Microsoft Will Expand MSN in China

By Reed Stevenson and Doug Young

SEATTLE/SHANGHAI (Reuters) - Microsoft Corp. said on Tuesday it would form two new ventures for its MSN Internet service in China, becoming the latest player to expand in the crowded market.

The deals will allow Microsoft to offer "the full gamut of what a true Internet portal should be" in China, said Bruce Jaffe, a Microsoft, chief financial officer of the MSN division.

"We have been looking at China for quite some time," he said.

Microsoft already offers MSN services such as Hotmail and Messenger services in Chinese, but the new joint venture will offer more communication, information and content beginning this spring, the company said.

Microsoft also said that it would buy assets from Chinese mobile phone software provider TSSX to offer MSN-based services to China's 340 million mobile phone users.

China is the world's second-largest Internet market with 94 million users at the end of 2004, a number expected to rise to 134 million by the end of this year, according to official data.

Microsoft -- which already operates a China site at -- is a relative bit player in a market where Yahoo Inc. eBay Inc., Inc. and InterActiveCorp have made a string of acquisitions. Google Inc. said on Wednesday it got a business license for China and bought a China-based Web domain.

Microsoft's late entry, coupled with its strategy of working with relatively unknown partners, means it could face a tough time gaining traction, said one analyst who spoke on condition his name not be used.

"If you look at what Yahoo has done ... they had to pay quite a significant sum of money" to acquire an existing search engine in China, he said. "This may be a better way in China -- to take over a key player in a particular area."

The entry into the mobile services market would put Microsoft competition with a host of homegrown start-ups such as Sina Corp., Inc., Linktone Ltd. and Tom Online Inc.

Those companies rose to profitability -- and saw their shares soar as well -- by offering short messaging services (SMS) over mobile phones. but many have lately fallen out of favor amid a government-led cleanup of the industry.

Microsoft has long seen China as a key growth market, but also a headache because of widespread software piracy and copyright issues.

Censorship has been a major problem for many Internet players, who voluntarily block searches and other links to sensitive subjects like the Falun Gong spiritual movement and the 1989 crackdown on pro-democracy protestors in Tiananmen Square.

Microsoft and Beijing have become closer in recent years, with the Redmond, Washington-based company opening up a research lab in Beijing in 1998.

Microsoft formed one of the two ventures, an MSN China joint venture, with government-operated Shanghai Alliance Investment Ltd. (SAIL) to develop MSN products and services more closely tied to China.

Copyright 2005 Reuters Limited.

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