brain drain in creating gaming, groupon and video-sharing services, and in fund allocation. At the end of the day, Renren was left with a hollow shell without great content inside to share in this competitive social networking market. The worst part is, Renren still lives unaware of its predicament.

Additionally, Renren’s mobile clients can not offer up-to-date product experiences to users. Therefore, Renren can only survive by selling non-performing assets. Besides, the orientation of these products are so ambiguous that the loss of value seems definite, for which it’s not surprising to see Renren losing a great deal of users.

Founders determine product genes, Wechat only stimulates the fall of Renren

Some people suggested that Chen relies on stocks investing and other investments to keep Renren running, and because of that he is a great Chinese boss. However, it might be Chen’s businessman and investor genes that led exactly to Renren’s downfall. Founders of a company determine its corporate culture and the results will be translated into the products and their identity.

For instance, the founder of Baidu, Robin Li, is also a talented programmer who built the search engine giant in China. Then there’s also the founder of JD, Liu Qiangdong, who has a knack of being a retailer. He led the company to where it is now and JD currently has a very competitive supply chain management system among its rivals. And the founder of Tencent, Ma Huateng, was once a product manager. In today’s Internet era, Wechat overwhelms others with its product advantages. Joseph Chen is an investor and a businessman. His business-orientated way of thinking leaves little room for product innovation, user experience improvement and technological development, and instead focuses extremely on making profits. Rumor has it that Renren’s executive meeting brings up profit-making quite often. Such utilitarian thinking greatly affects the cooperativeness and effectiveness of Renren’s strategic layout for investments.

Renren’s strategic layout in recent years shows little innovation and the company is apparently only following market suit to make itself more diversified. For example, after getting an investment in 2006, Renren created several products similar to Myspace, Facebook and Youtube in a short spell.

Once Renren had gathered enough users, the company then invested in Nuomi groupon, acquired the video-sharing website 56.com, and produced a few web games. Moreover, Renren also developed Renren Desktop, Renren Station, Renren Group and Renren Games. The company tried every prevalent projects out but failed to thrive, and thus went through the merry-go-round money losing process. Even so, Chen’s business thinking limits his ability to think beyond profits to improving the integration between user values with its core business. Consequently, it got overrun by numerous product divisions and stopped building its social networking sector. The result is pretty clear, many users are now gone.

Therefore, it’s not reasonable to blame Wechat for the downfall of Renren. Weibo is an instant sharing platform, Renren is SNS and Wechat is SNS+IM+OTO. They are all social networking platforms with, however, different user bases, growth potentials and development strategies.

Influenced by Wechat’s extensive social networking system, similar products like MOMO (intimate networking between strangers), Wumi (anonymous social networking) and Maimai (job networking) each target a specific area and have received a great amount of users. E-commerce websites such as VIP.com, JD, Jumei.com and Mugujie.com also co-exist with Taobao, the most powerful e-commerce website in China, by adopting the 3C model and targeting female consumers. Renren, Wechat and Weibo can all thrive in its own area and win over certain user groups.

It’s certain that Renren has missed the chance of winning the mobile client sector long ago. Even though it is presumably working to adapt its products to mobile market, the products themselves are Renren’s biggest weak points. Products like JingWei name card, Bobo and Meimei developed by Renren failed to attract users. Perhaps Chen has been aware of the situation all along that many products failed because they lacked appropriate management, marketing, and also most importantly, for not being good. In the end, these products all ended nowhere and few people would use them again. Renren itself is to blame for this situation they are in. Wechat, which has a more mature acquaintance-based social chain and content sharing mechanism, only accelerates this process.

At present, Renren wants to reenter the campus, but Chen, as a sensitive businessman, is planning to transfer the investment to other projects, such as Internet Finance, online education and the building of O2O online education platform Renren SiJiao. Without  doubt, these are all very popular projects in the industry. From the perspective of an investor, it’s only logical to get involved and make some profits out of them. Although Renren is seemingly revolving around the campus market to achieve deeper layouts, it actually has come full circle. To rise from the pitch, Renren still has a long way to go.

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

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