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Eric Lai

This year has been busy for leading mainland Web portals - China.com listed successfully on Nasdaq and, despite a continuing dearth of users, has seen its stock price zoom upwards, while Sina has seen a public management power struggle scuttle its IPO plans this year.

 Meanwhile, two Web portals - William Ding's Netease and Antony Yip's Myrice - have emerged out of nowhere as heavyweights.

 By comparison, it has been all quiet from Sohu.com and its founder and chief executive, Charles Zhang.

 Not that it has been uneventful: the Beijing-based Web directory-turned-portal has nearly tripled its page views to 4.5 million per day this year.

 At the same time, the one-time media darling - and the charismatic Mr Zhang, once regularly referred to as the PRC's version of Yahoo!'s Jerry Yang - has lost some of its lustre, hurt by what one mainland Net analyst termed 'growing pains'.

 Key staff had left, the company reportedly ran out of money halfway through the year and plans to list Sohu were on hold.

 'Sohu was very strong in the beginning,' Merrill Lynch Internet analyst Matei Mihalca said. But today, 'they may have lost some momentum'.

 Sohu had fundamental strengths. It boasted powerful foreign backers such as Intel Corp, Dow Jones, Hong Kong-based Hang Lung Group and technology publisher International Data Group. And it possessed a business strategy that followed the tried-and-true Silicon Valley format.

 'Sohu still has that first-mover advantage,' Mr Mihalca said. 'Its brand name is strong and the directory is highly regarded.' And there is the 4.5 million per day page views, which Mr Zhang said ranked it first with the eight million mainland Internet users.

 Portals such as China.com and Sina acknowledge that a huge number of their visitors come from Hong Kong, Taiwan or North America. Not Sohu.

 'We were focused on the mainland from the very start,' Mr Zhang said. That focus is what Sohu will need next year, when it is expected to list, with Credit Suisse First Boston as underwriter.

 'Sina and Sohu will both get between US$50 million and $100 million to play with next year,' BDA China Internet analyst Ted Dean said. 'Managing that kind of growth will be very different, and will be key in determining who the winners are.'  The soft-spoken Mr Zhang declined to discuss IPO plans, other than to say reports it would list on the SAR's new Growth Enterprise Market (GEM) this year were 'unreliable'.

 Sohu could have used the money this year. It beefed up content on its site, adding 20 channels, including a national home-buying channel, and increased its staff to 150.

 Sohu claimed revenue of $1 million from Web advertising and sponsorships last year, but sources said much of this was non-cash barter deals with other portals, and revenue booked before it would be paid this year.

 Sohu, a wholly owned subsidiary of US-registered Internet Technologies China, reportedly burned its $2.2 million financing halfway through the year. Sources said it recently secured a $10 million third round of financing.

 Key management is said to have been alienated by Mr Zhang's strong-willed style. One mainland-based analyst said the problem partially was 'an unwillingness to incentivise' managers through share and stock options.

 'The problem is what I call the Mao syndrome: the success of these Internet startups is not really based on whether it has visionary leaders, but on day-to-day execution,' he said.

 That difficulty was compounded by the 35-year-old bachelor's own budding celebrity status, which had him posing on the cover of mainland lifestyle magazines while teetering on rollerblades before the Forbidden City.

 'Charles was built up as China's first Internet pop star,' the analyst said. The company 'did a better job of promoting Charles than promoting Sohu'.

 'I am willing to be the poster boy for the Chinese Internet for the sake of my company,' Mr Zhang said, adding that recent marketing efforts had moved towards building the Sohu brand.

 'The real battle is to win people who are not on-line yet,' he said.

 There also are signs that Sohu, and Mr Zhang, are maturing. While chief financial officer Victor Koo has moved to a business development role - leading a search for a new CFO to take Sohu public - the company recently created the position of senior vice-president of marketing and sales and hired Hong Kong advertising veteran Edwin Chan to fill it.

 'We want to hire Proctor & Gamble brand manager types,' Mr Chan said. Sohu employs 150 but Mr Zhang expects this to grow to as many as 450 by the end of next year.

 Unlike China.com and Sina, Sohu does not plan to build Hong Kong and Taiwan versions of its Web site.

 With problems such as low credit-card usage on the mainland, Mr Zhang expects advertising to be Sohu's dominant revenue source in the near term.

 'The challenge is whether you can monetise those page views,' he said, admitting it was a problem with which Sohu - which sells advertising only on one in 10 of its page views - was struggling.

 'We are treading carefully. In general, we want to add more e-commerce content, and hope to have that be more important than ad revenues within two years,' he said.

 Sohu has added Internet auctions, which are proving surprisingly popular with mainland Web surfers and which reportedly are earning $1 million a month for Beijing site, 8848.net.

 Mr Zhang remained convinced that Sohu was in a better position than its chief rivals.

 Netease was saddled with a reputation as being for 'techies', Sina had lost momentum, and Myrice faced the daunting task of integrating the 14 mainland sites it bought recently into a coherent Web portal with a unified strategy.

 The moral seems to be: if Sohu is facing problems, so is everyone else.



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Fundamentals intact for Sohu