America Online today announced a joint venture with Legend
Holdings, China's dominant PC maker, to develop interactive
Internet services for the Chinese market.
The venture brings AOL into an Internet access and content market
that has not escaped the global slump but could grow into an
Internet powerhouse over several years. An official estimate in
January placed the number of Internet users in China at 22.5
million, out of a population of more than 1.25 billion.
Legend will own a 51% share in the joint venture and AOL 49%, with
each company investing around $100m (£72.16m) over the next few
years, according to a joint statement made today. AOL will,
initially, provide consultation and technical support for
interactive services.
After China's expected accession to the World Trade Organisation,
the venture will expand the scope of its activities gradually, the
companies said. Foreign companies are now restricted from China's
Internet content market, but the terms of China's WTO entry call
for a step-by-step opening of the market over the next few
years.
Legend is China's biggest maker of PCs and bundles its PCs with an
Internet access service under an agreement with China
Telecommunications, the country's incumbent carrier and largest
Internet service provider (ISP). Buyers can easily hook their
computers up to the service as soon as they start them up, Legend
claimed. Legend also operates a Chinese Web portal,
FM365.com.
That clear path to consumers may make Legend an ideal partner for
AOL in China, said Matt McGarvey, a Beijing-based Internet analyst
for International Data Corp. (IDC).
Yet the US giant is heading into an Internet content market as grim
as that anywhere in the world, with consolidation looming for the
major portals. Hong Kong cable broadband provider I-Cable last week
confirmed that it is in discussions with one of China's biggest
portals, Netease.com, for a possible acquisition. The founding
chairman of Sina.com, another major portal, last week resigned amid
another round of layoffs and speculation that the company may be
going into liquidation.
"The next six to eight months are going to be extremely brutal,"
said McGarvey.
China's Internet advertising market is still immature, with most
investment going into advertising on the top-ranked portals that
can deliver a large number of viewers, rather than to focused Web
sites, he said. It will take at least 18 months for a market to
develop for more targeted Web advertising.
The key to the success of AOL's offering is likely to be what price
premium it can charge for its members-only content on top of the
going price of plain Internet access, McGarvey said.