Chinese Internet start-ups get crimped on crowded Web

By Melanie Lee and Huang Yuntao BEIJING, Nov 4 (Reuters) - Entrepreneurs are finding the road to Internet riches in China increasingly rough, facing a thicket of regulatory issues, stiff competition and a frontier mentality that leads to frequent underhanded practices. Chinese Internet start-ups have evolved since the early days that produced such local legends as search leader Baidu and online commerce giant Alibaba.com, which have trumped global giants Google and eBay in the world's largest Internet market with more than 300 million users. But the country's Web 2.0 phase has become much more complex, cluttered with companies trying to find their niche in everything from social networking, to gaming and video sharing -- many armed with big bucks and support from venture capital firms. The fast changing landscape means it is now harder to enter the market given the intense competition and pattern of bigger firms copying lucrative ideas, said founders of several start-ups at one of China's top Internet shows in Beijing. Halls of the conference this week were crowded with ranks of entrepreneurs eagerly handing out business cards, each hoping to imitate the success of such industry icons as Baidu founder Robin Li or Alibaba founder Jack Ma. Most of the biggest online categories, such as search, retail and auctions, are already dominated by the biggest names, while niche areas are also crowded with players looking for the next big thing, said Edward Liu, chief executive of Beijing Fastweb, a start-up that provides fast data transfer over the Internet. FERTILE GROUND Less developed areas, such as sites and applications for the mobile Internet, are more fertile ground for new ideas, but are also quickly cluttered with companies old and new alike looking to make a buck. "In 3G and mobile Internet there is a chance for success. The other sectors in the traditional Worldwide Web, they have dominant players already and it's hard to break their dominance," said Vincent Xu, president of PPS, a video streaming website. "My personal opinion is that there isn't much space in the industry anymore," he added. Ever-shifting regulations by opaque government agencies also create problems. That element came into focus earlier this week, when online game operator NetEase said it had been ordered to stop operating a popular video game, the apparent result of a governmental turf war "We need better guidelines, instead of ultra strict restrictions, we need rules that allow enough flexibility and innovation" said Liu. And even when someone finds a formula for success, keeping that success can be difficult in a rough-and-tumble world where companies are often acquired or their ideas are simply copied outright. "It's always the case in China, that's the way of doing business, if you start something popular it may get copied. But you live with it," said Leon Lee, vice president of Chinese mobile Internet firm KongZhong. Then there's the issue -- sometimes good and sometimes not -- of getting bought outright. "There are plenty of chances to make money in the tech industry, but the risks of getting bought up is always there," said Zhao Wenxiang, co-founder of tiny mobile Internet start-up Hesine with around 10 employees. (Editing by Doug Young and Jacqueline Wong) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: CHINA INTERNET/ (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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