Not too long ago, Yahoo was the search engine everyone used to get their questions answered; it was our window to the outside world. Yahoo was once among the biggest tech companies globally but lost its seat at the table amidst stiff competition and complacency within the company. Several CEOs tried turning the company around, but eventually, even their best efforts failed to regain the share of the search engine and advertising markets, which used to be dominated by Yahoo.
That time is now a distant memory, with Yahoo exiting yet another major market, China. Yahoo has closed access to its services in China, making the latest addition to the group of U.S companies exiting the market. The company pulled the plug in recognition of “the increasingly challenging business and legal environment,” a Yahoo spokesperson said.
Many of Yahoo’s features had been slowly disappearing in China since 2013, including email and news. In 2015, Yahoo closed its Beijing office, causing a loss of roughly 300 jobs. The company had been gradually scaling back operations but maintained a skeleton presence in the form of smaller apps that continued to run; it still operated a weather app and some pages that reported the news in different languages. Yahoo entered the Chinese market in 1998, but in 2012 it struck a deal with Alibaba Group to sell its stake in the e-commerce giant, a deal that was valued at $7.1 billion. The deal saw Alibaba obtain the right to take the controls of Yahoo china, under the Yahoo brand for up to four years. Yahoo China later shut down its email service and web portal, but the brand kept a global research and development centre in Beijing operational until 2015 when it was shut down.
Last month, Microsoft’s LinkedIn social network also exited the Chinese market, citing a “significantly more challenging operating environment and greater compliance requirements in China.” The departures of these giants from the Chinese market should not come as a surprise in light of President Xi Jinping’s government’s tough restrictions imposed on tech companies. The exit of these companies from the Chinese market illustrates the difficult conundrum Tech multinationals find themselves in when faced with a potentially huge market guarded by tight restrictions.
The country has a 5-year plan that illustrates the lengths to which the government is willing to go to control monopolistic behaviour and regulate technological innovation. The Chinese authorities called in “law enforcement” to monitor areas of “vital interests of the people,” including financial services, education and tutoring.
One might ask, “Won’t these exits leave a huge void in the Chinese markets?”.
The answer to this question depends on which perspective you choose to focus on; yes, foreign tech companies and all the advantages they offer the consumer are no longer available in the marketplace, but on the other hand, the void was filled by local Chinese companies that work within the purview of the Chinese government laws. For instance, the search engine, Baidu, has replaced Yahoo and Google in China, while social media platforms like WeChat and Weibo are the leading options available in the market.
Yahoo’s departure places an even bigger spotlight on the heavy-handed measures taken by the Chinese government against foreign companies operating within its jurisdiction. The government enacted a new Personal Information Protection law designed to protect online user data and privacy, which came into effect on Monday. Chinese regulations also stipulate that companies operating within its borders must hand over data requested by authorities, which might violate their home country laws.
The situation is tense and doesn’t look like it will blow over any time soon. We cannot speculate about whether the crackdown of foreign tech companies operating in China is part of a bigger conversation. All we can say is that the mountain will be difficult to climb for tech startups looking to one day conquer the Chinese market.