|
On 11 June 2001, AOL and Legend, China's largest PC maker, announced a joint venture to develop Internet services for consumers in China. Each vendor will invest $100 million in the venture, with Legend retaining 51-percent ownership so as not to violate Chinese laws against foreign control of Internet firms.
Foreign media companies (e.g., the Microsoft Network, Terra Lycos and Yahoo) are eyeing opportunities in the harsh consolidation of China's Internet market, where firms face lower stock prices and no clear path to profitability. However, foreigners have waited cautiously for the right time and approach largely because of China's Internet regulations, including restrictions on Internet content and foreign ownership (in this deal, AOL will not use its own global content). After China joins the WTO — probably by early 2002 — this joint venture will likely become AOL China.
The deal will benefit both vendors. AOL will enter China's market with comparative ease and will thus win early-mover advantage in China, which boasts a large and growing number of Internet users (22.5 million, or less than 2 percent of the population) but an even larger potential (see Gartner FirstTake FT-13-8766 "Sina.com's New Leadership Does not Alter China's B2C Landscape"). AOL can exploit the strength of Legend's PC brand within China (Legend has the largest share of China's PC market). Finally, by entering China, AOL will take a significant step forward with its globalization strategy. Legend will take good advantage of AOL's advanced technology, management concepts, marketing and sales as well as abundant capital to help it become a more diversified IT vendor of global stature.
The joint venture will support Legend's portal FM365.com, but whether it succeeds is another question. Portals have more visitors and a greater potential for profitability than pure business-to-consumer Web sites. Comprehensive information, contents and the ambition to become a one-stop shop make portals a good bet as the future e-commerce platform. However, Gartner has predicted that one or two portals are enough for each geographic area. To come in first or second, FM365.com in conjunction with the AOL/Legend joint venture must address the following challenges:
- Strengthening core competence (FM365.com is not a leader in China)
- Acquiring more Internet users
- Seeking profitable business models to compete against other domestic portals (e.g., Netease.com, Sina.com and Sohu.com)
- Establishing a close relationship with government to ensure FM365.com/AOL/Legend gets the upper hand (Legend already has a strong political background)
As China enters the WTO, consolidation will occur in the Internet sector. By 2004, one or two portals will establish themselves as the emerging leaders in China's Internet market, and other portals will become increasingly relegated to niche markets (0.7 probability). The leaders will have the same characteristics, including:
- Adequate capital
- Enormous numbers of users
- Attractive content
- Sustainable business models
- Meaningful services
- Advanced technologies
- Close relationships with traditional vendors, especially media firms
- Good relationship with government and familiarity with Chinese regulations and customs
These sites will more likely have some foreign investment rather than being purely indigenous companies (0.8 probability).
Analytical Source: Louisa Liu, Enterprise Network Strategies Pacific
|
