Yahoo is learning, the hard way, that marriages of convenience are often more difficult than they first appear. Earlier this month the company made a telling announcement: its global “It’s You” campaign would skip China completely.
Why? Because Yahoo China isn’t run by Yahoo. It’s run by the Chinese Alibaba Group (AG), a deal Yahoo struck to get into the Chinese market by giving Alibaba full control over Yahoo China, in exchange for a $1 billion, 39% investment in AG.
So Yahoo has no real control over its brand in China, and this is proving dangerous. The China Internet Illegal Information Reporting Center put Yahoo on its list of sites featuring “vulgar content,” blaming a user-generated section of the site.
As Loretta Chao and Sue Feng report in the Wall Street Journal:
The Web sites “didn’t continue to follow the government’s call to effectively crack down on vulgar content and information on the Internet, and relaxed supervision of their Web sites, which ultimately led to the appearance of a lot of vulgar content, which is against social morals and does harm to the physical and mental health of the youth,” the center said in a notice. “Such behavior…has led to the anger of our public and should be strongly condemned.”
According to Chao and Feng, while "the stake in Alibaba has been financially lucrative for Yahoo, its brand has suffered." Since partnering with Alibaba, Yahoo's share of China's search market has shrunk three-quarters, from 21% four years ago to 6% now:
In August, Alibaba restructured Yahoo China by stripping out a portion of its business to add it to sister company Taobao.com, and reducing its Yahoo China staff in Beijing.
It’s understandable why Yahoo would form a partnership with AG: by law, foreign media companies operating in China must do so with a Chinese partner. Following the rules when entering a new market, especially one as volatile and subject to political sentiment as the Chinese market, is a good idea. But why Yahoo decided to hand over complete control of its brand name in a country China's size, let alone to a company with competing domestic interests, is anyone’s guess. When choosing a life partner, one must choose carefully.
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