AOL-Legend: the returns can wait

Legend's top priority in the AOL-Legend online venture is to develop user-friendly technology

By CNN's Kristie Lu Stout

HONG KONG, China (CNN) -- In the afterglow of its signing ceremony with AOL, Legend is not fretting over when returns from the Internet joint venture will be seen.

China's leading PC maker has joined Internet giant AOL in a $200 million pact to develop online services in a sector that is scampering to make do with limited online revenue potential.

"We're not worried about returns in the near future," Legend executive director Mary Ma told CNN.

"What we're worried about in the next 2 years is to provide the best service, best technology to Net users in China."

User experience

AOL will provide its marketing prowess, benefiting from Legend's experience, a statement announcing the deal said.

The tie-up marks AOL's first step into China's fast-growing market of 22 million Net users. Legend will hold 51 percent in the JV.

"The JV's first priority is to develop a technology for easier and simple access for Internet users to go online," said Ma.

Observers say AOL stands to benefit more than Legend in the China Internet venture.

Legend chief executive Liu Chuan Zhi said recently in Hong Kong that his company had about 30 percent of the domestic PC market. Ma suggested an even greater China presence.

"Legend holds a very good position even at the present in the China market," said Ma. "We've been at 35 percent market share already and we are confident."

Legend also has an extensive and immediate user base. Software to access its FM365.com flasgship portal has been preinstalled into each Legend PC -- an arrangement that could lead to the bundling of AOL Internet services.

Industry watchers also see the Legend-AOL alliance as an "800 pound gorilla" that is shaking up the battered sector, forcing China's struggling Internet firms to cut costs and consolidate.

A crowded sector

Analysts say all four Nasdaq-listed China portal firms -- Chinadotcom, Netease, Sina.com and Sohu.com -- need to cut costs to boost revenues in a crowded market that will only get more uncomfortable when Legend-AOL enters the fray.

All four Web sites are currently vying for control of China's limited $100 million Internet advertising market.

"In terms of being able to attract advertising dollars, AOL-Legend is going to be able to take a much larger percentage of that than some of the Nasdaq-listed portals," said Kristian Kender of Strategic Intelligence.

"Online ad revenue in China is not very much."

AOL is a wholly owned subsidiary of AOL Time Warner, the parent company of CNN.