People’s Daily, Xinhua Merge Search Sites
When is the merger of search sites operated by 2 major media and a top telco not a very big news story? The answer: When all 3 of those companies are big state-run behemoths that have a poor track record for innovation in the fast-moving Internet world. That’s my personal assessment on reading news that Panguso and Jike, the respective online search sites of the Xinhua news agency and People’s Daily newspaper, have merged their operations to form a new company. (English article) In addition to its Xinhua backing, Panguso counts dominant mobile carrier China Mobile (HKEx: 941; NYSE: CHL) as its other major stakeholder.
All of this brings me back to one of my major themes in writing about the Chinese Internet, namely that nearly all innovation comes from privately owned, entrepreneurial companies like Alibaba and Tencent (HKEx: 700). By comparison, nearly all partnerships or initiatives by big traditional state-run media end up as failures, mostly because these older companies simply don’t know how to innovate and still operate in environments where their core businesses are part of a state-protected monopolies.
All that said, it’s still worth taking a look at the latest headlines that say Jike will formally merge its operations with Panguso in the near future. (English article) China Mobile will most likely sell its stake in Jike as part of the merger, which isn’t too surprising since neither of these sites has found much success in China’s highly competitive search market. The reports say a Xinhua executive will take the helm of the new company. Controversial Jike general manager Deng Yaping will leave the merged company, and so will Panguso chief Wang Hongyu.
The selection of Deng Yaping to head Jike 3 years ago reflects why these types of Internet initiative by big state-run companies are mostly doomed to failure. Deng’s claim to fame is her status as a table tennis star who earned 4 Olympic gold medals and 18 world championships for China over a career spanning 20 years. While such accomplishments are certainly impressive and worthy of praise, they hardly make her qualified to run a major search engine in the fast-moving Internet space. Instead, many people suspected that Deng was named to her position at the state-funded Jike as a favor for her athletic accomplishments.
Chinese Internet icon Lee Kai-Fu, a former executive at Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT), criticized Jike and Deng in a series of microblog posts earlier this year, pointing out the company was spending lots of taxpayer money with no prospects of earning a profit. (previous post) As a result of his sharp words, he was prevented for several days from posting messages to his personal microblog on Sina (Nasdaq: SINA) Weibo, which boasts millions of followers.
I’ll admit I know very little about Deng, and she is probably a very nice person and a reasonably capable businesswoman. But clearly she lacked the experience to run such a major new Internet initiative, with the result that Jike foundered for most of its life and was rumored to be making mass layoffs earlier this year when Lee Kai-Fu made his controversial remarks.
So, if I were Internet search leader Baidu (Nasdaq: BIDU) or one of its up-and-coming rivals like so.com or Sogou, should I be worried about this new merger? If you’ve been reading this posting, you would know that the answer is most definitely “no”. I should at least commend People’s Daily and Xinhua for realizing that both of their search initiatives were foundering and combining the operations to try and salvage their investments. But at the end of the day, the combination of 2 duds will still be a dud, and I wouldn’t expect to see this combined company become a meaningful player in China’s online search market anytime soon.
Bottom line: The combination of foundering search sites run by Xinhua and the People’s Daily will produce a new, equally ineffective company.
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