Information Technology: The Internet
In Asia, a bruising battle for cyberturf
Mary Ong, the CEO of newly formed Lycos Asia Pte Ltd., is the first to admit that her operation isn't up to speed yet. Since U.S. Internet powerhouse CMGI, which owns the Lycos Web portal, announced in September a joint venture with Singapore Telecommunications to set up customized versions of Lycos in 10 Asian cities, Ong has been scrambling to hire staff, find office space, and get the business started--pronto. Lycos launched its Singapore site in December, when it also announced plans to go online in Malaysia and the Philippines. With rivals such as Yahoo! Inc. already well established, Ong knows that Lycos can't afford to lose any more time. "We are late," she says. "We have a big challenge catching up."
It doesn't make Ong's task any easier that other U.S. Internet companies are targeting Asia, too. America Online, AT&T, Microsoft--some of the biggest names in cyberspace are stepping up their Asian operations, forming new subsidiaries, joint ventures, and alliances to take advantage of the world's fastest-growing Internet markets. "U.S. companies have become unbelievably more aggressive," says analyst Rajeev Gupta of Goldman, Sachs & Co. in Hong Kong. And with the November deal between Washington and Beijing on China's entry into the World Trade Organization, the pace is sure to increase as the Chinese phase out restrictions on foreign ownership of local Internet companies.
Why the flurry now? Sheer numbers. International Data Corp. estimates that online spending in non-Japan Asia will double from $2.2 billion in 1999, to $5.5 billion by yearend. That's still small by American standards--the U.S. is expected to spend $133 billion on Internet commerce this year--but the trend is clear. By 2002, estimates IDC, 60 million Asians will be hopping on the Net, spending some $30 billion on purchases. "The year 2000 will be the year that the global e-commerce players invade Asia," says David C. Michael, a vice-president at Boston Consulting Group in Hong Kong.DEEP POCKETS. Already, three front-runners have emerged. At the head of the pack is Yahoo, backed by Japan's Softbank Corp., which is recreating in its Asian backyard the successful investment strategy it used in the U.S., buying stakes in a wide range of Net startups. CMGI, which owns Lycos, is behind a rival group. The third main contender is AOL, which has launched its service in several markets and is a key shareholder in Hong Kong-based Chinadotcom Corp.
But their front-row places may be in jeopardy. Homegrown portals are not simply rolling over for the Americans. Some are playing up their local roots to appeal to nationalist customers, while others are introducing new services before the foreigners do. To attract users to its portal, for example, South Korea's Serome Technology Inc. on Jan. 5 started offering free local phone calls using the Internet, and promises free calls to the U.S. later this month.
The newcomers have one big advantage: deep pockets. As more portals, both foreign and domestic, target the region, the competition for good content is becoming heated--and expensive. Unlike the U.S., Asia does not yet have an abundance of interesting Web sites. That's driving up costs. "Because there are not that many content providers, everything will be more expensive," says Savio Chow, head of Yahoo's Asian operations in Hong Kong.
Especially if rivals want to catch Yahoo. Following the early popularity of Yahoo! Japan, started in 1996, Yahoo set up a Korean portal in 1997. Yahoo Korea is now the market leader, with 30% market share and 23 million page views daily. Yahoo has Chinese-language sites for Taiwan, Hong Kong, and Singapore, and the company ranks No. 1 in a survey of popular portals in several Asian countries, according to Sydney-based researcher www.consult.
Another edge for Yahoo is its Chinese-American founder, Jerry Yang, who can promote the company and gain media attention in China in a way that many others cannot. For instance, during a September visit to Beijing, Yang spent half a day schmoozing with graduate students at Beijing University, talking in Mandarin about what it takes to be an Internet entrepreneur. Now, Yahoo is overhauling its Chinese site and forming a new partnership with Chinese software maker Founder, a powerful "red chip," or state company traded in Hong Kong.CONNECTIONS. As Yahoo expands, AOL is trying hard to keep pace. It started a Japanese version in 1997 and launched AOL Hong Kong in September. AOL hopes that Hong Kong will become a springboard into China. While AOL may not have a Mandarin-speaking founder, it does have something that may be more valuable in China: good guanxi, or connections, through its stake in Chinadotcom, a Hong Kong-based portal service and the first Chinese Internet company to go public on Nasdaq, raising $90 million.
CMGI and Intel are counting on guanxi of a different sort. They have teamed up with Pacific Century CyberWorks founder Richard Li. In September, CMGI formed a $350 million partnership with Li to develop Web content for the Chinese market. Meanwhile, Intel has invested $50 million in PCC, which is preparing to launch a regional high-speed TV and Internet service this year. CMGI is also going for the glitz. At the introduction of Lycos' Singapore site, the company hired a local artist known as Tanya to entertain guests.
As the three main contenders push forward, others must move quickly to avoid becoming also-rans. Microsoft Corp. wants to expand its MSN network. AT&T, through its Excite@Home subsidiary, plans to launch broadband service in Japan in early 2000. On Nov. 10, Internet search engine LookSmart Ltd. announced a $200 million deal with British Telecommunications PLC to develop sites in Asia and Europe.BUILDING ALLIANCES. In response to the foreign invasion, some local rivals are trying to ignite nationalist passions. South Korea's Daum Communications Corp., which is second to Yahoo! Korea, has appealed to anti-Japanese sentiment by boasting in newspaper ads that it will repel Softbank's invasion just as Koreans defeated Japanese intruders more than 500 years ago. The newcomers also risk being associated with an American pop culture seen by some in Asia as too violent and permissive.
Still, local content providers need to become part of the regional alliances the Americans are forming. "We want to lock onto one of those grids so we can expand our size quickly," says Chong Huai Seng, vice-chairman of Panpac Media.com Ltd., a Singapore magazine publisher. Whether Asians like it or not, the Americans are coming.By Bruce Einhorn in Singapore, with Cathy Yang in Washington and Bureau ReportsReturn to top