Tag Archives: Yahoo!

Tech Decoupling By Any Other Name

CHINA’S NEW DATA-PROTECTION law came into effect on November 1, the same day that the US internet company Yahoo! said it was quitting the Chinese market, citing an increasingly challenging business and legal environment. Its media brands, such as Engadget and TechCrunch, two tech news sites, are also no longer accessible in China.

Even before being acquired by private equity group Apollo Global Management earlier this year, Yahoo! was for some time sliming what was left of its China business after a complicated history involving Alibaba. However, in decamping completely, it follows Microsoft, which pulled its business-focused social network LinkedIn from the country in mid-October, also citing growing compliance requirements.

LinkedIn had run into criticism in the United States for bowing to Beijing’s censorship rules in blocking the accounts of several journalists critical of China’s policies. In March, Chinese authorities had suspended it from taking new user registrations for 30 days for failing to censor political content. In a US court case in 2020, it was shown to have been used by Chinese intelligence services to recruit overseas sources.

LinkedIn had operated in China since 2014, the only one of the leading Western social media sites left there, although it has struggled for a foothold against local rivals. Google withdrew from China in 2010, saying it prefered not to censor searches.

The Personal Information Protection Law is a proximate cause. Foreign and domestic entities processing user information, such as through web cookies and services — must now have representation within China responsible for compliance. They also have onerous new responsibilities to acquire security clearances to move data across national borders. Companies are at risk of fines of up to 5% of a company’s annual turnover for compliance failures.

Beyond the new data protection law is a thickening atmosphere of control. Last month, Apple removed two popular religious apps from its App Store in China. It is thought to have been removing apps Beijing does not like without fuss for some years. It has never made any secret that it follows the laws of the countries it operates in, even where it disagrees with them.

Apple, however, has a different operating relationship in China than Yahoo! or LinkedIn because of its hardware manufacturing and sales ($14.6 billion in Greater China in the three months to end-September) there.

It will need to tread a fine line between protecting those local sales and supply chains, which will depend on Beijing’s blessing, and its reputation elsewhere in the world if it censors the apps in its App Store. Complicating its path forward is that it does not want to choose between its hardware and App Store businesses in China, which would set a precedent for its hardware customers to download apps on an iPhone away from the App Store. That way lies ruin for its Mac ecosystem, which is so reinforcingly lucrative for it.

For Microsoft, which has been in China since 1992 and derives only some 2% of its annual sales there, its R&D operations and network of local partners are its most valuable assets in China. If protecting them meant shuttering LinkedIn, which likely provided only a slither of its China revenue, it would have been an easy decision. Microsoft plans to replace LinkedIn with a jobs only site later this year.

More broadly, foreign tech firms are being swept up in the measures that authorities are applying to rein in the power of the platform tech and online media companies across a swathe of internet activities, from fintech to gaming. Epic Games, creator of Fortnite, has stopped taking new user registrations and says it will end its services in China from November 15.

This is what decoupling looks like in practice.

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Yahoo!’s China Assets On The Block?

Yahoo!’s summary firing of its chief executive Carol Bartz could advance the sale of its China business, as part of a dumping of Asian interests to reshape itself for sale or a new life as a niche Internet media company. Yahoo! owns a 43% stake in Alibaba Group, Jack Ma’s e-commerce group.

Blood between the two had been bad even before Alibaba last year transferred ownership of its online payments service, Alipay, to a company controlled by Ma with apparently little or no advance notice to the U.S. company, and certainly without any agreement on how any monies realized would be divvied up. (Alibaba’s argument is that the transfer was a necessary technicality to comply with domestic law.) Bartz got only $2 billion in compensation from Alibaba, and that only with a struggle typical of her fraught relationship with Ma. Yahoo! shareholders considered that short change.

Ma, we suspect, would be more than happy to buy back Yahoo!’s stake in his company, and free himself of what now must be regarded as a legacy media company that is struggling to compete with the new social media — unless he sees a madcap opportunity for a maverick U.S. play with a reverse takeover, though taking on Google and Facebook in the U.S. is a different proposition from doing so in China.

Yahoo!’s new chief executive, whoever that turns out to be, may well be a willing seller, and of its 35% stake in Yahoo! Japan, in which Softbank is a partner as it is in Alibaba. Even now, the two stakes, which account for more than half Yahoo!’s market cap, could fetch $9 billion, at least from a non-U.S. buyer; an American company might see the need for a China- or Ma-hassle discount.

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How Do You Yahoo! In China?

Did any good come out of Yahoo! chief executive Jerry Yang’s appearance before the U.S. House of Representatives Foreign Affairs Committee on Tuesday?

Yang and his company got the expected tongue lashing from chairman Tom Lantos, a fierce defender of human rights, over Yahoo!’s turning over of e-mail records to Chinese officials that led to the arrest and imprisonment of Shi Tao, a Chinese dissident journalist. The family got an apology from Taiwan-born Yang and some post-hearing discussions between Shi’s mother and Yang and Yahoo!’s general counsel, Michael Callaghan, may lead to Yahoo! settling the suit the family has brought against it.

But the rest was theatre, another exercise in Congressional China bashing on the one side and a recitation of the lesser-of-two-evils argument on the other: i.e., despite the censorship Chinese know more about the world thanks to companies like Yahoo!.

But most of all it was a reminder that it is hard for internet companies to stand up to Chinese officials when China is such a potentially lucrative market.

Yahoo!, Google, Microsoft and others are working on guidelines for companies that operate in countries like China that censor the Internet, though Yahoo! having sold Yahoo! China to Alibaba, in which it has a 40% stake, is able to claim arms-length distance from its operations there. Congress might just pass law to constrain U.S. tech companies from cooperating with internet-censoring regimes (the House passed a bill last month) but the problem with both the mandatory and voluntary approaches would be enforcement.
That all said, the issues and the solutions for Western companies operating in China were no different at the end of Tuesday than they were before the hearing opened in the morning.

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