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Sohu’s Turnaround

September 25th, 2003 · No Comments

WSJ has a story on the remarkable turnaround at Sohu.com, one of the Chinese Internet portals – the company’s stock price has risen more than 1,300% since August 2002. How did it do it? By leveraging SMS.

Sohu’s strategy was simple: It moved much of its content, such as dating services and chat rooms, from the Internet to the SMS platform for mobile phones. That provided a basic but essential benefit to Sohu and other Chinese Web portals making the same move — allowing them to bill users for content by adding charges to their mobile-phone bills. Suddenly, the content that they had been giving away free on their Web sites could fetch a modest sum on mobile phones. At first, Sohu wasn’t very serious about SMS, but when the company saw the service’s earnings potential, it decided to pursue SMS users at full throttle.

At a cost of about a penny an SMS message, the service might not seem like a money maker. But the main reason SMS works in China is its low cost. An SMS message costs about 80% less than one minute of voice transmission. Another reason SMS proved so successful is that the dull-edge technology can be used on even basic wireless handsets, which account for more than 90% of the Chinese market.

While the rest of the world is investing in higher-value technologies, such as multimedia messaging or streaming video delivered over next-generation mobile networks, China’s infatuation with stodgy SMS shows no sign of cooling down. About 40 million of China’s more than 200 million cellphone users sent out more than 80 billion SMS messages last year, creating such a huge pie that even a small crumb can be enough to drive revenue.

In fact, the turnaround in the fortunes of the Chinese portals (Sohu, Netease and Sina) is perhaps the most remarkable Internet story of the past couple years. Their stock proces are up 40-100x in the past 18-24 months. Besides SMS, the other two factors have been an increase in Internet advertising and gaming.

Tags: Management

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