AOL eyes bigger prize (part I)
technology.scmp.com
ANH-THU PHAN
America Online (AOL) arrived in Hong Kong in September 1999 with grand ambitions to dominate the Internet access market.
The United States Internet giant staged an advertising campaign, placed trial software discs around the city, and shipped in chairman and chief executive Steve Case to officiate at its launch.
Mr Case urged a lunch meeting of the American Chamber of Commerce (AmCham) to take AOL discs home and forecast the company would become Hong Kong's market leader.
"It won't happen overnight, but it will happen sooner than most people think," he said.
Yesterday, less than two years later, AOL confirmed it had closed its Internet dial-up business, having failed to make an impression on Hong Kong's market of about 2.5 million accounts.
Signs had emerged some time ago that all was not well with the Hong Kong service. AOL this month severed its ties with the Chinadotcom group, which had operated AOL Hong Kong under licence.
More significantly, perhaps, AOL last month forged a landmark joint venture indicating it was focused on a far more lucrative prize than Hong Kong. Its US$200 million tie-up with the mainland's biggest computer-maker, Legend Holdings, could see Legend pre-install AOL software on its computers. Potentially this gives any AOL China service far more users than the US company's existing worldwide total of about 25 million.
Now part of the AOL Time Warner behemoth, AOL's global ambitions go back to 1998, when it was the dominant Internet service provider in the US. At that time the Virginia-based company had more than five million users, with more to come from the acquisition of rivals such as Compuserve. But it was already laying the groundwork for entering markets around the world.
By the end of 1998, AOL had services or plans in place for Canada, France, Germany, Japan, Britain, Australia and Latin America. In terms of untapped Internet markets, it left Greater China - markets such as Hong Kong, Taiwan and the mainland.
Enter China Internet Corp (CIC). With its politically connected executives - China's Xinhua news agency was a majority shareholder - ownership of domain names such as china.com and hongkong.com, and partnerships with Pointcast and Netscape under its belt, CIC looked a logical partner for AOL's plans to enter the Hong Kong and mainland markets.
However, the AOL Hong Kong dial-up service, as Steven Yap, director of market research firm iamasia puts it, "doesn't seem to have lit a flame under the Hong Kong market".
Analysts have put the souring of the CIC-AOL links down to such things as the hold that Internet service providers (ISPs) such as Pacific Century CyberWorks' Netvigator had on the local market - Netvigator remains the market leader, with more than 500,000 accounts - and to increasing competition between the CIC and AOL businesses.
Both companies were, broadly speaking, in the portal business, that is hoping to be the gateway for users to surf the Web. Increasingly, said Matt McGarvey of research firm IDC's Beijing office, there were "diverging interests". Indeed, those diverging interests may have already been there in the autumn of 1999, when Mr Case arrived in Hong Kong.
Following his AmCham speech and a breakfast meeting with Chief Executive Tung Chee-hwa, Mr Case left for the mainland, with plans to meet Ministry of Information Industry chief Wu Jichuan to see "whether there's a role that AOL can play in popularising the Internet in China".
Meanwhile, CIC executives returned to their headquarters in Causeway Bay, to continue making plans to strengthen their portal businesses but also to open branches of their Web consulting and ad sales companies, Web Connection and 24/7 Media Asia.
Just three months earlier, CIC had spun off subsidiary Chinadotcom on the US Nasdaq market, and Chinadotcom had become the effective parent company of the group. With the listing, CIC divested itself of direct ownership but still maintained ownership of the domain names - and the licensing deal with AOL. Operations, including network management, Web site development, billing and content development for the AOL Hong Kong service, however, were signed over to Chinadotcom and Hongkong.com.
As part of this complicated arrangement, CIC collected user fees for AOL Hong Kong and paid a portion of them to AOL. It also paid Chinadotcom and Hongkong.com for services related to AOL Hong Kong activities.
These service fees, according to statements from Chinadotcom and Hongkong.com, were sizeable. Last year, Chinadotcom collected US$9.57 million in AOL Hong Kong-related service fees, or about 16 per cent of its total revenues. For the first quarter of this year, Hongkong.com collected HK$4.7 million in AOL Hong Kong-related fees, or more than a quarter of its HK$16.3 million revenue.
For analysts who cover Chinadotcom and Hongkong.com, the end of the AOL licence cuts both ways. If the revenues brought in by the AOL Hong Kong service agreements were not covered by costs, or if the margins were not great, then the end of the contract may be positive.
Financially troubled CIC, it should be noted, carried the burden of paying for the network infrastructure, including a 512K leased line that was in place by the time Mr Case arrived in Hong Kong. |
