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Photo by Wei Leng Tay for Asiaweek.
Photo illustration by Simon Wan.
Storming Asia
Yahoo! captured the Internet market with first-mover speed. But global competitors are rolling in. Are Yang and Co. ready for trench warfare?

Jerry Yang once compared his job as the co-founder of Yahoo!, the world's top Internet destination, to that of a lowly railroad worker. The Net, he said, is a "huge, fast-moving train." And while that train rushes forward, Yang and his fellow Yahooites "are just half a mile ahead, laying the track so that it doesn't go off the cliff."

Yang's been working on the railroad, make no mistake. The tracks run right through the heart of Asia. Notwithstanding all the dust and din raised by this year's Internet explosion — the Hong Kong shell companies that raised buckets of cash on nothing but new economy rhetoric, the rise of genuine Chinese portals with millions of viewers but not a red cent in black ink — there is one inescapable, overarching truth about who rules Asia's Internet.

Yahoo does. Since setting up shop in the region in 1996, the same year it became one of the first publicly traded Internet companies, Yahoo has established itself as the No. 1 or No. 2 website in almost every Asian country with phone lines connecting to the Net. In South Korea, where per-capita Internet use rivals that of the West, Yahoo duels with homegrown portal Daum for the lead; in Japan, the region's second-largest market, Yahoo is the undisputed leader through a joint venture with Softbank called Yahoo Japan. In the past two years, it has introduced local-language versions in Greater China, Southeast Asia and India. It's the top surfer-snagger in Hong Kong and Singapore, too.

Come to think of it, that train analogy doesn't really work. The U.S. company, based in Mountain View, California, is more like an armored juggernaut that has blitzed the region with first-mover speed. It has methodically hung on to its army of conscripted eyeballs through every domestic counterattack so far.

But there is more trench warfare to come. Yahoo is being challenged in Asia by not only nimble domestic dotcoms, but also by global rivals such as Microsoft's MSN and Lycos. Savio Chow, the Hong Kong-based managing director for Yahoo Asia, says he began to sweat in 1999, when Chinadotcom and other portals raised huge warchests in well-received IPOs, then began spending heavily to create and market original content to the hometown crowd. That strategy quickly attracted large audiences. "I felt frustrated," says Chow, 44, who as a former general manager for North Asia at Netscape (now part of America Online) knew how quickly Internet fortunes can fade. Now that stock markets have tanked and share prices of rivals have collapsed, Chow says he feels vindicated. "We're pretty fortunate the market went into correction. Now competitors have to play by the same rules."

The worldwide crash of technology stocks trashed Yahoo's own share price, which has plummeted on Nasdaq from $250 in January to about $65 (Yahoo still has a $37-billion market cap). But the company has several attributes that allow it to weather severe stock-market downdrafts. Yahoo has now reported 16 successive quarters of profitability. For the nine-month period ended Sept. 30, the company registered total net income of $169 million; a major factor in that performance was an increasing number of advertisers purchasing space on the site. Meanwhile, portals such as Netease in China and Nifty in Japan continue to report heavy losses. Analysts say that, because of high start-up expenses and the relatively low amount of revenue available for Internet advertising in Asia, as many as 90% of the region's domestic dotcoms will fail.

Yahoo officials say they stick to a simple formula that has worked ever since Yang, with fellow Stanford University student David Filo, started Yahoo in 1994 as a user-friendly guide to the Internet. Yahoo generates very little of its own content, instead acquiring it through partnerships and licensing agreements. That helps keep expenses under control. Yahoo employs about 450 people running eight English and local-language sites throughout the region — about the same number of people working for, China's second most-popular site. "Our business model to date has been pretty much the same," says Heather Killen, Yahoo's senior vice president for international operations. Killen, an Australian, doesn't even concede she's working for a portal. Yahoo "is really an interactive-marketing-solutions business. You aggregate a good-sized audience. Then you build a business around giving distributors of goods and services and content access to that audience."

Yahoo's big gun, however, is its globally known brand. The company has been a frontrunner since the public discovered the Internet. Today it claims the largest worldwide audience on the Web, with more than two dozen sites pulling in 166 million unique users a month (more than half the traffic comes from outside the U.S.). Killen says the bulletproof brand contributes to Yahoo's 24% profit margin. Unlike lesser-known portals, the company doesn't have to splurge on marketing to get eyeballs. Indeed, Yahoo ranked among the most-visited sites for mainland China even before it had a Chinese-language site. Mainlanders, hungry for their first glimpse of the Internet, gravitated naturally to the name they recognized. Pratik Gupta, head of Asia Pacific Internet research for Salomon Smith Barney, says Yahoo Korea is the third most-recognized brand behind only giant chaebols Samsung and LG. "In all our businesses, including North America, we've always been able to get away with spending less money on advertising than our competitors," says Killen.

And when the company is ready to roll out a new website in a new country, its international presence helps attract content partners on very favorable terms. Yahoo was among the first U.S. companies to offer localized versions in Asian markets.The company does not disclose revenues from its Asian sites. But Yahoo Japan, which reports separately, generated a hefty $50 million in revenues in the six months ended Sept. 30. Websites such as Yahoo, says Gupta, "will always be a threat to local portals simply because of their brand name."

