AOL eyes bigger prize (part II)
Zeus Chen Szu-ping, chief financial officer of Hongkong.com, said margins on the services it provided to AOL Hong Kong, at about 10 per cent, were much lower than for other parts of the group's business.
"I think in the near-term there will be some impact, but we don't think it will be significant because we have always said that we want to invest in other businesses that would offer higher returns."
To analysts, the bottom line is that all parties have chosen to end the licensing agreement because the AOL Hong Kong service was simply not profitable.
"If it's a profitable business, I can't see why they would want to stop," said one.
AOL Hong Kong was launched with only a narrowband service, which provides slower connections via telephone lines, at a time when many Hong Kong consumers had already had Internet access for years and were looking for a way to get around the bottlenecks that were becoming more common. By not launching a faster service using broadband, AOL Hong Kong missed out on getting some of the half million or so accounts that have been set up in Hong Kong to date.
Moreover, according to a former content manager at AOL Hong Kong, local users were also accustomed to Internet services that made it easy for them to roam wherever they liked on the Web, without the need for installing proprietary software. AOL users gain access to a closed world of proprietary content that is not available to non-subscribers. But asking users to stay within the bounds of AOL's "walled garden" just did not go over well.
The licence agreement expired on June 30 and AOL Hong Kong customers who want to keep their e-mail accounts and continue accessing AOL content must first sign up with another ISP.
Chinadotcom did say in a filing with the Securities and Exchange Commission that it would seek a short-term arrangement to continue providing services to AOL Hong Kong, but David Packman, executive director of AOL Hong Kong, confirmed that all service contracts had ended.
AOL Time Warner still holds a 6.5 per cent stake in Chinadotcom, which some analysts say it may reduce in the future, and a seat on the board.
Mr Packman declined to talk about AOL's relationship with the group.
"I wouldn't like to speculate about the future, but that is the current status."
Chinadotcom officials could not be reached for comment.
One certainty is that AOL Hong Kong has been moved to the AOL Time Warner offices in Quarry Bay, with only a small number of the 70 employees who were on board at the time it launched with so much fanfare.
Analysts estimate that 60 to 70 staff at Chinadotcom have been let go because of the end of the AOL licensing deal, and an unknown number at Hongkong.com may have been affected as well.
Mr Chen said Chinadotcom still had an agreement with AOL Time Warner to publish selected material from Time magazine in Chinese on the Internet, but the Legend tie-up indicates AOL is looking elsewhere for help in entering the China market.
Few details are known about the joint venture with Legend, but many speculate the lure for AOL is that the computer-maker has both mainland marketing experience and the ability to pre-install AOL software.
The venture does not cover Hong Kong, according to Mr Packman, who said that the agreement was "for developing interactive services within the mainland".
As for the now-dissolved partnership with CIC, analysts say that it no longer fits AOL's strategy.
"When the deal was signed, it was a way to enter the Asian market. It was one of the first steps it made," Mr McGarvey said.
"Asia was not expected to be a major market at that time. They went for the low-hanging fruit, a portal company."
AOL now preferred to partner infrastructure firms that could give an entree into homes, he said.
In South Korea, AOL has chosen Samsung. In Japan, its partner is NTT DoCoMo.
Infrastructure companies were also less likely to compete with AOL in the content business, as tended to be the case with Chinadotcom and Hongkong.com.
"Content by nature is competitive," Mr McGarvey said. |
