US Internet giant Yahoo yesterday ended six years of independent operations in China - a period punctuated with frequent personnel changes, slow reaction to localization and challenges in the Chinese Internet market - and joined forces with Chinese e-commerce company Alibaba.com.
The US company has announced it will transfer all operations in the country to Alibaba.com, as well as paying US$1 billion for a 40-per-cent stake in Alibaba - valuing the new entity at US$4 billion.
"This is the best approach for us in the Chinese market," Daniel Rosensweig, Yahoo's chief operating officer, said at a press conference in Beijing yesterday.
Yahoo would adopt a co-operation model, he said, which has proved successful in Japan, a market where the company does not directly run an operation.
According to the agreement, Yahoo will inject all its assets in China - an Internet portal, e-mail services, instant messaging, Internet search services, and its keyword search service 3721 - into Alibaba.
In return, Yahoo will own 40 per cent of the shares and 35 per cent of the voting rights in Alibaba, thus becoming the biggest strategic investor in the firm.
Alibaba, based in Hangzhou, a city two-hour's ride south of Shanghai, claims its site Alibaba.com is the world's biggest business-to-business e-commerce website. The company also says its online bidding website, Taobao.com, has surpassed eBay in China and become the domestic market's No 1 auction site.
Wang Ran, chief executive officer of the Chinese investment bank China eCapital and a long-term observer of the country's Internet industry, said: "For Yahoo, it is a strategic retreat from the Chinese market."
The US giant, which set up its Chinese operation in 1999, has been dogged by frequent personnel changes and twists in company strategies. Its first China general manager stayed at the post for only one year. Operations on the Chinese mainland were then overseen by executives in Hong Kong and Taiwan and the focus was on online advertising.
At the end of 2003, it acquired 3721 for US$120 million with 3721 founder Zhou Hongyi becoming president of Yahoo! China; and the focus changed again, this time to Internet search engines.
Under Zhou's management, Yahoo became a strong player in the Chinese search market, but Zhou has decided to leave Yahoo! China, when his employment contract expires on August 31.
The Chinese market, with its unique culture and complex regulations on Internet content, poses some stiff challenges.
Even as many Chinese Internet companies shifted their attention to wireless messages and online gaming, Yahoo was still focused on online advertising and tried to find a portal to acquire, thus missing a chance to develop some other revenue models with fewer regulatory concerns and good market prospects.
The US giant, ambitious to repeat its portal success in Taiwan on the Chinese mainland, tried to acquire top Chinese Internet portals Sina Corp and Sohu.com, but the efforts were thwarted primarily due to the Chinese Government's unwillingness to let a foreign company control the country's top Internet portals.
Before Zhou took over as Yahoo! China president, the US giant secured meagre revenues from advertising and ranked way below the top three Chinese Internet portals Sina, Sohu and NetEase.
However, Rosensweig is optimistic about the new deal. "We believe Yahoo is getting much bigger in China," he said.
"Nowhere in China can you get such complementarity in every area: e-commerce, business-to-business, customer-to-customer, and Internet searches."