Mobile downloads hearten loss-making China portals

Jonah Greenberg

BEIJING: China's top Web portals are capitalizing on the country's taste for

cellphones, signalling the wireless Internet may hold promise in the world's

biggest mobile market, as on-line advertising growth slows to a halt.

Downloads of mobile phone ring tones and screen designs, as well as news

reports and jokes -- which cost from 0.1-2.0 yuan (one to 25 cents) -- have

enticed mobile phone-owning Web users in China to open their wallets.

While the transaction amounts are small, the potential is encouraging given

China's 161.5 million cellphone customers outnumber Web surfers by about

three-to-one. "We set a goal of breaking even by the end of this year and

becoming profitable next year," said Victor Koo, chief operating officer at

Sohu.com, one of China's three Nasdaq-listed portal companies.

"I don't think we could reach that goal without the wireless

Internet." Last week, Sohu said first-quarter turnover rose 10 per cent

from a year earlier to $4.5 million on the strength of non-ad revenues, most of

which Koo said came from wireless services.

Rival NetEase.com Inc. said 82 per cent of its $2.1 million in first quarter

revenue reported last week came from non-advertising services. "Most of our

non-advertising revenue is derived from products and services related to SMS and

wireless services," said Ted Sun, NetEase's acting chief executive.

SMS stands for short message service, the format for sending and receiving

data such as ring tones or games, with second-generation mobile phones.

Easily billed



The China portals use a business model similar to Japanese mobile carrier NTT
DoCoMo's i-mode service.

If a customer uses a Sohu download, for example, the charge shows up on the

monthly bill received form their mobile carrier. The phone company keeps between

12 and 15 per cent of the revenue, and Sohu gets the rest.

At least one mainland Web firm said early signs of Chinese consumers'

willingness to pay for the services is a pleasant surprise. "You could say

we're all happy and a little bit surprised at how much it's grown and how fast

it's grown," said an executive at one of the portals.

"We're seeing overall there's revenue streams that are appearing in

China that aren't appearing anywhere else in the world," he said. In their

short histories, China's Internet portals, like those elsewhere, have found it

much easier to attract Internet users than to spin revenue from them.

Neither NetEase nor Sina.com has said when it expects to swing a profit.

Stocks in all three, including Sohu, trade under $2 -- fractions of their $13-20

Nasdaq IPO prices in 2000.

Like US giant Yahoo! Inc., the three major China portals went scrambling for

non-ad revenues last year, when China's online ad market was worth just US$39

million, according to International Data Corp (IDC). China's mobile phone

market, on the other hand, is massive.

Tom Kirkwood, chief executive officer of Beijing-based venture capital firm

mobile Internet asia Ltd. said he forecasts that wireless data suppliers in

China will make about $1 billion in revenue during the year ending in the first

quarter of 2003.

"That's one of the defining factors of the China portal scene is that

they have this market to expand into," said Matt McGarvey, an analyst at

IDC in Beijing. "Not even Yahoo in the United States has been able to

replicate this," McGarvey said, referring to a high proportion of revenues

coming from sources other than advertising.

While Yahoo pared its reliance on advertising to 63 per cent of revenues in

the first quarter, Sohu boasted an even lower 55 per cent in the first quarter.

The mobile content market has not gone unnoticed by others. A handful of firms

offering wireless downloads and games have cropped up, backed by tens of

millions of dollars of venture capital, giving portals reason to fear a new set

of competitors.

"You need to do creative business development to stay ahead," said

the executive at one of the three portals, noting that mobile phone use is

growing faster than on-line Web use. "Can one legal entity maintain its

business share moving forward? That's going to be tough."