China: Falling Hard for Web 2.0

It was the sort of break most Net startups would die for. Chinese tv actress Zhang Yu said notable directors had made her audition on the "casting couch" before giving her roles. To back up her claims, Zhang in November posted videos of two encounters on a Web site called Yoqoo, one of dozens of Chinese YouTube (GOOG) and MySpace wannabes. Thanks to the racy footage--heavily edited to keep things from getting X-rated--traffic on Yoqoo tripled to about 7.5 million video streams a day.

But in China, Yoqoo had little chance to capitalize on the publicity. Shortly after the videos went live, Yoqoo--which is pronounced "yo ku" and means "good" and "cool" in Chinese--got a quiet but firm warning from the government's Net cops. "Relevant authorities indicated that this has gotten so much public media attention that it would be helpful for us to remove the videos," says Yoqoo founder Victor Koo. While he insists "there was nothing pornographic" about the content, Koo quickly complied.

The episode shows the promise and the peril of user-generated content and social networking in China: You can get monster traffic with the right video, but you could get in big trouble for showing it. Still, the mainland remains fertile ground for so-called Web 2.0 startups. The country has more than 130 million Internet users, up 30% in 2006. To serve them, China has sprouted scores of homegrown companies hoping to become the next MySpace, YouTube, or Digg. Soon they'll be joined by the real thing. News Corp.'s (NWS) MySpace is in negotiations to set up a Chinese-language version of the social-networking phenomenon. And Google is taking a stake in video-sharing site Xunlei.

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