If some chafe at seeing the region's Internet colonialized by a U.S. company, at least they can take some comfort that the chief Yahoo is a native son. Yang, 32, was born Yang Chih-Yuan in Taipei in 1968. His mainland Chinese father died when Yang was just two years old. His mother, a professor of English and drama, moved the family to San Jose, California, when he was 10. Yang, who was not available to be interviewed for this story, is rarely quoted talking about his Asian roots — among his favorite musicians is former Beatle Paul McCartney.

Top officers at Yahoo, including chairman and CEO Tim Koogle and president Jeffrey Mallett, are Americans. Yang's wife Akiko is a Costa Rican woman of Japanese descent. And when Yahoo was looking for someone to run its Asian operations in 1998, it turned to Shanghai-born Chow. Despite the startling spiky hair and a fondness for dressing in black, the businessman is as near to orthodox as you will find in the Internet game. Taciturn and serious-minded, the father-of-two readily confesses he was "a bit scared" about the Yahoo job. "Most of my I.T. background was in hardware and software technology," he says. "Yahoo is a media company. It's not something that has really come natural for me."

Despite Yahoo's dominant position in Asia, Chow will have to keep his wits. The number of Internet users in Asia (excluding Japan) is predicted to soar from 40 million at the end of this year to 141 million within four years, but analysts say it's unlikely that more than two or three portals will survive in most Asian markets. Yahoo faces tough competition not just from local portals, but also from U.S. brands MSN and Lycos, which are muscling in on the fast-growing Internet market.

Microsoft has announced plans to spend more than $90 million on its Asian websites. Meanwhile Lycos, the world's fifth-largest portal, has formed a joint venture with Singapore Telecom, the state-owned telecommunications corporation with lots of cash and plenty of ambitions. Lycos Asia has rolled out nine localized country sites across the region and has begun offering content over Internet-enabled phones. By the end of the year, it wants to be poised to become the "true" pan-Asian portal.

Yahoo looked like it might have crossed the line between confidence and complacency by waiting too long to create a local version tailored for the China market. Yahoo today ranks seventh in popularity on the mainland, behind five domestic portals and Microsoft's corporate site. Delayed by uncertainty over government licensing regulations, Yahoo China (its name translates as elegant tiger) didn't arrive on the scene until last year, and the site doesn't even list the Lunar New Year in its calendar function. "We're definitely disadvantaged and we're definitely late," Chow says.

But maybe not too late. Depressed stock prices have wrecked the plans of rivals such as, which raised $78 million in an April IPO but has now seen its share price slide from $58 to about $7. Analysts say Chinese portals are burning cash at such a rapid rate they will be forced to merge to have any hope of surviving. Says Killen: "There are 1.3 billion people in China, and maybe 10 million users. It's still pretty early days." Sunil Gupta, regional internet analyst at Morgan Stanley Dean Witter in Singapore, agrees. "Yahoo has not yet flexed its muscles in China, so it wouldn't be fair to say where it is at the moment," he says. He expects that once the American portal gets properly up and running, it will grab one of the top three places.

Yahoo is ratcheting up its presence in China, if ever so cautiously. In May, it launched its first publicity campaign and has been increasing staff levels in its Beijing office. Killen declined to disclose the number of employees there, but analysts believe there are fewer than 10. Yahoo also plans to give away 8 million CD-ROMs loaded with its software through China Telecom outlets. "If our competitors don't control their costs," says Chow, "they're going [to get] into trouble. We're just grinding away and, hopefully, we'll catch up."

Yahoo faces trouble abroad, too. One of the reasons for its depressed stock price is fear that the dotcom bust will cut deeply into ad revenues. Dotcoms account for about 40% of Yahoo's worldwide income. Officials are already trying to wean the company off that source of revenue. Among initiatives are content and co-branding deals with manufacturers of WAP, or Wireless Access Protocol, mobile phones, and a push to position Yahoo as a global provider of broadband Internet services. The company has announced plans to build an Asian webcasting studio in Singapore to deliver real-time regional financial news — along the lines of Yahoo FinanceVision, a Web-based service that provides coverage of Nasdaq and the New York Stock Exchange.

Yang caused something of a buzz in Asia in the summer when he swung through to announce his new plans to lay cyber-tracks in the region. Some involved building up local content (deals with newspapers in Hong Kong and Taiwan, plus some pop-star and community sites); others were co-branding with banks. Yahoo India was also unveiled — a project that will offer content from 40 local partners. Among the Indian offerings is a webpage for elephant jokes. One riddle not found there: Where does a two-ton elephant sit? Anywhere it wants. The same is true of Yahoo.

Do Asians Yahoo? Yes, Mostly
1. Yahoo 1. Yahoo 1. Daum
2. AOL 2. Nifty 2. Yahoo
3. MSN 3. Microsoft 3. Lycos
4. Microsoft 4. Biglobe 4.
5. Lycos 5. Geocities 5.
Source: Nielsen/ NetRatings Source: Media Metrix Source: Internet Metrix
1. Yahoo 1. Yahoo 1.
2. Microsoft 2. MSN 2.
3. Geocities 3. Lycos 3.
4. Netvigator 4. Pacific Internet 4. Chinaren
5. 5. AOL 5. Microsoft
Source: iamasia Source: Nielsen/ NetRatings 6.
    7. Yahoo
    Source: iamasia

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