This last month saw AOL finally releasing itself of all its stake in Chinadotcom Corporation. Finally.
Along with the cancelled 6.8 million shares, the two companies also agreed to cancel AOL's two warrants which would have entitled AOL to buy more shares of Chinadotcom. This all comes on the heels of the AOL Time Warner conglomerate divesting itself of the "AOL" name on all letterheads and namecards.
Chinadotcom's chief financial officer Daniel Widdicombe put a nice spin on the proceedings when he said: "We're pleased to have an overhang on our stock removed and finality reached on this issue, and look forward to pursuing our software strategy focused on two of the fastest growing sectors in China — export manufacturing and mobile applications."
Oh, so AOL had been holding Chinadotcom back from executing it's business plan?
In 1999, at the Kempinski Hotel in Beijing, AOL announced it's cooperation with Chinadotcom (at the time known merely as China.com). Back then, all the folks in North America thought China.com was a sure-thing since it's domain name was so simple, exact, and special. Those same investors were blind to things like the translation of "China" into French, German, or even Hindi might be just as special–but North American herd investors tend to overlook things like this.
Reporters and pundits also overlooked the as-yet un-public China.com's lack of experience in the same market they hoped to dominate. Instead, companies like Sohu.com, Sina.com, Netease.com, and even (now closed) Renren.com and (now part of Sohu.com) Chinaren.com were already dominating the Chinese portal market and experiencing faster growth. To a typical Chinese surfer, the English word for "Zhongguo" meant very little when compared to the easy-to-remember names like "sohu" and "263". But North American investors–and AOL in particular–probably overlooked all that. After all, China.com had such a great domain name.
And then the games began.
But Chinadotcom soon figured out it could not compete with the other Chinese portals, so it diversified into businesses like advertising, interactive consulting, and web design. Sure, they still tried to project the look and feel of a portal company, but Chinese surfers flocked to other online spots.
And now AOL is out. And according to Mr. Widdicombe, this gives Chinadotcom the freedom to pursue their business plan without a monkey on their back.
But for all the grief we, and others, give to Chinadotcom, they might be doing the right thing: they have diversified and commanded Internet businesses in non-portal sectors that will allow them to outlast their competitors. Companies like Sina are putting most of their eggs in the portal basket (yes, they are entering wireless and gaming sectors, but don't seem to realize there is already a multi-billion dollar established industry they must try to compete with), and reassuring themselves that they have setup high barriers to entry, but in our industry it's very easy to tear down or create totally new markets to grab all the eyeballs. Meanwhile Chinadotcom, while making money in less glamorous businesses like export manufacturing and customer retention software, is coasting along.
So maybe without AOL, Mr. Widdicombe can forget about becoming the China Online and instead step into an altogether different Internet groove. The next few quarters will tell us how the strategy will pay off.
Rest in Peace: AOL Releases Chinadotcom
This last month saw AOL finally releasing itself of all its stake in Chinadotcom Corporation. Finally.
Along with the cancelled 6.8 million shares, the two companies also agreed to cancel AOL's two warrants which would have entitled AOL to buy more shares of Chinadotcom. This all comes on the heels of the AOL Time Warner conglomerate divesting itself of the "AOL" name on all letterheads and namecards.
Chinadotcom's chief financial officer Daniel Widdicombe put a nice spin on the proceedings when he said: "We're pleased to have an overhang on our stock removed and finality reached on this issue, and look forward to pursuing our software strategy focused on two of the fastest growing sectors in China — export manufacturing and mobile applications."
Oh, so AOL had been holding Chinadotcom back from executing it's business plan?
In 1999, at the Kempinski Hotel in Beijing, AOL announced it's cooperation with Chinadotcom (at the time known merely as China.com). Back then, all the folks in North America thought China.com was a sure-thing since it's domain name was so simple, exact, and special. Those same investors were blind to things like the translation of "China" into French, German, or even Hindi might be just as special–but North American herd investors tend to overlook things like this.
Reporters and pundits also overlooked the as-yet un-public China.com's lack of experience in the same market they hoped to dominate. Instead, companies like Sohu.com, Sina.com, Netease.com, and even (now closed) Renren.com and (now part of Sohu.com) Chinaren.com were already dominating the Chinese portal market and experiencing faster growth. To a typical Chinese surfer, the English word for "Zhongguo" meant very little when compared to the easy-to-remember names like "sohu" and "263". But North American investors–and AOL in particular–probably overlooked all that. After all, China.com had such a great domain name.
And then the games began.
But Chinadotcom soon figured out it could not compete with the other Chinese portals, so it diversified into businesses like advertising, interactive consulting, and web design. Sure, they still tried to project the look and feel of a portal company, but Chinese surfers flocked to other online spots.
And now AOL is out. And according to Mr. Widdicombe, this gives Chinadotcom the freedom to pursue their business plan without a monkey on their back.
But for all the grief we, and others, give to Chinadotcom, they might be doing the right thing: they have diversified and commanded Internet businesses in non-portal sectors that will allow them to outlast their competitors. Companies like Sina are putting most of their eggs in the portal basket (yes, they are entering wireless and gaming sectors, but don't seem to realize there is already a multi-billion dollar established industry they must try to compete with), and reassuring themselves that they have setup high barriers to entry, but in our industry it's very easy to tear down or create totally new markets to grab all the eyeballs. Meanwhile Chinadotcom, while making money in less glamorous businesses like export manufacturing and customer retention software, is coasting along.
So maybe without AOL, Mr. Widdicombe can forget about becoming the China Online and instead step into an altogether different Internet groove. The next few quarters will tell us how the strategy will pay off.
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