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Home / Insight More Articles
Chinese portals are brewing a reshuffling
Last Updated(Beijing Time):2004-11-03 17:08
According to an article carried on China Entrepreneur, among Chinese Internet stocks, Sina, which is called"the best representative of Chinese dotcoms" by Morgan Stanley, holds the highest operating revenue and profit, and the broadest business lines. Known as"CCTV in China's Internet sector", Sina News has formed semi-monopoly superiority among Internet media. 

For a long time, with its dispersed stock right and constant disputes between sects in the board of directors, Sina could not get out of the danger of being acquired. In recent months, Duan Yongji, who is Sina's largest single shareholder, has expedited the shift of Stone Group toward the health food industry. Thus, the transfer of shares in Sina was put on the agenda in no time. International giants like Yahoo are coveting for the deal, and Sina is also seeking buyers. NetEase, Shanda and even Tencent may get in the scene and play a leading role anytime.

As the most eminent portal in China, Sina's position and performance are obvious to all. Nevertheless, its inherent defect is also clear: a board of directors that is dominated by investors instead of entrepreneurs and is always disturbed by wrangles. 

The turbulent fights over personnel make it impossible for the management to focus on business innovation. It started to seek expansion through M&A to cater to the board. Since September 2001, Sina has engaged in six large-scale M&As. In particular, it targets sizable companies that make profit. It is by promoting its business expansion through"buying revenue with cash" that Sina became the leader among portals in a short time. 

However, for lack of inherent innovation, such growth in size is not endorsed in the capital market. Although in fiscal Q2 2004 Sina's operating revenue hit a staggering US$49 million, twice that of NetEase, which did not engage in M&A in recent years, the two have equal market capitalization on NASDAQ all the time. 

A source with Yahoo China noted that acquiring Sina accords with Yahoo's logic. Yahoo likes to make up for its weakness through M&As. In Taiwan, when it was not in a position to fight with local dotcoms, Yahoo acquired Qimore, which was the number one player in the region; in the face of Google, Yahoo launched its own search technology through an acquisition that cost it billions of US dollars. In November last year, Yahoo reviewed the China market, and acquired a Chinese website 3721with US$120 million. In April this year, its founder Jerry Yang noted in Beijing,"The game just got started in China". However, 3721's domain name service utterly does not meet Yahoo's impulse for portals. As a powerful media, Sina has broad business lines, and makes the best target of acquisition for Yahoo in its attempt to become the premier portal in China. In April this year, Sina and Yahoo set up a joint venture"1pai".  

The participation of NetEase will broaden the horizon for all those who pay attention to this area. In fact, executives of a host of dotcoms including Shanda CEO Chen Tianqiao and Tencent CEO Ma Huateng privately try to obtain evidence for the business consolidation after Sina is merged. 

NetEase's interest in Sina can be partly attributed to the covet for the largest Chinese Internet asset; yet a more important reason is that it wants to make strategic response in advance for possible changes in the competition situation. The drawbacks of Sina's acquisition are probably more worth pondering over than the benefits. 

By acquiring Sina, Yahoo will pose pressure to NetEase and other portals. Yahoo's search, email, instant communication technology and management expertise are precisely Sina's weaknesses. Once these combine with Sina's enormous traffic, it will generate huge power. The combination of Shanda and Sina will result in a giant that is an absolute leader in the fields of online games, wireless communication and content. That will put NetEase, which is weak in all of the three aspects, in an awkward position in competition.

According to Homeway CEO Xie Wen, a renowned Internet critic, the founders of most Chinese dotcoms are still working on the forefront of management. As a result, their corporate culture takes on strong personal tinge, and the lack of professional management makes it difficult to control the culture fusion caused by M&A. No matter which company merges with Sina, it will encounter vehement conflicts of corporate culture. 

Whether Yahoo, NetEase or Shanda wins at last, the reshuffling of China's portal sector has inevitably started.
Source:CE.cn 
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