TECH TALK: Internet Tea Leaves: China Internet Potential

A Bloomberg commentary in the International Herald Tribune lays out the challenges for the Alibaba-Yahoo combo:

The question is whether Yahoo can overtake eBay, China’s leading online auctioneer, and win more search-engine customers in the second-biggest Internet market after the United States.

“The Alibaba purchase gives Yahoo a strong local entrepreneur, a heavyweight in the industry, who can drive the company to success,” says Duncan Clark, managing director of BDA China, a technology consultant in Beijing. “China is a high-maintenance market. It is highly regulated, highly sensitive and difficult to manage from 15 hours’ time difference away.”

Yahoo controls just 3 percent of China’s online auction market and ranks second among search engines. To turn the company into a leader, Ma must win the loyalty of Yahoo’s 600 China-based employees and attract customers in a relatively undeveloped electronic-commerce market.

“Chinese Internet users tend to focus on online games and spend a lot less on e-commerce,” says Frank Shi, an analyst at CLSA in Hong Kong. “The Chinese market is still immature.”

The battle for the China Internet market has been joined in earnest. Google may have a small stake (2.5%) in Baidu but will no doubt be looking for a bigger slice. eBay, which was also rumoured to be in the race to acquire or partner with Alibaba, will be contemplating its next move hoping to ensure that the history in Japan (where Yahoo is the leader in the auctions space) does not play out again in China.

For now, at least, the two events together put the spotlight firmly on the potential of the Chinese Internet. There are over 100 million Internet surfers and broadband penetration is increasingly rapidly. Baidu joins the likes of Sina, Sohu, Netease and Shanda in monetising the growing user base. The mobile users base in China is at over 350 million. [By contrast, the Indian numbers are about 25 million for the Internet and 60 million for mobiles.]

As a side-effect of the China interest, Indian portal Rediff saw its stock nearly double to $14 (giving it a market cap of over $350 million). On a related note, Indiatimes (of the Times of India group) raised $36 million selling a 15% stake to Sequoia and Westbridge. (It is probably looking forward to a Baidu-like IPO in the next year given its entrenched position across the Internet and mobile spaces in India.)

Soon, India will join China as one of the worlds largest Internet markets. How soon that happens depends very much on the speed with which we can get broadband rolled out at affordable price points for the mass-market. What is clear about the two August events related to China is that finally the East is starting to come of age and the global Internet leaders are paying attention.

Tomorrow: Googles Googlies

TECH TALK Internet Tea Leaves+T

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Rajesh Jain

An Entrepreneur based in Mumbai, India.