Who’s 91? Why’d Baidu Buy It? Baidu, 91 Wireless deal epitomizes mobile internet scramble

Who’s 91? Why’d Baidu Buy It?

By Tracey Xiang on July 17, 2013

$1.9 billion. It’d be, so far, the most expensive deal in China’s Internet history if Baidu successfully bought 91 Wireless. So who’s 91? Why 91?

Who’s 91?

91 started as iPhone PC Suite, an iPhone software managing tool. The developer, Xiong Jun, sold it to NetDragon for 100 thousand yuan in 2008, not long after its launch. Xiong developed 91 Assistant after joining NetDragon. Later in 2010 he left it to found Tongbu, an iOS software & content manager backed by Innovation Works. 91 Assistant got much traction as Chinese users with jailbroken iPhones could download paid apps from it for free. It reportedly had three million users in early 2010 that accounted for over 90% of jailbroken iPhones in China. It expanded to Android in 2011 by launching HiMarket, a third-party Android app market. In the same year its parent company decided to spin it off and planned to have it go IPO.The company later developed a number of apps and services in-house, including mobile reading app Panda Reading, mobile video player Panda Player, custom Android home replacement 91 Launcher, news site sj.91.com, among others.

Its major revenue sources are mobile games and advertising. Revenue shares from third-party game developers accounts for about half of its total revenues. The rest is from paid apps such as 91 Launcher. It made a total of 280 million yuan (about $45.5 mn) in revenue in 2012.The management of NetDragon expected 91 to make six to eight million yuan in profit in 2013, according to its Q113 earnings conference call.

On its platforms there were 200 million users, 900 thousand apps and 100 thousand developers, 91 CEO Hu Zeming disclosed at GMIC2013 two months ago.

Its direct competitors include AppChina, Wandoujia and Gfan. All the third-party app markets in China are operated in a similar way. But 91 turns out to be one of the largest — if not the largest. 360 Mobile Assistant, similar to 91 Assistant, is a rising competitor to above-mentioned app distributors. It, actually was developed with the help from 91, but it seems the partnership between its parent company Qihoo and 91 didn’t last long.

Why 91?

Baidu needs a powerhouse in order to get a better positioning in the mobile market. It was reported that Baidu approached other app distributors as well. The rumor that the company wanted to acquire UC Web, a mobile browser company, lasted for a long time.

No matter what Baidu is to acquire, an app distributor or a mobile browser, the strategy sounds like one the company adopted years ago and succeeded with. Hao123, one of the largest directory websites almost a decade ago, was bought by Baidu in 2004. Although it was used by Chinese users for clicking open the most visited websites listed on its homepage, it helped a lot on driving search traffic after a Baidu search box was placed onto it. Qihoo and Sogou came up with a similar strategy to monetize their large user bases. An app distributor can just work in the same way.

Speaking of this, Qihoo, who is believed to become Baidu’s direct competitor, has been ahead of Baidu with 360 Mobile Assistant — Yes, before the acquisition of 91. Qihoo is working hard to catch up with Baidu in search. It was rumored the two were fighting to acquire Sogou, the third biggest search service in China after Baidu and Qihoo.

But the 91 deal sounds too expensive. It was reported that 91 was valued at $140 million when raising Series B funding in late 2011. Earlier this year the valuation was reportedly $350 million when NetDragon tried to introduce new strategic investors. NetDragon has always been a wise seller that sold 17173, a news site on games, to Sohu in 2004. With the money from there it started developing online games and become what it is today.

Baidu, 91 Wireless deal epitomizes mobile internet scramble



The attempt by China’s biggest search engine, Baidu, to buy a leading apps platform epitomizes Chinese internet giants’ quickening steps in capitalizing on the mobile internet, even though some question if the company to be bought is worth the price offered.

NASDAQ-listed Baidu announced on Tuesday its bid to buy all equity interests in smartphone apps distributor 91 Wireless Websoft for US$1.9 billion. The deal, if completed, will mark China’s biggest merger and acquisition in the internet market after Yahoo’s US$1 billion deal with Alibaba in 2005.

Analysts viewed the alliance as complementary in that Baidu will promote 91 Wireless’s smartphone app distribution systems, and in return, Baidu will be better able to contend for a position as a leading access portal for the mobile internet.

“Through the acquisition, Baidu not only gains access to app distribution, it will also attract around 100,000 app developers to its own platform in the future,” according to Ge Jia, an internet analyst who was quoted in a Tuesday report by the Beijing News.

Ge said that digital mapping, voice, and app distribution represent the three battle grounds in the mobile internet market in the future, and the deal could turn around Baidu’s current disadvantages in a market that already boasts strong rivals including Tencent and Alibaba.

On the same day as Baidu’s announcement, China’s e-commerce giant Alibaba also confirmed that it has made a strategic investment in outbound travel site qyer.com, as it seeks to boost its travel offerings, including plane tickets and hotels, on its marketplace site Taobao.

Industrial analysts even labeled this year’s mergers and acquisitions in the internet industry as major players’ efforts to split the mobile internet market and obtain a lion’s share.

In May, Baidu announced its plan to buy the online video business of PPS in order to rival industry leader Youku Tudou. Just one month earlier, Alibaba revealed it would take an 18% share in Sina Corp’s microblogging service Weibo and a 28% stake in digital mapping company AutoNavi Holdings.

Ge Jia said that Baidu expects to attract large numbers of advertisers through its purchase of 91 Wireless. Data shows that 12.9 billion apps had been downloaded through 91 Wireless’s two leading smartphone app distribution platforms in China as of Dec 2012.

However, some believe that the US$1.9 billion tender by Baidu is too high for a company with an estimated value of only US$140 million two years ago.

“Baidu has no better choices because its strategic arrangements for the mobile internet came too late and it has been at a disadvantage. So it is seeking to change the status quo through the costly deal,” said Wang Jun, a mobile internet analyst with Analysys International.

Data from the China internet Networks Information Center show that China’s online population reached 564 million as of the end of last year, with more than 74% of them, or 420 million, using cell phones to access the internet.

“The internet giants will not miss any opportunity amid the boom of the mobile internet,” said IT commentator Hong Bo. In a report published Tuesday by the China Business News, Hong said that Alibaba’s advantages lie in its strong capabilities to do business, while Tencent has flagship apps including WeChat, a free app that enables all-round communications in text, voice, picture and video form.

However, the commentator added that with advantages in technology, Baidu is also seeking to become a titan in app distribution through the acquisition of 91 Wireless.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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