A political battle is raging in the angular corridors of
the Pentagon over the future of the
U.S. jetfighter
fleet. The Bush Administration wants to replace the aging squadrons with the new
and relatively affordable F-35 Lightning II limited capability multi-role
fighter. The military brass, however, wants to continue building its inventory
of the F-22 Raptor, an expensive stealthy air-superiority craft born out of the
Cold War.
The trap many military planners fall into is preparing to fight the last
war. History is replete with examples of elaborate and expensive weapons systems
that proved useless when put into battle because they were designed for a fights
of the past. The argument for the F-35 is that it’s designed for insurgency wars
such as those in
Iraq and
Afghanistan,
which the Bush Administration believes is the future threat. The military, on
the other hand, wants the F-22 to counter the rising military might of
China.
Which view is correct? Unfortunately, only history will tell.
The same question of which direction to follow is applicable to the
battle for Yahoo. Microsoft desperately wants Web portal to stave off the
seemingly unstoppable machine that is Google. A litany of others have joined or
a considering engaging in the fight for Yahoo to stake their claim to the $80
billion online advertising market. The names are all very familiar: TimeWarner,
AOL, Comcast, AT&T, Amazon, eBay, even
Google is a potential Yahoo savior.
But is everyone aiming at the right target? Is Microsoft—which is
launching a proxy fight for Yahoo—building a machine for tomorrow’s market or
still trying to fight the last war against Google? What all of these companies
may find in their rearview mirrors is what the Pentagon brass fears: the rising
might of
China.
In this case, the twin threats of Alibaba
and Baidu.
Neither one is in a position to join the fight for control of Yahoo, but
both have the potential of being disruptive to the global online advertising
market. Consider this: Alibaba went public last fall raising nearly $1.5
billion, that’s nearly the same amount Google raised. Alibaba also owns Yahoo
China and Yahoo
owns a 40 percent stake in the company, giving
CEO Jack Ma the right to claim a seat at
Microsoft-Yahoo table.
Baidu and Alibaba have managed to keep Google, Yahoo and other American
companies at bay in the massive and growing Chinese market. Alibaba’s Ma boasted
that former eBay
CEO Meg Whitman spent the
summer of 2005 in
Shanghai trying to
figure out how to compete against his company’s rival offerings.
Both companies may dominate
China, but
they’re puny compared to the likes of Google, Yahoo and Microsoft. Baidu’s 2006 revenue was $107 million compared to
Google’s $10 billion. But consider this:
China’s economy
is growing at 10 percent annually, raising the standard of living of its 1.3
billion population. Last year, China Telecom reported a record number of
landline subscribers—973 million. The number of Chinese Web users is roughly
equal to the total
U.S. population—300 million—and growing. The potential is staggering.
When you consider the potential of Alibaba’s and Baidu’s home market and
the Chinese government’s willingness to protect their IT industry, it becomes
clear that these future Internet powerhouses have the potential of undercutting
the established American players. It’s happened countless times before. Just 10
years ago, Yahoo rejected Sergey Brin and Larry Page’s business plan which lead
to the formation of Google.
As Microsoft looks for weapons to battle Google and other Internet
players seek entry points into the online advertising game, they should all take
a look east—far east—for the competitors that may be in their futures. Failure
to take these Chinese upstarts seriously could lead them to fight—and lose—the
last war.
Lawrence M.
Walsh is the editor of Baseline. Share your thoughts Microsoft-Yahoo battle and
the rising strength of Chinese competitors at lawrence.walsh@ziffdavisenterprise.com.
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