'Chinese Twitter' struggles with profitability

China's Sina Weibo is still struggling to clock significant profit amid rising cost, five months after securing millions in investment dollar from Alibaba Group. Does it need more advertisement revenue or better user experience?

Five months after Alibaba Group poured millions into the company, Sina Weibo is still struggling with profitability as the Chinese microblogging service tries to strike a balance between being a pureplay social media provider and the advertising arm of China's biggest online seller.


Chinese e-commerce giant, Alibaba, in April purchased an 18 percent stake in Weibo for US$586 million  with an option to increase its stake to 30 percent at a "mutually agreed valuation". 

According to a South Metropolitan report, the deal brought new challenges for the popular microblogging service. Quoting Wang Jun, senior analyst at think-tank Enfodesk, generating revenue through advertising was a route it had to take. "[However], Sina Weibo needs to balance the level of e-commerce [it supports] and find a perfect point between revenue and user experience," said Wang.

Data released by JiaThis in July was encouraging for Sina Weibo, which accounted for 14.94 percent of China's social media market, surpassing QQ Space to be the number one player in the country that is surrounded by the " Great Firewall ". However, the secular problem to bring in profits still lingers on its balance sheets.

Second-quarter financial report of Weibo's parent company, Sina, the advertising income for the social media site hit US$30 million, jumping 209 percent over last year. However, the business registered losses of US$1.6 million.

After launched its first advertisement showcase system in April 2012, a move deemed by the industry as a first step toward commercialization, Weibo is still far from making ends meet. While Sina spent over US$150 million to support the business, according to the company's 2012 annual report, Weibo only contributed US$66 million in revenue.

Alibaba's US$586 million deal was estimated to help Weibo bring US$380 million in revenue sales and social e-commerce for the next three years. However, to date, the investment hasn't been effective in mitigating Weibo's loss.

"At present, Weibo is a social media platform. It could also become a social e-commerce platform in the future," Sina CEO Cao Weiguo then said. "And that is a real ecosystem."

This changing role of Weibo in e-commerce, though, was the biggest controversy in the marriage between Weibo and Alibaba, and had attracted criticism from social media users. "The increasing number of advertisements on Weibo makes it the 'backyard' of [Alibaba's e-commerce site] Taobao," lamented a user.