Web Pioneers Should Consider Retirement
Web portal Sohu.com (Nasdaq: SOHU) was in the headlines last week as founder and longtime chief executive Charles Zhang discussed a major restructuring for one of China’s oldest Internet companies to ensure its long-term survival. (Chinese article) His disclosure put Sohu alongside most of China’s other major Internet companies in announcing such plans, as each seeks to chart a new course in a rapidly changing environment.
Among the changes most must contend with, 2 of the biggest are the growing roles of social media and the mobile Internet, neither of which existed when Zhang and most of China’s other Internet pioneers founded their companies in the late 1990s and early 2000s.
While Sohu’s latest overhaul is admirable and almost certainly necessary, Zhang and many of China’s other top Internet executives should consider an even more radical and perhaps unthinkable step to ensure their companies’ long-term survival. That step should be their own retirement, leaving their companies to a new generation of younger leaders with the Internet and business savvy to take these firms to the next level.
In many ways, Sohu in its present form encapsulates the state of China’s current Internet landscape. The company was founded in 1996 by Zhang, a scientist with a graduate degree in experimental physics from MIT. The company began its life as a web portal, and has experimented with many other businesses over the years.
Today Sohu covers a hodgepodge of various units, ranging from its original portal business to online games, search and video sharing. And yet the company’s original portal is still arguably its most successful business, accounting for about a third of its revenue and posting strong, steady growth. Its game business has similar scale but has struggled to compete with better-run rivals. Its search business is also still relatively small despite a decade in the business.
Before a recent explosion in mergers and acquisitions over the last year, most of China’s other major Internet companies had also failed to innovate or find much success outside their original core businesses. Like Sohu, nearly all of those companies are still dominated by their founders.
Typical among that group was search leader Baidu (Nasdaq: BIDU), which posted phenomenal growth under the leadership of founder Robin Li to become a giant with a market value of more than $50 billion. And yet despite its phenomenal success in China’s search market, the company became a poster child for its inability to innovate in other product areas such as social networking and e-commerce. Its few forays into other countries were also mostly flops, with Japan as the most notable case.
Leaders like Charles Zhang and Robin Li should follow the examples of US technology titan Bill Gates. The Microsoft (Nasdaq: MSFT) founder relinquished his role as chief executive of his company in 2000 at the youthful age of 44, even though he remained active as chairman and chief software architect for a while longer before abandoning day-to-day participation 6 years later.
Alibaba founder Jack Ma, another one of China’s Internet legends, made a similar gesture when he formally handed over his chief executive’s title to Jonathan Lu last year, while retaining his title of chairman. But unlike western companies where chairmen usually play a strategic but non-executive role, the chairmen at most Chinese companies are highly involved in day-to-day operations and effectively function as chief executives.
Ma has made it clear that he has no intention of relinquishing his true role as Alibaba’s top executive anytime soon, embarking on a series of recent new initiatives and major acquisitions that last week included the completion of a $1.5 billion purchase of online mapping firm AutoNavi (Nasdaq: AMAP). Other big names who have made similar indications that they might retire or step aside soon to make way for new leadership include Shi Yuzhu, founder of online game firm Giant Interactive, and Charles Chao, longtime chief executive of leading web portal Sina (Nasdaq: SINA).
But history has shown that founders of Chinese Internet companies are often reluctant to hand over true leadership to others, preferring to treat their companies as their own personal empires. Such a mentality may help these leaders stay in the headlines as kings of the companies they founded, but it could also undermine these firms just when they need new leaders who understand future trends and how to adapt to new challenges.
Accordingly, more of these Chinese Internet pioneers should think actively about retiring from day to day responsibility at their firms, and hand over the reins of power to a younger generation who can help these companies survive and thrive in the fast-changing space.
Bottom line: Founders who still run most of China’s major web firms should consider retirement and handing over their companies to the next generation of leaders.
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