Yahoo! Buys Chinese Search Software Firm 3721
In a move to strengthen its presence in the online search
field in China, Yahoo! has purchased the Beijing-based
software firm 3721. This move provides Yahoo! with an
opening into the advertising field in China and a revenue-generating
subsidiary . Under the agreement, Yahoo! paid US$120 million
in cash over two years. Normally, these purchases are
structured to include revenue milestones for the subsidiary,
but the terms of the deal were not revealed.
3721 sells Chinese-language keywords for Roman-alphabet
domain names. The company's product is a software add-in
for the web browser which enables Chinese users to search
for Chinese-language terms by typing directly into their
search bars. The company charged advertisers US$115 a
year for specific company names and $1,300 a year for
broader category names. The company partnered with the
three leading Internet portals, Sina.com, Sohu and Netease.
All three have enjoyed strong revenue and share price
growth this year, mainly due to the popularity of online
gaming and SMS services. All three companies are listed
on Nasdaq.
The Yahoo! purchase poses a challenge to the three companies,
because they will now have to share ad revenue with a
Yahoo! subsidiary, which is in the same business space
they are in. While Yahoo! is a very well-known brand name
in China, and the company has a Chinese-language Internet
portal and operations in China, so far, it has not been
able to break into the leading three portals in China.
The purchase suggests that Yahoo! is placing renewed interest
in China, after cutting back its international operations
over the past two years. During this period, Yahoo! has
successfully shifted from a heavy reliance on banner advertising
to other revenue generating businesses. Banner advertising
was hit hard after the collapse of the Internet bubble
in 2001.
It is believed that at the time of its purchase, 3721
was in discussions to list overseas, most likely on Nasdaq.
In the US market, pay per click advertising, pioneered
by Overture and Google, have shown to be serious revenue
generators. Under this model, advertisers only pay for
advertising where potential buyers click through to their
websites. Earlier this year, Yahoo! purchased Overture
for US$1.63 billion. It is believed that Google will be
heading for an IPO in the US in 2004, and many hope that
this will bring new life to technology startups.
In addition, Microsoft, faced with flagging revenue from
software sales, will be entering the field in 2004.
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