Yahoo Shutters China Email

The headlines are buzzing today with news that Yahoo (Nasdaq: YHOO) will formally close its China-based email service, in the latest sign that the company may soon withdraw from China completely. Such a move wouldn’t come as a big surprise, since Yahoo’s recently named new CEO has been making some major changes in a bid to revive the struggling former Internet pioneer. One of those moves is likely to see Yahoo withdraw from many of its secondary markets to focus on its core operations in the US.Yahoo wouldn’t be the first and is unlikely to be the last major Internet firm to withdraw from the tough China market. Archrival Google (Nasdaq: GOOG) has shuttered most of its China-based Internet services over the last few years, including its music and online shopping search businesses in 2012 after its high profile withdrawal from the China search market in 2010. (previous post) More recently, online HR services provider Monster Worldwide (NYSE: MWW) also sold its China operations earlier this year as part of a global asset disposal to focus on fixing its core US operations. (previous post)

What’s slightly different and a bit strange about this Yahoo departure is how gradual it is, rather than a quick, strategic move like Monster’s. In this latest news bit, Yahoo will formally shutter its email service on August 19, ending a long but sometimes controversial run for Yahoo mail in China. (English article; Chinese article) At one point the company gave information on a government dissident account holder to Beijing as required by Chinese law, drawing sharp criticism from human rights groups outside China.

Notice of the closure actually came from Yahoo’s longtime China partner Alibaba, which operates the email service as the result of a major tie-up between the 2 companies formed in 2005. That deal saw Yahoo pay $1 billion for 40 percent of Alibaba. As part of the deal Yahoo also handed over its China-based operations to Alibaba, including its email and search services. But Alibaba failed to reverse the ongoing decline in those services, and is reportedly preparing to return the entire Yahoo China operation to the US company, according to Chinese media reports.

I’ve been predicting the withdrawal of Yahoo from China since last year, when the company announced it would shutter its Chinese music service. (previous post) Yahoo described that move as an adjustment in its strategic direction, following the naming earlier in the year of Marissa Mayer as its new CEO. In a much higher profile move, the company sold part of its Alibaba stake earlier in the year, starting a highly anticipated divorce between the 2 companies.

One media report says that Alibaba will try to migrate former email users to its own Aliyun email service. I haven’t heard that Alibaba will formally return the Yahoo China operations to Yahoo, which was reported last month in the Chinese media. (Chinese article) But such a move wouldn’t surprise me since that business is probably miniscule and represents one of the last remaining ties between this pair of estranged companies.

Following this closure of Yahoo’s China email service, the next question becomes: When will Yahoo formally announce its withdrawal from China? I suspect we could see an official announcement in the next month or two, possibly as part of a broader retrenchment that sees Yahoo also depart from other major global markets.

When that announcement comes, it will mark the end of a long and colorful story for one of the earliest western Internet companies that came to China a decade ago. But Yahoo wasn’t the first to fail in China, and it certainly won’t be the last in an Internet market that is at once both the world’s largest but also one of the most difficult to navigate.

Bottom line: Yahoo is likely to announce its formal withdrawal from China in the next 1-2 months, following the decision to close its China email service.

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