Just because a company has achieved monopoly status in one market (see previous story) doesn’t necessarily mean that it will find success elsewhere.
Just ask Baidu, China’s search giant. Less than two years after launching an e-commerce platform with Japanese e-commerce leader Rakuten, Baidu has announced that its joint venture Lekutian will be shutting down.
The company blames stiff competition and a worse-than-expected performance.
The joint venture went live in China in October 2010, with the two companies investing a total of $50 million to set up Lekutian (Rakuten controls 51% of the venture).
Analysts were reasonably excited, especially as other e-commerce players like 360Buy and Dangdang were successfully raising hundreds of millions of dollars in new funds for aggressive expansion of their own.
The plan was for Baidu to extend its business beyond search, to scoop up a bigger chunk of China’s growing e-commerce market.
But reports in the Chinese press were soon suggesting that all was not well with the site. And two weeks ago the Southern Metropolis Daily reported that the company dismissed half of its staff, taking the number of employees down to just 50.
Lekutian tried to jumpstart sales with a major redesign of the site, in the hope of differentiating itself from its many competitors. The site sported the tagline “Tokyo Life Style” and increased the offerings of Japanese products.
But critics say that the strategy may even have been part of the problem. Guangzhou Daily reckons that Rakuten itself hasn’t really adapted to the Chinese market: “The Japanese firm used the same business model that has worked in Japan but did not adapt it for the China market. That is the same problem with many foreign enterprises in China.”
Beijing News also says the majority of the Lekutian’s management was Japanese, with little understanding of the Chinese market.
The joint venture was also too reliant on traffic from Baidu: “The site has no promotion, no marketing and hence no user loyalty – in such a competitive e-commerce industry it faces a lot of challenges,” was the conclusion of China Business News.
Lekutian is not Baidu’s first assault on the e-commerce market. Its first major initiative was a service called Youa, which also failed to get traction and was shut down last May.
So the latest failure has analysts questioning whether Baidu is going to be able to find success outside its core search business. Last year the company quietly shuttered Baidu Talk, its microblogging service, which had also failed to compete with rivals including Sina and Tencent (see WiC138).
Baidu’s biggest overseas investment, a Japanese search site, is also seen as something of a flop.
No wonder, then, that Doug Young, the author of Young’s Business Blog, has suggested that Baidu should change its name to Botchdu, “as this company seems to mess up just about anything outside its core search business”.
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