INTERNET: Yahoo China Divorce Nears End With Beijing Pull-Out
Bottom line: Yahoo’s closure of its Beijing R&D center marks its final withdrawal from China, in a shift mostly related to internal issues but also reflecting the difficulties foreign Internet firms face in the tightly controlled market.
Nearly 2 years after shuttering its Chinese email service, faded US search giant Yahoo (Nasdaq: YHOO) looks finally set to completely leave the China market, with word that it’s preparing to close up its sizable R&D shop in Beijing. I’m not intimately familiar with Yahoo’s current China assets, but it does appear that this move represents the shuttering of the company’s last major Chinese operation. The move also comes as Yahoo prepares to spin off its sizable stake in Chinese e-commerce giant Alibaba (NYSE: BABA) into a separate company, bringing an end to the company’s decade-long marriage with China.
Not surprisingly, Yahoo wasn’t boasting about this final withdrawal from China, which was broken by the local media. It did issue a statement confirming the move, but said little else. Other media reports said the center being closed was home to 350 employees, and had been in operation since 2009 developing products and services that were not specific to the China market. (English article; Chinese article)
Some analysts are calling the closure a cost-cutting decision, and that could indeed be the case since the center’s functions could easily be performed in other locations. But regardless of the reason, the closure does seem to sever one of the last remaining ties between Yahoo and China, a market where it once had big hopes and where it has invested billions of dollars over the last decade.
This latest development calls for a recap of Yahoo’s turbulent history in China, and its equally turbulent withdrawal over the last few years. Yahoo was one of the first global Internet companies to enter China more than a decade ago, when it purchased a firm that was the nation’s biggest Internet search player at that time. But mismanagement caused that acquired company to quickly lose ground to global rival Google (Nasdaq: GOOG), and later to the homegrown Baidu (Nasdaq: BIDU) that now dominates the market.
Realizing it needed a strong local partner, Yahoo formed its landmark partnership with Alibaba in 2005, paying $1 billion for 40 percent of the company. As part of that deal, Alibaba took over most of Yahoo’s China operations, including its search business that was already a bit player by then. I did a quick look on the Internet today, and Yahoo’s former China website simply redirects users to its Singapore site, meaning the China search business operated by Alibaba is probably defunct by now.
The Yahoo-Alibaba marriage started off strongly due to the personal connection between Alibaba founder Jack Ma and Yahoo co-founder Jerry Yang, who forged the original alliance. But the relationship quickly soured after Yang was forced out of the management of his own struggling company, and a new Yahoo CEO clashed sharply with Jack Ma. What followed was a period of tense relations, which will finally come to an end later this year when Yahoo spins off its remaining Alibaba stake into a separate company and distributes that to its current shareholders. (previous post)
After the Alibaba tie-up, one of Yahoo’s few remaining self-operated assets in China was its trademark e-mail service. But even that was proving costly and problematic due to China’s censorship policies, leading Yahoo to shutter the service 2 years ago. (previous post) The company looked like it might have more China plans when it reportedly tried to reacquire the China rights to its name from Alibaba in 2013; but now this latest withdrawal makes any new China initiatives look unlikely anytime soon.
There’s not much more to say about this latest pull-out, which really does seem to finally complete Yahoo’s slow-motion divorce from China over the last few years. Many of Yahoo’s problems were internal and unrelated to China, and I do expect that’s what is ultimately driving its bigger decision to leave the market. Still, this departure does once again underscore the very big difficulties that foreign firms face when trying to navigate the difficult Chinese Internet market.
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