China's Internet players step up to battle U.S. giants
MarketWatch
POSTED: 07.04.05 @08:51
BEIJING -- With China oil and bank mergers and acquisitions on hold this week, expect talk to swing back to whether eBay Inc. can be beaten, to a little company called Tencent Holdings Ltd. and to what's inside Shanda Interactive's set-top box.
Last week, China played host to two of technology's most influential CEOs, Microsoft Corp.'s Steve Balmer, and Google Inc.'s Eric Schmidt.
This week, the limelight looks set to shine on two of China's most influential Internet CEOs, Tencent's Pony Ma and Shanda's Chen Tianqiao.
With a commitment to spend $100 million a year in China, eBay Eachnet might have been forgiven for thinking Alibaba's consumer-to-consumer market -- or C2C, as it's known -- site Taobao would call it a day. Not only has Taobao survived, though, but we can expect a new player to enter China's online-auction market this week.
Tencent is expected to launch its own C2C marketplace, which could hamper eBay's China efforts as much as, if not more than, Taobao. With 150 million active accounts on its QQ instant-messaging platform, Tencent won't need to buy advertising space on bus shelters, outdoor LCD screens and portals as do eBay and Taobao in their battle to win Internet traders.
Tencent CEO Pony Ma has said that the company will not spend hundreds of millions of yuan to get its auction site up and running. Tencent has already used its massive installed base of instant-essaging users to lever its way into becoming China Mobile Hong Kong Ltd.'s biggest mobile value-added service provider partner and a big player in the casual online-game market.
Despite having acquired China's biggest C2C site, Eachnet, eBay doesn't yet control the auction market in China. Alibaba's Taobao is popular with buyers and sellers largely because it doesn't charge for transactions during the first three years of membership, though that's not revenue-generating. EBay Eachnet, with its yet-to-be widely adopted PayPal, and Taobao, with its parent company's payment tool, Alipay, are both eyeing online payments as a way to cash in on China auctions. Tencent has given no indication of how users will transact on its site, but its virtual currency, QQ coins, could be used as a stopgap to solve the payments issue.
This week, expect to see reports trickle in about Netease.com Inc.'s casual-gaming platform. Early feedback indicates it looks a lot like competing offerings.
China's search market, meanwhile, is set to become even more competitive, with leading portal Sina Corp. entering the fray. Sina, which had been using licensed search applications on its site, joins Sohu.com Inc. in offering its own in-house-developed search engine.
Staying on that theme, last week Google CEO Eric Schmidt was in town, reportedly to talk to local search giant Baidu's CEO, Robin Li. Google holds a minority stake in Baidu. Last week's Supreme Court ruling against Grokster, holding it responsible for illegal distribution of copyrighted materials, could force Baidu to tweak its product offering. Baidu offers an MP3 search function and also Xiaba, a BitTorrent search.
Online-gaming heavyweight Shanda Interactive Entertainment Ltd. gave the world a first glimpse of its interactive entertainment box last week. The device allows TV viewers to go online, play Shanda's games and buy music and, eventually, films. While it probably won't be available to consumers for two months, the box, depending on price, could become a fixture in Chinese homes.
Rumors put the retail price at anywhere between RMB2000 ($240) and RMB500 ($600). Shanda's box integrates components from eight partners including Cisco Systems Inc. subsidiary Linksys and local PC manufacturer Changhong Electric Co.
Back in 2003 Shanda CEO Chen Tianqiao told the market he hoped to build China's Disney. With the Shanda "box" he is well on the way to turning Shanda into China's version of the Magic Kingdom.
Stock in Hurray Holding cooled last week after the company's CEO Wang Qindai denied rumors that Shanda was in the process of acquiring the company. However, it looks as if China's wireless value-added service provider business is set for a bout of consolidation. Tom Online's CEO, Wang Leilei; executives at Linktone; and China's portals have all stated that they think the wireless-service provider market is too fragmented and needs to be consolidated.
Wang and his peers are probably right but would also benefit greatly from a consolidated industry. With fewer choices available Chinese consumers will be funneled to the big wireless-services companies to buy their ringtones, screensavers, and mobile games.
Investors keen for a slice of China's advertising market should get their chance this week with Focus Media Holding Ltd. expected to price. Focus is the first of two in-building LCD advertising companies to go public. The next in line is the Carlyle Group-backed Target Media.
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