IT时代周刊封面报道：雅虎兵败中国（第三章）

Yahoo's Fiasco in China: Crisis in Ma Yun Era

Chapter 2: To Invest More or Not

Chapter 3: An Unforeseeable Ma Yun Era

Though Jerry Yang would not like to admit it, Yahoo China’s failures forced him to give up the idea of going alone or acquisition. Instead, he adopted the most direct approach – let someone else to run Yahoo China. And he picked Ma Yun. According to some source, Yang’s top pick was Sina in the beginning. However, sdo.com’s hostile acquisition of Sina made that impossible.

Ma and Yang had known each other for a long time. In his early years at Cofortune, Ma was the sales agent for Yahoo’s ad business in China. At that time, Yang had invited Ma to lead Yahoo’s effort to get into China. Ma had declined politely. Years later, led by Ma, Alibaba defeated ecommerce giant, eBay, in china market. Coincidently Yahoo was also competing with eBay worldwide. Naturally Ma came into Yang’s mind again.

Partnership – Who Acquired Whom?

In April 2005, Yang replied an email that Ma wrote to him 6 years ago “Alibaba and Taobao (Translator: Taobao is a top auction site in China. Taobao means ‘treasures hunt’ in Chinese.) did very well. I would like to discuss the trend of Internet with you.” In three months, with Softbank VC’s (http://www.sbcvc.com/) Sun Zhengyi as their formal matchmaker, Yang and Ma nailed the deal.

On August 11, 2005 Yahoo announced the following deal: Yahoo would use 640 million USD cash, Yahoo China’ assets, and Taobao shares that Yahoo would purchase from Softbank, to acquire 40% of Alibaba’s common stocks. Yahoo would first pay 250 million USD to acquire 210.6 million shares of the common stocks. The rest of the 390 million dollars would be paid conditionally at the end of the deal. Part of the agreement was that Yahoo would buy all Taobao shares owned by Softbank with 360 million USD. These shares would be given to Alibaba so that Taobao would become Alibaba’s wholly owned subsidiary.

Yahoo assets that were to be merged into Alibaba would also include Yahoo’s ownership of Yipai. Yipai (www.1pai.com.cn) was another online auction site, a joint venture of Yahoo and Sina. In Zhou Hongwei Era, Yipai was an organization at the same level as Yahoo China within Yahoo’s global org chart.

Similar to the chaos caused by the 3721 acquisition, the industry was confused again about who acquired whom. Media had two completely different versions of the story. According to Forbes, Yahoo acquired 30% of a Chinese local Internet company with 1 billion USD. While Chinese media reported that a Chinese company merged Yahoo China’s asset with additional 1 billion USD cash. Yang averted the question of “Who acquired whom” and said politically “This was a strategic alliance, with special structure”.

Known for his big mouth, Ma even told media that since Yang was a board member and he himself was chairman of the board, he was Yang’s boss.

Everything for the Big Brother

90% of the M&A in China market failed. Ma spoke very frankly that he wouldn’t want to be part of that statistics. However, the difficulty of the merger was even worse than Ma had imaged.

"When I took over, Yahoo China was in critical condition, it was almost empty, and could collapse any time." Ma used the analogy of a patient in critical condition, who needed a surgery, and he would be the surgeon. Ma said “The merger between Yahoo and Alibaba was more than integrating two companies, it was indeed to merge the cultures from 7 companies. These 7 cultures came from Yahoo China, 3721, YiPai, YiSou, Alibaba, Taobao, and Alipay (Translator: Alipay is Alibaba’s online payment platform.).”

As a team building effort, Ma invited the entire Yahoo China team to Hang Zhou (where Alibaba’s headquarter is located) and ordered the company: No business, friendship only. The event was so carefully organized that the organizers even considered details like what breakfast should be served to Yahoo China employees when they reached Hangzhou from Beijing – Chinese pork bun or bread.

Two months later, Ma announced the completion of the first phase of the merger. Four companies the umbrella of Alibaba would play different roles in the newly formed empire. As Ma described, Alibaba is the big brother. To prevent eBay entering big brother’s B2B territory, the second brother, Taobao, was built. Then to solve online payment and credibility problem, Alipay was launched. And now, when big brother needed other help – search, Yahoo China was picked. Everything is for the big brother.

Changing Faces

As a subsidiary of Alibaba, Yahoo China did not look like Yahoo any more.

Under Ma’s leadership, Yahoo China’s homepage became a changing face – it has been repeatedly and dramatically adjusted. Comparing to Zhou Hongyi, whose hands had been tied up, Ma was given complete power to make every decision by himself. However, unrestricted power did not seem to be doing any good to Yahoo China either.

In the beginning, Ma said “Yahoo is search, search is Yahoo”. On November 9, 2005, Yahoo discarded the portal concept and changed its homepage to a Google-like search box. At the same time, Ma started major reforms within Yahoo China. He canceled wireless value added services, advertising, and other profitable businesses. Even YiSou, the service that had become profitable within one year was forced to shutdown.

