17 March, 2010 |

AOL Reportedly Nearing Major Chinese Deal

America Online, Inc., is expected to play its long awaited China card as early as next week according to various news sources. Both Reuters and the Asian Wall Street Journal are reporting that AOL and Legend Holdings, China's largest computer maker, will close a $200 million deal that will give AOL access to China's 22 million Internet users. The story was originally leaked by BetaNews.com a month ago.

The two companies are expected to invest $100 million each in a joint venture to develop interactive services and share equal representation on the board of the newly formed company, although Legend would own 52 percent of the company because of China's foreign ownership laws. Just as it did in its U.S. market strategy with various computer makers, AOL is expected to bundle its software with the computers manufactured by Legend, which controls a 28.9 percent share of the Chinese computer market.

It is also being reported that AOL and Legend are in talks with the three major Chinese portals, none of which are profitable, about possible acquisitions to provide the AOL-Legend venture with instant Chinese language content.

The Dulles, Va.-based AOL currently has operations in 16 foreign countries in eight languages but has so far made little impression in the Far East, trailing competitors in Japan, Taiwan and China.

But an AOL-Legend deal may not be a formula for success in China, where content on the Internet is tightly controlled and current Internet service providers are offering free service. The Chinese government requires portals to buy their news from government-controlled agencies, which will seriously curtail AOL from using content from its vast AOL Time Warner, AOL's parent company, properties.

Without the ability to use sources such as Time Magazine and CNN, it is still an open question whether Chinese consumers will be willing to pay for AOL services.