Hard road ahead in 2001 for Asian dotcoms

December 20, 2000
Web posted at: 4:22 PM HKT (0822 GMT)

Hong Kong (CNN) - Already smarting from the pain of a rapid fall in value and favor, Asia's Internet start-ups are being warned that more hard times lie ahead for them in 2001.

The Asian Internet euphoria was shorter lived than in other parts of the world, but the come-down has been just as sharp as countless fledgling Internet enterprises seek buyers or mergers, or simply close down.

Among those that remain, many lack experienced management and sufficient revenues to turn a profit, so the outlook remains bleak as they try to map out a short-cut to profitability.

And as dotcom share prices linger near record lows, investors have all but shut down the supply lines to capital.

"Supply to capital is extremely scarce," says Hong Kong-based Goldman Sachs analyst Rajeev Gupta. "The reason for that has a lot to do with the fact that the people who supply the capital have already been burnt once and are trying to get out."

Gupta expects some privately-owned companies to give up trying before they even launch, as Sydney-based Myprice.com.au did this week shortly before it was due to open a service modelled on U.S.-based Priceline.com.

"I fully expect the environment to remain bad in 2001, for a number of reasons: There are more companies than there is demand for there services; many of them are too similar to be able to differentiate themselves; many of them are either trying to go for too small a niche or too broad a market."

Slowdown

The malaise has been fanned by the global slowdown in online advertising spending and a failure to achieve anticipated e-commerce revenue, while share prices have been driven lower as lock-up provisions for many pre-float investors in Asian dotcoms have begun to expire.

Among the hardest hit have been the Internet portals, designed as aggregators of eyeballs on the Web but which have struggled to lure big audiences.

This week Hong Kong-based tom.com, which launched one of the most anticipated share sales in the early days of the dotcom float stampede, said it would cut its staff by 25 per cent to about 80.

Days earlier, Chinese portal Sohu.com Inc revealed plans to slash its workforce by more than 100 people, or roughly a sixth of its total staff.

Earlier in the month, in one of Asia's biggest dotcom failures to date, privately-held Hong Kong online retailer adMart closed down, leaving 334 employees out on the street, admitting it had failed to change the old-economy shopping habits of consumers .

More lay-offs

"In the near-term, you will see more companies closing down, more layoffs," says Peter Yip, the chief executive of Internet conglomerate Chinadotcom Corp.

Despite recently laying off 40 employees, and with its shares hovering around $6 - or less than a tenth of its 12-month high of $78 - Chinadotcom remains one of the best-positioned Asian Internet firms thanks to a war chest of $485 million in cash as of September 30.

Richard Li's Pacific Century CyberWorks is an even bigger player which has used well-timed deals to secure its future, at least in the short-term. In the first quarter of 2000 the company used its inflated share price as a springboard to buy Cable & Wireless Hong Kong Telecom for $28.5 billion.

It then cut a deal with Australia's biggest telecom, Telstra Corp, to create a mobile and Internet backbone joint venture. As PCCW's shares subsequently fell the deal was revised in Telstra's favor.

PCCW shares, which reached $HK28.50 in February, are now struggling to stay above $HK5 apiece.

In vast countries such as China and India, infrastructure and logistical issues crimp the development of e-commerce. Limited spending power is also a hindrance in many countries.

"In China, the whole infrastructure is just not there," Charles Zhang, president and CEO of top China portal Sohu.com, said in a recent speech. "I would say we will be cautious on e-commerce," he said.

Advertising

Meanwhile, advertising for Internet sites has also been harder to attract than expected.

Independent surveys rank Sohu's flagship Web site, www.sohu.com.cn, as one of the three most popular in China. But the firm has struggled in a fierce battle for scarce advertising revenue, and its Nasdaq share price has plummeted to $2 13/16 after listing in July at $13.

Online advertising in China will total a measly $25 million in 2000, said Zhang. In 2001, mainland online ad spending is predicted to reach $50-$100 million.

On the bright side, the emergence of wireless Internet technology is opening up a whole new market of mobile Web surfers. In Japan, the wireless operator NTT DoCoMo has lured more than 16 million consumers to its popular i-mode service in a market where the fixed-line Internet penetration rate is just 21 percent - or about half that of the U.S.

"The difficulty will be in monetizing wireless technology. For the telecom companies it's great because it's more minutes being spent on the phone, but for the content providers it becomes harder to get people to part with their money," Gupta says.

Reuters contributed to this report.

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