Industry experts believed that Ma had adopted strong “melt-down” policy to completely wipe out marks left by Zhou. Alibaba put almost every 3721 brand onto the shelf, including the domain name itself.

According to a former employee who recently left Yahoo, advertising and wireless value added services generate millions of RMB in revenue each month, respectively. Ma’s action cost Yahoo a lot of money. Some report said the entire wireless team went to join Qihoo. Zhou joked that Ma continuously sent talent to Qihoo.

Next, Ma spent huge amount to promote Yahoo Search. Yahoo China first spent 80 million RMB to purchase the 5 second TV commercial spot after CCTV news. (Translator: CCTV news is probably the mostly viewed TV program in China.) . Shortly after, they spent 30 million RMB to invite three top directors, Feng Xiaogang, Chen Kaige, and Zhang Jizhong, to shoot TV commercials for Yahoo search. And then they launched a nation wide star search event, “Yahoo Star Search”, for this commercial. However, after the game of burning money, Yahoo sadly realized that huge promotion spending did not make desired user shift from Baidu and Google.

Perhaps Yahoo headquarter could not bear Ma any more – in February 2006, Ma flew to Silicon Valley. According to an unconfirmed source, the first instruction from Yang to Ma was to revert Yahoo China homepage. Also, Ma was required to reopen the profitable divisions that he had cut down. The fact was, on March 31, Yahoo China reappeared as a portal in front of Chinese netizens. And soon, without being reckless any more, Ma re-launched 3721 Internet real-name service.

Even with those adjustments, Ma still failed to improve Yahoo China’s traffic. On August 15, when the ‘spit war’ between Yahoo China and Qihoo was still on going, Yahoo homepage revamped again. Media joked that this page made the record as the most frequently changed homepage of all Chinese websites – from complicated portal to simplistic search page, and again to a search-editorial combo. In this process, they even launched a search page almost identical to Baidu.

Ma’s explanation was “Yahoo would be successful in China when it did not look like Yahoo.”

Even Ma Doesn’t Know the Game?

On the afternoon of Auguest 9, 2006, almost one year from the acquisition, Ma admitted the first time that the merger was not successful. At Harvard AUSCR Summit 2006, Ma said “The cooperation between Alibaba and Yahoo was not quite successful. My feeling right now is like a man longing for marriage. On the night before the wedding, he does not want to get married any more.”

Many believed Yahoo China failed to integrate the cultures, talents and technologies. For instance, Alibaba’s HR director, Deng Kangming, became the head of sales for 3721 Internet real-name – a typical case of “incompetence managing competence”. Another example was that Alibaba had been always adopting direct sales strategy, while 3721 had been strong at sales through distributors. During the merger, it was leaked from Alibaba that sales channels might get reconciled. Though this strategy had never been implemented, this still made some distributors to shift to competitors.

In addition, according to another former employee who recently left, cronyism was severe in Yahoo China’s top management. Promotion and exclusion was base on “whose people” someone was rather than performance. Influenced by Tian, partisanship prevailed in the entire company, therefore she chose to leave.

On top of unsuccessful merging that caused significant brain drain, outside business development has not been smooth either.

On August 2, 2006, with the agreement expiration, Yahoo China and Microsoft ended their partnership. User could not get to a website by entering Chinese real name from IE browser any longer. (Translator: IE dominates China browser market.) Unfortunately, after Microsoft decided to support Chinese real name for .CN domain name as an internal feature of IE7.0, they have made the decision to support all domain names for that matter. This would adversely impact Yahoo China’s profitable Chinese real name business. In a meeting earlier this year, Ma had guaranteed with confidence that the partnership with Microsoft would continue.

Right after this, China Telecom also added partnership with Yahoo China. Relationship with Microsoft and China Telecom was established when Zhou led the company. This news made Yahoo sales agents worried about future traffic and market share.

 “Yahoo’s focus was search and portal, while Alibaba was strong at ecommerce. It was hard to build accordance for these two entities from a business stand point.” Wang Ran said. He had not been bullish about this partnership from the beginning. He believed extending their businesses to way too many areas was risky strategy for both companies. Moreover, Ma now had less freedom to operate with the addition of a strong shareholder for Alibaba.

A current Yahoo employee who preferred to be anonymous said, obviously even Ma did not know how to play the game either. Alibaba has been a flower from the greenhouse of Hang Zhou. Unlike Internet companies from other cities like Beijing, Alibaba never experienced the bloody competition of the Internet industry. Indeed Alibaba almost never had big competitors in China market, therefore they always had time to correct what went wrong. But no one would give Yahoo China time.

On September 9th, Ma admitted frankly to Yang that he was not clear about Yahoo China’s future directions “It would be lying if I said it was clear” However, he also said that the key for Yahoo China would be innovation. The future would not be traditional portal or pure search. But what the future exactly would be is yet to be seen. Ma’s three-year plan for Yahoo China was to “survive” in the first year, healthy operation in the second year, and strong growth in the third year. “Last year was the hardest… We plan to bring Yahoo China back to the first squad in three years.”

(Stay tuned for conclusion)