video industry. Theoretically, the bandwidth cost of an online video provider empowered by P2P technology is only 1/10 of an online video provider served the same amount of users empowered by web-hosting technology (Constantine, 2008). However, this technology requires the users to install a software or plug-in in advance and cannot be implemented on the devices other than desktops or laptops. However, more and more companies entered the online video industry by this technology. Xunlei, PPTV and QVOD are the most successful ones among those new entrants. Although the market share they have acquired is relatively smaller than Youku.com has done, this technology might be a substitute of the web-hosting video service and the future of online video industry. IPTV
After SARFT issued licenses to the state-owned TV stations for online video services and started the triple-network integration, some Chinese consumers in the Tier 1 cities now can play online video on their television through the IPTV service provided by their local TV service providers.
Threats from Potential Competitors YouTube.com
Until now, YouTube.com is banned in China because they would not like to comply with the local law of China government about self-censorship. However, as the online video market in China grows, it would be more and more attractive for YouTube and they might enter the China market by compromising with the local government. However, the possibility of YouTubecompromising with the local government and entering China market is low in the short-term. CCTV (And other local TV Stations)
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Lots of traditional TV stations, include China Central Television, the national TV station in China, have the intention of entering the online video market. They have the great amount of video content reservation by themselves and can easily get financial supports from the government or state-owned banks. Bargaining Power of Suppliers Facilities and Equipment
Currently, Dell is the major supplier of Youku.com for all the online servers and storage devices.However, the computing device manufacturing industry is highly competitive in China market. International corporations such as IBM and HP and the local manufacturer such as Lenovo are all able to provide similar equipment for Youku.com. Therefore, the bargaining power of those suppliers is relatively weak.
The ISP industry in China is a monopolistic industry, which is dominated by two state-owned corporations, China Telecom Corporation and China Unicom. Moreover, because of the way two corporations split China market, each of them might be the only choice for Youku.com if they want to enter one specific provincial market.Therefore, the bargaining power of those ISP companies is strong. Video Content
Due to the unique ecosystem of video production and distribution, acquiring authorized professional producedvideo contents is much harder than it could be in the U.S. and European countries. Furthermore, in recent years, the average cost for purchasing the copyright of popular TV programs and movies has significantly increased. According to People.com.cn (2010), the average price of a popular TV program had increased ten times from 2008 to
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mid-2010.This trend would greatly increase the difficulty of lowering the operating cost for online video websites in China. Bargaining Power of Consumers Advertisers& Advertising Agencies
For most of brand advertisers and advertising agencies in China, there are a lot of online media can help them reach their target audience. Search engine giants like Baidu, Google, Portal Websites such as Sina, Sohu and Netease, online social media like Renren, Kaixin001 and even other online video providers such as Tudou and Xunlei, could be their alternative media choice. Moreover, though the total weight of revenue contribution of Youku’s top 10 advertising clients has lowered from 53% in 2007 to 24.6% in 2010 Q3 (Youku.com Inc., 2010a), most of Youku’s clients were brought by advertising agencies and several of those advertising agencies hold a great number of advertising clients of Youku. Therefore, those agencies have got relative strong bargaining power against Youku currently. Netizens
The online video websites in China are highly homogenous. Those websites are providing very similar video clips, movies and TV programs.Moreover, even if one of those companiesexclusively brought the copyright of specific TV programs or movies, this company has to face to the competition from the unauthorized online sources such as P2P video sharing websites. The netizens in China are hardly loyal to anyone of those online video service providers.Therefore, the bargaining power of Chinese netizens is relatively strong against Youku.com. Competitive Rivalry
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The competitive rivalry of online video industry in China has become more and more severe.Chinese search engine giant, Baidu, and one of Chinese largest portal websites, Sohu, entered this game in 2009. Qiyi.com, a subsidiaryof Baidu Inc., is hoped to get traffic from Baidu.com directly and bring synergy effectwith the search engine. Sohualso want to cut a share of the online videomarket based on the audience base they have.
From 2008, online video service providers have started an irrational war in purchasing the copyright of video contents because of China’s SARFTbanned all unauthorized foreign TV shows from the Internet and started a campaign against the violation of IPRS. The price of the copyright of a popular TV drama had increased ten times from 2008 to mid-2010 because of the non-corporativeattitudes among all the industrial players on this issue (People.com.cn, 2010).
Internal Assessment
Financial Analysis
1. High annual and quarterly growth rate of revenue
The revenue growth rate of Youku.com has been impressively high. From fiscal year 2007 to fiscal year 2010, the annual revenue grew from 1.78 million CNY to 387.1 million CNY (Youku.com Inc., 2010a). Moreover, in their latest quarterly report published in May 2011, compared with the same period in the previous year, the quarterly revenue of the first quarter of 2011 almost tripled (Youku.com Inc., 2011).
2. Reversion of the continuous gross loses
In the third quarter of fiscal year 2010, Youku.com firstly earned a gross profit and has kept this trend in the next two quarters (Youku.com Inc., 2011).
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