When Yahoo left China several years ago, it was under a pall.
Its management had largely failed to secure market share in China after a failed attempt to buy Sina.com, then China’s largest news portal after the Chinese government told them no, and it had also come under intense scrutiny from the US congress, when it was disclosed that it had turned over email account information on Chinese dissidents to the Chinese government. As a result, the company ended handing its assets over to Alibaba, and shutting down its operations in China.
Now, Alibaba is a listed company in Hong Kong, with a market cap in the region of US$10B, and now acclaimed as the e-commerce leader in China. Its founder, Jack Ma, is widely acclaimed as a marketing genius, with even Chinese premier Wen Jiabao, asking Alibaba for data to predict how the China’s exports and the world economy will perform. (Because Alibaba is an e-commerce platform, it has leading information on trade deals, and is able to make fairly accurate guesses on China’s exports performance.) In contrast now, Yahoo has a market cap of only US$18.4B. Yahoo ‘s holdings of 40% of Alibaba are now Yahoo ‘s most valuable asset in the Chinese market.
Things were fine as long as the two companies didn’t enter each other’s territory: For Alibaba, this was the China market and for Yahoo , this was everywhere else. (Yahoo has a significant presence in Hong Kong, and commands more than 95% of all traffic in Taiwan through Yahoo ‘s acquisition of Kimo in 2000, and Yahoo founder Jerry Yang’s Taiwan roots.)
But now, Yahoo is showing signs of wanting to accept advertising from Chinese SMEs in Hong Kong. On the surface, this doesn’t seem like a significant move, but like everything else in China, there is more than meets the eye.
For one thing, Alibaba is moving out of the Chinese home market into other markets where Yahoo has a strong presence including India, Japan and the US. Yahoo Japan, which is backed by Softbank, has an especially strong presence, as well as the US home market, where it continues to be strong, even though it is perceived more as a Web 1.0 company compared to Google as a Web 2.0 company. In India, it has 1.5M users, and plenty of room to grow as the Indian economic engine picks up speed.
At the same time, Yahoo has established a global ad sales centre in Singapore with support from other Yahoo companies in the region, and some support from the Singapore government, which has been very aggressive about promoting Singapore as a centre for the Asia-Pacific region. Yahoo has been largely dependent on banner sales for brand products, having never made the transition to search ad sales which Google made. But when Yahoo sells banner packages to leading brands in the region it has one big hole: China.
That’s a mighty big hole. With China’s economic dynamo, it’s impossible to sell a real ad package if China is not included. This is why Yahoo needs to move into ad sales in China.
But the problem, from the Chinese government’s perspective, is that the ad sales centre is based in Singapore, which is not a part of China. When Google skedaddled out of Beijing to Hong Kong in March, it could at least claim that Hong Kong was a part of China, and that it had not in fact left China, even though Hong Kong is not covered by the Great Firewall of China which censors content in the PRC.
But that is not the case with Singapore, which China recognises as a sovereign nation, even though more than 70% of its population are ethnic Chinese. And diplomatically, China and Singapore, along with the other countries of Southeast Asia, have been going through some rough patches lately.
The way things look from Beijing, why should Yahoo try to dictate Asia ad sales, including the huge China market, from Singapore? At the very least, they should locate their Asia sales HQ in Hong Kong, which is part of the People’s Republic, having come back into the fold in 1997.
While western observers less attuned to China will dismiss the Alibaba – Yahoo dispute as just another dispute between two companies, those with more Chinese experience know that the Chinese government has always favoured home grown solutions, even if they are part of the private sector, over wholly foreign-owned companies with their headquarters offshore.
This turns what would be company turf wars anywhere else into proxy nationalism fights when it comes to China. And this is what makes the Alibaba – Yahoo dispute especially interesting. Because if Beijing helps Alibaba into other markets, while winning concessions from Yahoo in return for ad sales in China, it would mean the first time Beijing has been able to succeed a victory outside China’s own territory for its home-grown Internet industry.