Lycos buys its way into China
SINGAPORE (CNN) -- Internet firm Lycos Asia has announced the acquisition of the Hong Kong-based China site MyRice.com for an undisclosed price.
The deal offers Lycos an instant entry into China, a market that is crowded with competitors and burdened with weak online ad sales.
The deal has generated speculation about further consolidation in the industry and that other Internet giants will follow Lycos Asia's foray into China's dotcom bargain bin.
Foothold into China
According to Internet measurement firm NetValue, MyRice.com is the sixth most visited Internet property in China.
Hong Kong's Ming Pao newspaper reported in January that the MyRice.com deal was worth $12.75 million, a price tag that Lycos could not confirm.
Lycos Asia chief operating officer Michael Ripps told CNN that the deal gives the portal an instant foothold into the China market.
Lycos Asia, a $50 million joint venture between Terra Lycos and Singapore Telecom, was formed in September 1999 to deliver Lycos services to markets across Asia.
The portal's global expansion strategy worldwide is to absorb strong local Internet properties without imposing its own brand.
Advantage over Yahoo!
Lycos hails this "multi-brand approach" as a competitive advantage over competing portals like Yahoo!
"Over Yahoo! we have a couple of advantages. Number one from the user standpoint, MyRice. We are not wedded to the Lycos brand 100 percent," says Ripps.
"Also, it's how we partner. Yahoo! is really going out there on their own… it's tough to do it on your own."
"It's not realistic to think you can take what you've done in the U.S. and bring it out here," he added.
Ripps doesn't interpret Yahoo!'s recent slew of executive departures - including that of chief executive Tim Koogle - as an immediate window of opportunity for Lycos' expansion efforts.
"There is a lot of turmoil going on in the region and globally. (This) is an indication of consolidation and business models being tested."
Limited ad market
Merrill Lynch Internet analyst David Cui says Internet companies like Lycos should expect financial difficulties in China.
"It's going to be quite tough for operators of portals in China to make returns in the next two to three years because online users are not fee paying subscribers."
"Right now the only proven way for portals to generate revenue is through online advertising. The market is quite small; it's very hard to make a profit," says Cui.
Nasdaq-listed portal sites Netease, Sohu.com, Sina and Chinadotcom are all vying for control of China's limited $100 million Internet advertising market.
Last month, both Sohu.com and Netease reported weak fourth quarter revenues.
Drawing attention away from China's battered online ad market however, is speculation about more consolidation in the sector.
There has been market talk of an additional China portal takeover by Internet blue chip AOL.
Ripps told CNN that Lycos was looking at further acquisitions in China, Taiwan and India in the next six months.
"We're looking at any partner that complements our core business," says Ripps.
"That could be a portal, a vertical, or a non-portal asset like an access company. If we can locate strategically a type of access asset in China, we'll do that."
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