Internet Companies Invest in China

By Ashling, Jim | Information Today, October 2005 | Go to article overview

Internet Companies Invest in China


Ashling, Jim, Information Today


While Internet usage and e-commerce growth rates may be slowing in the U.S. and Western Europe, China's booming growth and 100 million Internet users have caught the attention of major Internet companies. This summer, several IPOs, joint ventures, and rumored takeovers have primed the country for its share of the latest Internet services.

Baidu (http://www.baidu.com), the leading Chinese search engine company, made its debut on NASDAQ on Aug. 5. Its shares were initially $27, and they were trading at $154 by the second day. After the company released its first post-IPO quarterly results, however, prices fell sharply. In late August, shares were trading in the low $80s. Apparently, after a massive 53 percent growth in 2Q 2005, predicted growth rates of 19 percent for 3Q 2005 did not meet investors' expectations. Nevertheless, Baidu still expects to earn a net revenue of $32 million this year.

Baidu has been described as a "Chinese Google." The search engine's name means "hundreds of times" and represents the persistent search for the ideal. It was inspired by an 800-year-old poem that states, "hundreds and thousands of times, for her I searched in chaos ..." Baidu's most distinguishing feature is its Chinese-language search capabilities. Users can alternate between Chinese characters (Pinyin Romanization) and standard English. They also can search for MP3 music files, a feature that's not popular with music publishers.

Some see Baidu as a possible acquisition for Google, which has recently raised $4 billion through a second stock offering and already has a significant stake in the company.

In July, Google announced that it not only planned to open a product research and development center in China in 3Q 2005 but that it had hired respected computer scientist and industry pioneer Kai-Fu Lee to lead the operation and to serve as president of the company's growing Chinese operations. In the meantime, Microsoft, Lee's former employer, is contesting that Lee violated a no-compete clause in his contract by joining Google.

Yahoo! Partners with Alibaba.com

Yahoo! already made a commitment to China by announcing a partnership with Alibaba.com (http://www.china.alibaba .com), China's largest e-commerce company. Under the terms of the alliance, Yahoo! will contribute its Yahoo! China business to Alibaba.com and will invest $1 billion in cash to purchase Alibaba .com shares.

The partnership is intended to create the only Internet company in China with a leading position in business-to-business e-commerce, consumer e-commerce, online payments, communications, and search. Two brand names will gain greater recognition through the deal: AliPay (http:// www.alipay.com), an online payment service, and Taobao (http://www.taobao.com), a popular e-commerce Web site. These services are roughly equivalent to Pay-Pal and eBay, respectively.

Until this deal, eBay held the No. 1 e-commerce spot in China with EachNet, a consumer online service that the company purchased in 2003. eBay is expected to increase its marketing efforts in China in response to Yahoo!'s deal with Alibaba.com.

Amazon also has a foothold in China. In August 2004, the company bought Joyo.com, Ltd., a British Virgin Islands-registered company that runs the Joyo .com Web site (China's largest online retailer of books, music, and videos).

Television via the Internet

Content providers are also looking closely at the Chinese market. A report issued by Informa Telecom & Media (http://www .informatm.com) in August predicted that China will be the world's largest market for Internet Protocol Television (IPTV) by 2010. Hung Kong currently has the largest number of IPTV subscribers (475,000), ahead of the U.S. (273,000) and France (184,000). The Informa report said the global subscriber numbers will increase tenfold in 5 years, with China expected to have 4.871 million subscribers and the U. …

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