China's Portal Wars: Canceled for Lack of Combatants
By Bruce Einhorn
Anybody looking for signs that an era has ended for Chinese dot-coms might want to consider the recent news about a little-known portal called MyRice.com, which claims to be one of the largest in China. Lycos Asia, a joint venture between Singapore Telecom and Terra Lycos, announced in the first week of March that it was taking over MyRice for an undisclosed sum. That's a far cry from the glory of a successful initial public offering the company once envisioned.
In March, 2000, MyRice was one of the hottest companies around. Its founder, Antony Ip, was the epitome of Internet cool. For starters, the 20-something entrepreneur is the son of Peter Yip, the powerful chief executive of megaportal Chinadotcom. The Hong Kong-based company is backed by such heavyweights as America Online and Beijing's official news agency, Xinhua. While Peter Yip didn't play an active role in his son's businesses, in the Chinese business world where guanxi -- or connections -- plays such an important role, that kind of pedigree couldn't hurt.
Moreover, Ip the Younger cultivated a kind of flip public persona more characteristic of downtown New York than strait-laced Hong Kong. He once showed up to speak at a BusinessWeek-sponsored conference in Hong Kong dressed in his standard uniform: casual pants and a T-shirt. When the organizer dared to suggest that Ip change into something a bit more formal, a crowd from Merrill Lynch swooped down and protected Ip, insisting the young man be allowed to dress however he wanted. Not surprising, given that Merrill seemed eager to take MyRice public (the Merrill folks even went so far as to publish a lengthy report on MyRice, including Ip's musings on the industry).
That was New Economy Hong Kong. Just as in the U.S., normal rules didn't seem to apply. Back then, MyRice was just one of many Chinese portals trying to become China's answer to Yahoo!, that great American success story. At the height of Internet euphoria, a host of Chinese and Hong Kong startups like MyRice tried to sell themselves as such. The Yahoo! wannabes figured the most famous Internet portal was such a success in the U.S. that a Chinese-language copycat would be assured of winning user and investor confidence. Indeed, another young Chinese entrepreneur, the MIT-educated Charles Zhang, went so far as to give his Yahoo!-like portal a Yahoo!-like name -- Sohoo, although he later changed it to Sohu.
Now, of course, a comparison with Yahoo! is the last thing that most Chinese Web honchos want. A stunning series of events -- starting with the collapse of Yahoo!'s stock price, continuing with the recent departures of key international executives, such as Savio Chow, and culminating with news that CEO Tim Koogle was stepping down -- has thrown into question Yahoo!'s long-term viability as a profitable brand on the Internet.
And if Yahoo! is hard-pressed to make big money out of an advertising-based business model, where does that leave the Chinese-language imitators? At least Yahoo! operates in the U.S., where the advertising industry is huge, and -- until recently -- thousands of companies were willing to experiment with online advertising. Chinese portals like MyRice and Sohu operate in a country where the total amount of money spent on advertising -- not just online but of any kind -- is minuscule by comparison. Most estimates put the number somewhere around $20 million.
LUCKIER THAN OTHERS.
With so many companies going after such a small pot, MyRice is actually one of the luckier companies. After all, it didn't just die. While dreams of IPO glory vanished, at least Ip and his colleagues found somebody willing to buy the company. Sure, Terra Lycos might not be the ideal buyer. (If Yahoo! is having trouble, that doesn't bode well for a second-rate portal like Lycos.) But Terra Lycos is working in Asia with SingTel, one of the region's most powerful and profitable telecom companies.
But what about some of the other Chinese-language Yahoo! wannabes? Look at the poor fate of Renren Media, which operates the portal Renren.com. Started by two former McKinsey consultants, Michael Robinson and Anthony Cheng, Renren boasted entrepreneurs with impressive credentials and attracted tens of millions of dollars from venture capitalists like Whitney & Co. And in what seemed like a guarantee of success, early last year Renren nabbed Rupert Murdoch as a partner, with News Corp. taking a stake in the company and helping Renren get a back-door listing on the Hong Kong stock exchange.
Today, Renren is practically dead. The stock is now worth less than 2 Hong Kong cents a share, which is about two-tenths of a U.S. cent. And there's that other Yahoo! wannabe, Sohu. It had an IPO last summer and briefly traded around $12 a share. Today, it too, is a penny stock.
I could go on with this death watch, but you get the point. For a brief moment in China, we witnessed an inspiring burst of entrepreneurship as newcomers threatened the stodgy state-run companies that long had a lock on the Chinese media. In the U.S., Yahoo!'s fall has punctured -- even if only temporarily -- the idea of an independent Internet-based media company being able to compete against the old media Establishment. What's true in the U.S. is also true in China. During the boom times, Chinese dot-coms wanted to be just like Yahoo!. But not anymore. As the saying goes, be careful what you wish for.
Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online
Edited by Beth Belton