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e-business Chinese Portal Companies Attain Profitability
Chinese companies such as Sohu, Netease and Sina are reaping the profits of the Internet economy. Haven’t they heard that the dot-com boom went bust? Announcing their first-ever profit in the second quarter of 2002, Chinese portal companies Netease, Sohu and Sina offer hope to Internet entrepreneurs whose faith in the Net was shattered by the American dot-com collapse. Like the American Web portal, Yahoo, these three companies provide news, search engines, and text-messaging.
Text-messaging accounts for much of their success. Weigang Lu, a marketing analyst for the consulting company Huaxi, believes “the text message will continue to contribute huge income to the Internet portal companies in China, since it already generates 50% of the non-ad revenue in those companies. Text messages literally rescued Netease from the dark days of burning money.” Text-messaging services, which enable any cell phone user to transmit and receive messages from computers or mobile phones, are a popular alternative to making a call, in China, where phone rates can cost as much as five cents more per minute than sending a message. Netease sends an average of 15 million text messages every month. During the week of Chinese New Year, the daily rate increased by six to eight times. Seventy-three million text messages were sent that week alone, yielding $7 million in sales for Sohu, Netease and Sina. As with Yahoo, the three companies earn the bulk of their revenue from online advertising. However, according to Sohu’s latest fiscal report, the company’s non-ad revenue recently exceeded ad revenue for the first time, by 2%. At the end of September 2002, Sohu’s founder, Dr. Charles Zhang, announced the company's first-ever profitable quarter. “We can walk on two legs now,” said Zhang. “Diversifying our services has proved to be a successful business plan.
From July 2002 until now, Sohu’s stock (SOHU) has risen from around $1 per share to over $8 per share. Sohu reached profitability three months earlier than the predicted date. Sina’s stock (SINA) increased 800% since last August, climbing to its peak $10.38 by January 24, 2003. Among Sohu, Netease and Sina, Netease (NTES) was the first one to attain profitability. As of this writing, its stock is trading at about $14.85 per share. Not all analysts believe in the happily-ever-after story of these portal companies. Yuetao Li, a media analyst with the new media company Newauto Group, questions how long such profit will continue. “From telegraph to pager, text-messaging is not the only innovation in the history of communication,” said Li. ”Because text-messaging is merely a trend among young people, it has not formed a mature business model yet. The end of the text-messaging era is not far off.” Li believes that a new high-speed cell phone, scheduled to hit the Chinese market later this year, may crowd text messaging out of its market niche. The future remains uncertain for Chinese portal companies, who cannot guarantee profit in the coming years. Regardless of trends, however, “diversification makes profit possible,” said Dr. Zhang. ”It is the principle we hold to, in all times.” RELATED LINKS Sina and Sohu spar over online News Portals Chinese portal gets VC backing Chinese portal shuffles management Can this Chinese portal survive on the fast track? Xia Tian, a former reporter for China Central Television, is an NYU graduate student. |
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