Yahoo! browsing for local partnerships
By Zi Mu (China Business Weekly)
Updated: 2004-08-03 14:34

US Internet giant Yahoo! Inc is counting on forming more partnerships in China to bolster its business in the world's second-largest Internet market.

"We view China as a strategic market, and we will seek more co-operation with local players and alliances in China in a more flexible way," said Zhou Hongyi, president in charge of Yahoo's Greater China operations.

Yahoo! last week formed an alliance with Chinese information technology portal ChinaByte.

ChinaByte, one of China's well-established online IT news sources, will provide Yahoo! with specialized technology news and information -- for free.

ChinaByte makes money by licensing its IT news to leading web portals, including NASDAQ darlings Sina Corp, Sohu.com and NetEase.com.

Previously, Yahoo! China has paid ChinaByte for its IT news and opinions.

ChinaByte expects to record US$10 million in sales this year, company Chief Executive Officer Li Zhigao said.

The co-operation between Yahoo! and ChinaByte is expected to boost the firms' revenues -- from advertisements.

In China, news channels play an important role in generating revenues, from advertisements, for Web portals.

For example, reading the news on Sina.com's website has become a must for many Chinese throughout the world.

China's online ads market surged 120 percent, year-on-year, to 1.08 billion yuan (US$130 million) last year, of which nearly one quarter was IT related, indicates Shanghai-based iResearch.

The online ads market in China will be worth about 4 billion yuan (US$481 million) in 2006, the research house predicts.

Zhou expects to extend the co-operation with ChinaByte to instant messaging (IM) and e-mail services.

"I think search, e-mail and instant messaging will be three major business areas for Yahoo!," he said.

"We aim to become the No 1 player in China's Internet search and e-mail service market within two to three years."

The US-based giant has been lagging behind local rivals such as Sina Corp and Sohu.com since its entry into the Chinese market in 1999.

That was "due to our lack of a keen understanding of the local market," Zhou noted.

However, "now is the right time for Yahoo! to make a big push in China," he added.

Yahoo! China last week announced it will let subscribers upgrade their free e-mail service, and Yahoo! will provide 10 times more storage.

Yahoo! users can upgrade their free e-mail accounts to 1,000 megabytes, provided they also use Yahoo Messenger, an instant messaging (IM) service.

Yahoo! had been offering 6 megabytes of free e-mail storage in China prior to June, when it upgraded its service to 100 megabytes.

Yahoo! hopes the upgrade will boost its IM business, said Guo Chang, an analyst with Beijing-based CCW Research.

The IM service, which enables users to chat online, has been growing in popularity in China.

The IM sector in China is projected to reach 2 billion yuan (US$240 million) next year, Guo said.

If IM gains a significant take-up among corporate users, the size of the sector might reach 10 billion yuan (US$1.2 billion) in 2008, he estimated.

China's IM market is dominated by Hong Kong-listed Tencent Holdings Ltd.

"The free e-mail service, with its eye-catching capacity, may boost Yahoo's IM service," Guo said.

Yahoo! has consistently lagged behind Baidu.com Inc, China's top search engine, in the Internet search business.

Yahoo!'s arch rival, Google, in June bought a minority stake in Baidu, for US$10 million. That is expected to create greater challenges for Yahoo!.

To fight back, Yahoo! -- less than a week after Google invested in Baidu.com -- launched a website dedicated to Internet searches for China.

Zhou said he is confident Yahoo! will eventually defeat Google to dominate China's Internet search market.

According to iResearch, China's Internet search market surged 117 per cent, year-on-year, to reach 500 million yuan (US$60 million) last year.

The research house predicts the market will grow between 60 per cent and 70 per cent per year between 2004-06.

This year, the market will be worth 840 million yuan (US$101 million). In 2006, it will be worth 2.3 billion yuan (US$277 million).

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