18 August 2006 | Author: R. Green

Problems in China continue, this time Yahoo! gets involved

Following on from Google's recent legal difficulties in China, it seems as though Yahoo! are also desperate to get embroiled in their own set of Chinese lawsuits. The dispute in question comes after the acquisition of the Chinese business of Yahoo! in October, and its subsequent re-launch by Alibaba.com, a company which Yahoo has paid $1billion in order to own a 40 percent equity interest.

Yahoo!'s former head of operations for China, Zhou Hongyi, has filed a lawsuit alleging defamation against his ex-employer. Alibaba is at the same time looking to file a lawsuit in Hong Kong to sue Mr Hongyi. A spokesperson for Mr Hongyi stated that the legal action has been taken, "because Yahoo! China has used numerous methods in the media to openly express incorrect facts about and verbally abuse Zhou Hongyi."

Mr Hongyi became head of operations in 2003 following the selling of his own search business - named 3721 - to Yahoo for $120 million. The deal was intended to ensure Yahoo!'s dominance within the Chinese search market over Google. After the announcement of last year's deal with Alibaba however, Mr Hongyi left Yahoo! to head up a rival search company, Qihoo.

Alibaba is known to be an aggressive player within the Chinese internet market, managing to overtake eBay as market-leader over the last two years, and has openly accused Zhou of, "unethical business practices". In a statement released to the public, Alibaba has also said that they had, "decided that its affiliated units and business departments starting from today will never make any investments with Zhou Hongyi and will have no involvement whatsoever with any of his companies."

As part of Google's plans to increase their influence in China, online gaming and Asian internet service provider, China.com has just announced a strategic partnership with Google on search engine technology, branding and advertising.

Due to the size of its population (currently 110 million web users and growing rapidly), and the Chinese search leader Baidu having just posted quarterly profit figures which show a fivefold increase, it is easy to understand why China is seen as a major future growth area by search engines.

Until recently, Google had a 2.6% stake in Baidu, however the need to independently gain the upper hand in the Chinese search market has seen Google become involved in legal tussles with the US government with regards to the question of censorship. This subsequently led to the very public stand down by Google in order to prevent services being blocked by the Chinese authorities. Yahoo! has also submitted to the hand of Chinese search censorship, and back in January Microsoft took down the blog of an outspoken Chinese journalist - Zhao Jing - in order to comply with China's rules.

While the benefits of providing search functionality in China are undoubtedly huge, the issues associated with breaking into this volatile and heavily policed market are seemingly just as great.

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