Mapping the Middle Kingdom
Stuart Biggs and Zhuang Pinghui
Demand for location-based services is attracting more firms - including foreign venture capitalists - to stake their claim
At any given moment along the mainland's estimated 2 million kilometres of roads, 100 trucks equipped with GPS tracking and transmission equipment are beaming data about one-way streets, stop lights and landmark buildings to digital map-making firm Beijing Lingtu Software.
The company of 640 employees was founded in 1999 during a government push to encourage private investment in the country's underdeveloped cartographic industry.
Lingtu's efforts to map China's burgeoning road and infrastructure development are a work in progress. But the demand for digital maps and the location-based services they enable has attracted more companies - including foreign venture capitalists - to stake their claim in a market finally living up to its potential, thanks to the proliferation of mobile phones and China's 110 million internet users.
Last week, Lingtu announced it had received US$30 million in a third round of venture capital funding from a group of companies led by Gobi Partners. This follows the US$11.78 million purchase of Go2Map by mainland internet portal Sohu.com in April last year.
IDG Technology Venture Investment also invested an undisclosed figure in Beijing Tuweixian Technology Development, which manages online map service www.mapbar.com.
Lingtu's investors are hoping this latest round of funding will be the last before an initial public offering, having secured previous funding from Gobi and Japan's NTT DoCoMo.
'Mapping out China's emerging road network is not as easy as it sounds,' said Gobi Partners' Thomas Tsao, who also sits on the board at Lingtu. 'Obviously, the land area is vast, but even more significant is the fact that new roads and buildings are springing up all the time as China builds up its infrastructure. It takes a lot of brute force just in terms of putting people on the ground to scout out points of interest and one-way streets.
'But there are still many companies in China that believe mapping and location-based services are going to be hot, and that is attracting a lot of people to the sector.'
Lingtu claims to have been profitable since 2001, with revenue increasing 300 per cent year on year in the first quarter, thanks to a portfolio of products that include internet, mobile, in-car navigation and fleet management services, and corporate customers that range from Coca Cola to IBM.
Mr Tsao said the market for in-car navigation systems would lag behind other Asian markets such as South Korea and Japan because of the relatively high cost to consumers, but Lingtu and other service providers have the highest hopes for mobile services.
Lingtu already provides its location-based services platform to China Mobile and China Unicom, with customers paying about 0.5 yuan per download for their present location and a list of nearby points of interest.
Mr Tsao said Lingtu's logical development would be to partner with one of China's major search engines to provide a fully fledged mobile location-based search.
'Ultimately, search and location will be intertwined,' he said. 'Once the search engine knows which location the customer is in, it can provide more compelling - and valuable - results.'
Early examples of such services exist on the internet.
Ouyang Lin, the former president of Go2Map - bought by Sohu.com last year - and current senior map director at Sohu's search service Sogou, said a major part of the company's business came from map searches.
'We charge companies for identifying them on a map,' he said. 'When you search for Kentucky Fried Chicken on a Beijing map the branches appear as well as directions on how to get there. You can say it is visual yellow pages.'
Sogou records more than 1 million searches on its site every day.
Companies regard this level of functionality - and the obvious revenue potential from restaurant and shop listings - as a key application for the faster 3G networks expected on the mainland next year.
'Once 3G licences are issued, the use of location-based services will explode,' said a spokesman for Banruo Internet Technology, which runs the Digital City online map service. 'There will be many commercial opportunities, especially by the time of the Beijing Olympics.'
But while the consumer demand for these services does not appear in doubt, a larger question remains whether individual companies will ever reach the scale necessary to achieve an initial public offering, according to one technology-focused investment banker who declined to be named. That was because existing business models and the industry itself remained heavily fragmented.
Not only must mobile location-based service providers reach agreements with the operators on a province-by-province basis, but the licences required to create and edit maps are granted through partnerships with provincial or city governments.
'For many of the companies, extending their services across China, which would probably be necessary to achieve public offering scale, is going to be very difficult,' the banker said. 'It is hard to say at this stage if any of the companies will be successful, and I do not foresee any public offerings from this space at least until 2008.'
Yet for all the challenges, the one long-regarded as the main obstacle to releasing the pent-up demand for location services - the government's perception of mapping as a state secret - has faded dramatically.
Since the first digital map in China was developed but never published in 1992 by state-run SinoMap, the government has actively sought commercial investment in a mapping industry it now regards as critical to the country's economic development.
Lingtu's maps were even used during China's first manned space mission, Shenzhou V, in 2003.
'In any country, mapping tends to be a very sensitive issue, but the regulations in China are easing,' Mr Tsao said.