Dot-com shakeout rattles China amid wait-and-see online ad stance

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Plagued by revenue losses, staff layoffs and poor advertising sales, the gold rush enjoyed by Chinese dot-coms is coming to an end--even though Internet use on the mainland nearly doubled to 17 million users in the first half of 2000, according to the China National Network Information Center.

The most recent victim is Renren Media Limited a Hong Kong portal that laid off about one-third of its work force, 102 of 270 employees, in August.

Some of the layoffs resulted from a consolidation of staff following acquisitions of four consumer sites.

In a story replayed from U.S. dot-coms, the company has reduced its ad budget and in the future will put more emphasis on less expensive online ads in place of outdoor and TV. This year's budget was not disclosed, but Renren spent $3 million from May 1999 through April 2000. Advertising and media buying are handled by Leo Burnett Co., Hong Kong, and sibling media agency Starcom Worldwide.

Renren, which means "everyone'' in Mandarin, is one of China's top 10 portals, offering chat rooms, forums, home page hosting, classifieds, free e-mail and polls as well as content from CNET Networks, Reuters, News Corp.'s Twentieth Century Fox and Asian music broadcaster Channel [V]. The company is majority owned by a News Corp.-led consortium.

The main portal site ( receives about 5 million unique visitors per month who spend on average 25 minutes per visit. It has nearly 1 million registered users.


"Renren management are reacting quickly to market changes,'' said Chengwei Ventures Partner Bo Feng, one of Renren's investors in Beijing. "I think it is tough market for companies like Renren, but there are still opportunities out there. We're confident that strong management will grow the site in areas to be profitable and leverage its brand presence in China.''

Renren Chairman-CEO Michael Robinson defended the layoffs as "just a matter of fiscal responsibility. We're not the first and not the last.''

Indeed, several Hong Kong rivals have made similar decisions. In June, 18 jobs were scrapped at, the Internet publishing arm of the South China Morning Post. In July, sibling publishing companies Next Media and Apple Daily Online laid off 98 staffers. In late July, CEO Sing Wang fired 80 of 500 employees in Hong Kong at, a Chinese-language portal owned by tycoon Li Ka-shing.

While some major Chinese Internet players such as chinadotcom Corp. and have displayed strong business plans and distinct offerings, China's three biggest, and big losses during the recent quarter.

But the most ominous indication that the tides are turning was the collapse of Chinese Books Cyberstore, an e-commerce site founded in January 1997 to sell books online. It later branched out to music, videotapes and other merchandise.

Publicized as north Asia's answer to, Chinese Books Cyberstore has been widely described as the of Asia, a reference to Europe's first prominent dot-com failure earlier this year. The site proved unable to meet diverse Chinese tastes with communities spread out around the globe and faced more than 300 competitors by the time it went into liquidation in August.


More failures are on the way, said Joe Sweeney, Asia research director at consultancy Gartner Group. He said 85% of Asian dot-coms will go bankrupt or be swallowed up by bigger companies by 2004 due to slow growth of online advertising in Asia and poor fiscal management. He also said copycat sites--based on U.S. models such as and eBay--are not designed for Asian markets.

Lehman Bros. forecasts online advertising in China will grow rapidly during the next five years--even though the market will remain smaller than Japan and South Korea in dollars--to $293 million by 2005. Lehman analysts also expected China's consumer e-commerce market to reach $453 million while its online business-to-business category will be worth $169 billion, making it the second-largest b-to-b market in Asia after Japan by 2005.

"But as it stands now, companies in Asia are taking a wait-and-see approach to advertising online,'' said International Data Corp. Asia/Pacific Internet Analyst Matthew McGarvey in Hong Kong.

Copyright September 2000, Crain Communications Inc.

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