On March 12, China’s two leading online video sites – Tudou and Youku – surprised the tech industry by announcing something few pundits would have picked: A merger. Two days ago, I sat down with Tudou’s co-founder, Marc van der Chijs, in his Shanghai office and asked him if the merger felt weird. The Dutchman averted his eyes, rubbed his chin with his right thumb, lowered his voice, and said, “Yeah.”
He then closed his eyes for a split second, before saying it again: “Yeah”. This time, he quickly added: “But then again, it’s a business decision. I still like Tudou a lot more than Youku, to be honest,” and with those last couple of words he let slip a little laugh.
Van der Chijs, who has been living in China since 2002, started the video-sharing company with CEO Gary Wang in October 2004. The two had met at a Formula One event in Shanghai and later discussed Van der Chijs’s idea for a podcasting Web site during a round a golf. Wang started the site the next day, and it soon morphed into a video platform.
On April 15, 2005, the site went public as “Toodou,” a deliberate misspelling of the Chinese word for “potato”. Incidentally, that was eight days before Jawed Karim uploaded the first video to YouTube, a little-known fact that is oft-overlooked by reporters who have insistently called it a “YouTube clone”. (Tudou would later purchase the tudou.com domain name from an apparently clueless potato company.)
In the seven years since, Tudou, like Youku, has grown into a major media channel, producing original content as well as benefiting from hosting its fair share of pirated TV shows and films. Youku, which launched in June 2006, has a very similar offering but would ultimately become the leader, claiming about 22 percent market share to Tudou’s 13 percent. In February 2010, the two agreed to share original content in a combined effort to stave off outside competition.
As part of the $1.1 billion merger, Youku agreed to acquire Tudou to form Youku Tudou Inc. (Update: A reader has pointed out that the name, amusingly, translates to “Excellent Cool Potato”). Together, they will be gigantic. Each site claims 250 million to 300 million unique monthly users, and they own a third of the online video market, which, like most Internet sectors in China, is very fragmented. Baidu’s iQiyi and Ku6 are among the other major players in the space.
Youku got a cash advantage over Tudou by going public first, listing on the New York Stock Exchange in December 2010. Tudou listed on the Nasdaq in August last year. Right up until the merger announcement, the two had been fierce rivals. Just a month before, Youku filed a lawsuit against Tudou, claiming the latter’s “unfair competitive practices” had hurt its share price and business.
So you can imagine Van der Chijs’ mixed emotions. But then, he’s quick to see the upside, and, as a shareholder, he no doubt enjoyed the benefits of the pop in Tudou’s share price, which tripled on news of the announcement. Van der Chijs, who was careful not to discuss stock information while the merger is still being finalized, is optimistic for the future of the new company. “I think Tudou and Youku together can actually do a lot more than Tudou could alone and Youku did alone,” he said. “So although it feels a bit weird, I really think it’s the right decision.”
He’s confident about the role Internet video will play in China’s media mix. “I’m optimistic about the online video market in general, and if two big companies team up, I think they can together do really interesting things over the next few years.”
Indeed, the opportunities seem to abound, especially as high speed Internet continues to spread into even the poorest parts of the country and smartphones proliferate. The New York Times also points out that the evolving regulatory environment may soon allow online video sites to compete directly with state-controlled television. For his part, Van der Chijs reckons “online video’s going to be hugely lucrative all over the world.”
The serial entrepreneur recently started a new company, unitedstyles, which allows users to design, share, and buy their own fashion. It was a finalist at last year’s TechCrunch Disrupt in Beijing. He also serves as an advisor to social gaming company Spil Games, for which he served as CEO between 2006 and 2011. He stepped down from Tudou’s board in 2010.
Ultimately, Van der Chijs told me, the merger was “a logical thing” and inevitable.
“It’s better for the number one and number two to team up together, because you make a much bigger company, with much bigger market share, [and have] much more efficiencies of scale. So I think it was meant to happen, in a way.”