The Birth and Loss of 'China's Facebook': How Wang Xing Ignited Campus Social Networking but Was Forced to Sell His 'Own Child,' Xiaonei

Prologue: The "Final Bet" in Haifengyuan

In the autumn of 2005, in a cramped apartment in Beijing's Haifengyuan, the atmosphere was chillingly tense.

Wang Xing and his small team had spent all their money. The series of previous startup failures weighed on everyone's hearts like giant stones. The sun shone brightly outside, but the room smelled only of instant noodles and cigarette butts.

"Should we... keep going?" asked partner Wang Huiwen in a hoarse voice.

Wang Xing didn't answer immediately. His bloodshot eyes were fixed on a news report on his computer screen—about a website called Facebook and the frenzy it was creating among American university students.

"Yes! We must continue!" Wang Xing slammed the table and stood up. "All our previous directions were wrong. A social network must be ignited from the most precise, highest-density group. That group is university students!"

He turned to his weary partners and said, word by word, "This is our last bet. We're putting all our remaining resources on it. We will create a Facebook exclusively for Chinese university students. Its name will be 'Xiaonei.com'."

At the time, this decision seemed like a crazy gamble. But it was this very gamble that lit the first prairie fire of social networking in China.

Act I: The Viral Growth Miracle

In December 2005, Xiaonei.com was officially launched.

Learning from the failure of "Duoduoyou," Wang Xing and his team set a very high entry barrier for Xiaonei: only those with an email address ending in a specific university suffix (.edu.cn) could register.

This strategy, which seemed to "limit users," had an unexpectedly magical effect.

First, it ensured the "purity" of the community. All users were real, current university students, which greatly enhanced the sense of trust and belonging.

Second, it leveraged the natural, high-density offline social relationships of university campuses. A person who registered for Xiaonei would soon invite their entire dorm, class, and even their entire department to join.

In the first month after its launch, without any promotion, Xiaonei's user base surpassed 10,000.

In the following months, a miracle began to unfold. Xiaonei's user data doubled at an astonishing rate almost every day. Tsinghua, Peking University, Renmin University... it swept through all the universities in Beijing like a "plague."

The only job for Wang Xing and his team was to find ways to add new servers to cope with the flood of incoming users. They excitedly watched the soaring numbers in the backend, feeling they were just one step away from success.

Act II: "Vulnerability" in the Face of Capital

However, Wang Xing's smile didn't last long.

The viral user growth led to a sharp increase in server and bandwidth costs. The company's bank account was soon empty.

Wang Xing began his first real "fundraising" journey. Armed with impressive, daily growing user data, he started making the rounds of Beijing's major investment institutions.

But the results were a major blow.

"How does your website make money?" was the most frequent question he was asked.

In 2006, venture capital in China was far from as mature as it is today. Most investors still used the most traditional "revenue-profit" model to evaluate a company. They were full of doubts about a "new species" like Xiaonei, which had only users but no revenue.

"It's a good product, but not a good business," commented a Sequoia Capital investment manager after rejecting Wang Xing.

The repeated rejections were agonizing for Wang Xing. He watched as user data soared while the company's bank account was about to hit zero. For the first time, he deeply understood how vulnerable and helpless a player without "ammunition" was in a game of capital.

Epilogue: A "Million-Dollar" Lesson

In October 2006, after trying all possible financing channels and failing, Wang Xing faced the darkest day of his entrepreneurial career.

He had to accept the acquisition offer from Chen Yizhou, founder of Oak Pacific Interactive.

Chen Yizhou was a shrewd businessman. He saw the huge potential of Xiaonei and the plight of Wang Xing's team. The price he offered was so low it was almost "humiliating"—a mere $2 million.

For a platform that already had hundreds of thousands of high-quality users and was still growing rapidly, this price was tantamount to "robbery."

But with the company on the verge of bankruptcy and unable to pay employee salaries, Wang Xing had no choice.

The atmosphere in the meeting room where the acquisition agreement was signed was heavy. One of Wang Xing's partners even lost control of his emotions, rushed out of the room, and wailed in the hallway.

Although Wang Xing remained calm on the surface, his heart felt like it was being cut by a knife. He had created a "phenomenal" product with his own hands, only to have to give it away due to a lack of capital.

This failure taught Wang Xing a cruel, "million-dollar" lesson. He learned three things:

First, a great product must be combined with an equally great business plan. Second, before launching a project, one must have a clear understanding of the amount of capital required. Third, never, ever, go fundraising when the company is most in need of money.

Carrying these bloody lessons, Wang Xing left the Xiaonei he had founded. He had lost a company, but he had gained an incredibly valuable experience of growth.