You have to admire the sauce. Peter Yip, president of Chinadotcom, reckons there is no future for competing, stand-alone China-focused Internet portals and has floated the idea of a grand merger. Such a firm would presumably be run by him but his potential partners seem nonplussed. While none have cash balances as large as Chinadotcom they have far bigger online audiences. What they do not have is strategies that hint at profitability. Internet stock prices suggest that investors believe they will burn cash to the death. Seen in these terms the merger option seems a rational way of pooling resources, cutting costs and achieving the 'scale' necessary to develop a sustainable business. In the United States the likes of Yahoo! used its financial strength and management depth to acquire small content providers and integrate them into its matrix of services and products. The same cannot be said of the listed China portals. Chinadotcom has switched strategic direction with each fickle swing in market sentiment. However, crucially it raised lots of money and has about US$485 million on hand, according to Mr Yip. Its competitors are poor by comparison claiming net-cash of between US$70 million and US$100 million. Yet four years ago Soho.com, Sina.com and Netease.com were barely an idea. They were thrown money by a capital market hooked by the huge growth of online usage in China. While the commercial proposition of delivering online content remains indeterminate in developed markets, it is a distant hope in China. Lehman Brothers estimates China's online advertising market amounted to US$10 million this year. How much of this was made in actual cash payments is another matter. Its forecast of that market growing to US$923 million by 2005 looks ambitious to say the least. The portal, vortal or 'wh-ortal' model as the ever-readable commentary site on Asian technology matters, techbuddha.com, dubbed it, looks a dud. Early users of the Net (meaning those in the US) might have wanted hand-holding through the online world but they, at least, got a rich mix of content. They were also inveterate consumers with a deep faith in their ability to get fulfilment from online transactions or redress if they went wrong. In China little of the above applies. Research house, Gartner, estimates there are 14.6 million Internet users compared with 4.88 million a year ago, but pricing power over content or advertising looks almost non-existent. What that leaves is well-stacked balance sheets and ambition. The same applies with the SAR conglomerates which jumped on the bandwagon. All grabbed the chance to raise cash and launched the full gamut of Internet-related services - ranging from e-tailing to data centres. Of those Tom.com made the most brazen money grab and represents all that is wrong with the sector. Initially it launched as a local portal. Later, after a management consultancy make-over, it emerged as a China-focused site offering a bizarre mix of cultural trivia. That appears a hopelessly unsustainable model and the whole venture is increasingly shaping up as an acute embarrassment for Li Ka-shing. A discrete privatisation seems off the cards considering Tom.com's high profile. Even more than the listed China portals it looks a better candidate for merging with Chinadotcom, but that would surely entail an unpalatable loss of face for Mr Li. More likely seems an injection of the disparate Internet businesses that Cheung Kong and Hutchison Whampoa jumped into during the boom. Perhaps the next incarnation of Tom.com will be running online freight bookings from Rotterdam. For the China portals the money will eventually be burned and some form of consolidation seems inevitable. Whether that involves yielding to a well-capitalised financial engineer like Mr Yip is another matter. Chinadotcom has money, but does it have a plan to take the business to the next level?
