Print This Page Email This Page
Foreign Internet Firms Rush for China Market

Foreign dotcoms are increasing efforts to acquire leading Chinese Internet companies - a trend that will continue over the next few years, according to the latest findings released on Monday by US-based financial consulting firm Morgan Stanley.

"They (dotcoms) are pretty active and this trend will slow down somewhat next year but will pick up again in following years," said Mary Meeker, global Internet analyst of Morgan Stanley.

Meeker, together with Richard Weidong-Ji, who is a vice-president of the company, covering China's Internet and media sector, are co-authors of this year's China Internet report.

Foreign dotcoms are accelerating their acquisition of local Internet companies, with specific targets in mind, said the report.

Apart from, and - which have already been bought by foreign websites, and respectively - quite a few Chinese Internet firms leading in segmented online businesses are partly owned by their foreign counterparts with further buying moves expected, according to the report.

These potential deals involve, the country's No.1 online B2B (business-to-business) service provider, in which Yahoo! has a 40-per-cent stake; and China's No.2 online travel service provider, in which US online travel service giant InterActive has bought a 30-per-cent stake.

Search engine is widely believed to have designs on the No.1 paid search engine provider in China in which it currently holds a minor stake of 3 percent.

Meeker pointed out that the wave of acquisitions is related to the challenges that foreign dotcoms are facing in China, where domestic companies have "a local advantage".

The advantages include lower regulatory barriers, leaner reporting structure and highly localized management, better local content and services, as well as closer relations with mobile carriers.

"Foreign companies, unfortunately, have not achieved a similar success in China as in their home countries," said Meeker.

Yahoo's deal with Alibaba indicates that "its (Yahoo's) strategy is not working in China and it has to find another way around," she said.

Meanwhile, eBay EachNet an eBay company has experienced a market share erosion in e-commerce to Alibaba/Taobao, and de-crowned Amazon/Joyo in online traffic leadership.

Top players in major segmented Internet businesses - online advertising, online gaming, mobile value-added services, instant messaging and online auction, are all Chinese dotcoms, said the report.

More importantly, these leaders dominate the market with a big share. The top two or three players in four out of the five segments command a combined share beyond 50 percent, by revenue, users or gross merchandise value (GMV), it said.

Regarding online auction, in particular, top player eBay EachNet and the No.2 Alibaba/Taobao together hold 94 percent of the total GMV.

However, the leadership position may not necessarily be secure, said the report.

"We can see narrowing gaps or changes in leadership in major segments," said Meeker.

In mobile value-added services, sales revenues of TOM Online was 1.8 times that of during the second quarter of this year, surpassing Sina for the first time.

In online gaming and online advertising, the sales revenues of emerging operators are also rapidly catching up with that of the leading players, said the report.

According to Meeker, these top players entered their segments by adopting the business models that proved successful in the United States, and to later challengers, their "ability of innovation is the key," she said.

In addition, the report notes that Chinese dotcoms in public markets are often valued at a discount due to factors such as policy risks (content censorship and revenue sharing changes), fierce competition, management risks, and business models that are unfamiliar to global investors.

But their real revenue is significantly higher - "30 or 40 times," than the announced headline revenue, as a result of different calculation methods in purchasing power and corporate value to the industry, noted Meeker.

Moreover, Chinese Internet firms have much higher margins than their global peers - 37 percent in China in comparison with an average of 18 percent in the US.

(China Daily September 21, 2005)

Related Stories
- Internet for Rural
- 94 Million Internet Users on the Mainland

Print This Page Email This Page
'Tomorrow Plan' Helps Disabled Orphans
First Chinese Volunteers Head for South America
East China City Suspends Controversial Chemical Project Amid Pollution Fears
Second-hand Smoke a 'Killer at Large'
Private Capital Flows to Developing Countries Hit New Record in 2006
Survey: Most of China's Disabled Not Financially Independent

Product Directory
China Search
Country Search
Hot Buys