CDC Corporation. (NASDAQ: CHINA), the company behind China.com and many other businesses and the first Nasdaq-listed Chinese internet company has filed for bankruptcy protection, highlighting the company’s years of struggle has finally accumulated to the extent that it couldn’t deal with anymore, driving the company’s stock down more than 50% on Nasdaq.

Founded in 1997, China.com Inc. went public in1999 as the first Chinese internet company ever listed in Nasdaq even before Sina (NASDAQ: SINA), Sohu (NASDAQ: SOHU) and NetEase (NASDAQ: NTES) did. However, a succession of missteps eventually led the company to the recent bankruptcy protection filing.

To sum up, the Hongkong-based company came to today’s crisis for its lost of focus, unsuccessful and aimless expansion and diversification, blind merger and acquisition and inability to consolidate a disparate of businesses – most of which are acquired.

 

Rise and Fall

China.com had its glorious past. The company’s share price once surged to US$ 220.31 with valuation of over US$ 5 billion in Febr. 2000. But the past has passed. Last we check its share declined to US$ 0.42 with market capitalization of US$ 14.77 million. It’s like riding a roller coaster, the company had its rises and falls, ups and downs, and eventually, it’s getting down now.

On July 22nd of this year, the roller coaster rider announced that it received a non-compliance notice from the Nasdaq Stock Market for failing to timely file its annual report on Form 20-F for the fiscal year ended December 31, 2010.

 

It’s All Capital

If we take a closer look, we’ll find out that the China.com story is a capital story.

In 2005, the company changed its name to CDC Corporation (中华网投资集团), get started its acquisition game and capital story. The company acquired into several forefronts including wireless value-added service, online gaming and software manufacturing, a highly diversified combination.

After its major restructure in 2006, the company divided itself into four spin-offs:

 

  • CDC Software (NASDAQ: CDCS), claiming to be a hybrid enterprise software provider of on-premise and cloud deployments.

The company boasted its recent acquisitions as part of its “acquire, integrate, innovate and grow” strategy.

Perhaps CDC Software has just made real the first keyword of its strategy, “acquire”, but no “integrate, innovate and grow” yet.

  • CDC Global Services, provides IT consulting services, including platform-specific services.
  • CDC Games, adopted “free-to-play, pay-for-merchandise” online games model.
  • China.com, portal business, ranked 256 on Alexa, as compared to QQ (#10), Sina (#17), NetEase (#28) and Sohu (#44).

 

According to Ye Keyong, one of the company’s co-founder, “with money we can take advantage of the first-move edge and make up deficiencies through acquisition and new rounds of funding.” It’s not too hard to get his point when scrutinizing the company’s development trajectory.

Take CDC Software for example, the software vendor’s strategy reflects on its and even CDC Corp.‘s operating philosophy: to acquire and then integrate/consolidate to grow. Unfortunately, it might succeed in acquiring but fail in integrating and consolidating.

CDC Software got listed in Nasdaq in Aug. of 2009 and raised US$ 57.6 million while large chunk of the funding went towards an acquisition spree that till the end of last year CDC Software grabbed 16 companies into its pocket.

However, the giant matrix comprised of dozen of companies amounts to nothing when it comes to significantly boosting its revenue and profit.

 

A Series of Unfortunate Missteps

China.com had its chances, many times, but it screwed up by stepping in the wrong direction and missing the opportunities to rise – or at least to keep itself on par with other portal sites in China.

In the first few years of this century, when Sina, NetEase and Sohu strived to sell ads on their webpages, China.com decided to invest heavily in internet solutions, a withering business in China. When the other three big portals saw the potential in wireless value-added service (WVAS) that later on being proved to be a huge booster to their revenue and help them turn around, China.com turned a blind eye to this till more than 2 years later, the company acquired WVAS provider Newpalm.com for US$ 14 million, but only to see monthly revenue of about US$ 47k. And the company still missed the golden era for WVAS.

In the beginning of 2004, MIIT, Ministry of Industry and Information Technology of China started promulgating regulations on the then hot area, put an end to the chaotic but profitable market. In the years between 2000 and 2004, SP business in China saw wild and unregulated growth, but as more and more players flocked into the market with mounting and disordered competition and declining profit, the golden era for WVAS initiatives has gone forever. That’s when China.com chose to dive into the market, and of course that business didn’t fare well.