Chapter 1: Sina, Sohu and Yahoo China – the portal war

The Internet boom in the U.S. in the late 90s also marked the beginning of the China Internet industry.  Among the earliest portals were Sina and Sohu, the first founded by Zhi-dong Wang, a Beijing man without any experience abroad, and the second founded by Charles Zhang, an MIT graduate.  Backed by venture capitalists from Silicon Valley, they were copying what was hottest then, and that was Yahoo. Soon they found out the best way to attract viewers was with news – tons of it.

Yahoo, meanwhile, was tapping into China via its Taiwan and Hong Kong operations, largely sticking to its original U.S. model. But it lost popularity to Sina and Sohu due to inferior content. And when the tech bubble burst in 2000, not only did Yahoo China have no revenue but support from headquarters dried up too.

Sina and Sohu were getting revenue, however, from wireless valued added services, such as SMS and ringtones.  In fact, for a long time before online advertising took off in China, wireless services accounted for more than half of Sina’s and Sohu’s revenues.

Yahoo tried to turn things around by hiring a local boss. It bought a local firm called 3721.com and made its CEO, Zhou Hongyi, head of Yahoo China.  The process created a lot of buzz.  Suddenly, Yahoo was more Sina than Sina, using sensational headlines and the sex appeal of young girls to drive traffic. It plunged into all kinds of businesses and partnerships, e.g. wireless valued added services, online auctions, etc.  But it was already too late. Sina and Sohu had already established themselves as the prime online portals in China.

(Zhou Hongyi’s contract was performance-based. If he could not achieve certain revenue and profit targets, he would not get all of what Yahoo had promised to pay for 3721.com. He left on bad terms and several lawsuits resulted.)

Yahoo gave up. At the same time as it invested US$1 billion in Alibaba it gave its China operation to Alibaba to run. But not even the great entrepreneur Jack Ma, who by that time had founded two successful businesses, Alibaba.com and Taobao, could turn the situation around. 

(One example to illustrate just how difficult managing Yahoo China had become: Jack Ma hired a new president, Wen Xie, to give Yahoo China a new direction. But Xie was fired only 40 days after he took office.  For external consumption it was said that Jerry Yang, CEO of Yahoo, had never approved Xie’s appointment.  But after talking with several insiders and Wen Xie himself, it’s clear to me that it was a power struggle inside Yahoo China, not Yang’s displeasure, that cut Xie’s tenure short. Xie was trying to fire one of his staff, but wound up getting fired himself instead – the kind of thing that happens in a badly run operation.)