The Chinese government’s harsh treatment of Google and other internet groups over the past six months has deterred Yahoo from attempting to conquer this market on its own, executives have said.
The US internet company this week sold its 1 per cent stake in Alibaba.com, the online platform for trade between companies, for about $150m.
The change of heart underscores to what extent foreign companies remain locked out of China, the world’s largest internet market by users, as the country remains determined to develop the internet on its own terms.
China would have been a natural target for Yahoo. The company has experimented there for years, and Carol Bartz, who took over as chief executive in January, has made international expansion a high priority, especially in countries where internet penetration still has a long way to go.
But the experience of Google in particular appears to have chilled Yahoo’s ambition.
After struggling for years with having its global website blocked in China, Google established a local business in 2006. Since then, its market share has risen to more than 20 per cent, but remained behind Baidu, the local online search leader which holds more than 60 per cent.
This year, the Chinese government began its fiercest crackdown on Google since the establishment of its local website, criticising the company for allowing pornographic content among its search results and ordering it, by way of a punishment, to disable certain functions that are critical to drawing user traffic. The site was blocked for a period, and YouTube, Google’s video-sharing website, has been unavailable in China since March.
“This shows us that things are not getting better in China for foreign internet companies, and that there is no level playing field emerging, not even for Google,” said a senior executive at Yahoo.
After a tough start in China, Yahoo in 2006 handed its business over to Alibaba, the parent of Alibaba.com, in return for a 39 per cent stake in the Chinese e-commerce company.
Yahoo had hoped it would go on to gain more influence in China.“Jerry [Yang, Yahoo’s founder and former CEO] took the view that we may take more shares and come back. But that’s over now,” the senior executive said.
Since the 2006 deal, Yahoo China’s market share has slid from about 20 per cent to 6 per cent, according to Analysys, a Beijing-based internet research company. Yahoo executives said that when Ms Bartz took control, she was “very unhappy” about Alibaba’s failure to run Yahoo China more successfully than Yahoo had.
“As a new CEO, she had to take a look at how the brand was doing in all the major markets. And it’s no secret that the Yahoo brand is not doing well in China,” the executive said.
In her first month as chief executive, she committed to investing significant money in countries where internet growth is expected to rise, even though it is trimming costs in other markets. Yahoo’s largest acquisition this year was of the Arabic-language portal Maktoob in August, in a deal valued by experts at $75m.
Ms Bartz is no fan of joint ventures and minority investments in general, according to company insiders, and so looked at the possibility of making a new effort in China and a break with Alibaba. But the risks of a solo initiative appeared too high in Google’s wake, one said.
“Looking at Google, we realised that being invested in Alibaba is the only thing we can do in China,” the person said. Another Yahoo executive said: “Carol felt strongly that Yahoo is much better off not to directly operate in China.”
Cutting ties with Alibaba therefore appears to have been ruled out for the foreseeable future. There is no public market for the parent company’s stock, the tax consequences of a sale would be painful, and an exit would require approval from other parties, including other Alibaba group investors.
Yahoo has resigned itself to watching China from the sidelines.
