On Oct 16th China Real Estate Information Corporation (NASDAQ: CRIC), a joint venture between Chinese portal Sina Corporation ((USA) NASDAQ: SINA) and realty agency E-House (China) Holdings Ltd.(NYSE: EJ), IPO’d on the NASDAQ and jumped 18% on its first day of trading. The stock, whose IPO price is $12, had a run of up to $17 last week, but is now more modestly priced at $14. That gives CRIC a market cap of US$1.96B, just US$300MM shy of Sina’s current market cap of US$2.24B. Sina owns 33.35% of CRIC (E-House owns 50.04%).

The IPO is an indication of the new ambitions of Chinese Internet portals, and also fits with the general strategy outlined by Sina management after their failed merger with Focus Media Holding Limited ((ADR) NASDAQ: FMCN) . This IPO is the third spin-off IPO of a major Chinese Internet player, after Sohu.com Inc. (NASDAQ: SOHU) spun-off Changyou.com Limited (NASDAQ: CYOU) and Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) spun-off Shanda Games Limtied (NASDAQ: GAME).

CRIC is not the industry leader in the real estate vertical space in China. That honor belongs toSoufun (which literally means “house search”). Sohu’s Focus is second in market share, while Sina’s vertical (now injected into CRIC) is third. After the CRIC IPO, Soufun seems to be stepping up the pace of its own IPO plans. In an interview with QQ.com (link in Chinese), Soufun CEO Tianquan Mo expressed that “major announcements will be made soon.” Earlier in June he had expressed that Soufun is considering an IPO in 2010.

Meanwhile, Zeng Fuhu, a VP at Sohu Focus comments (rather skeptically):

“Just like China.com was the first portal to IPO, while you get some first mover advantage, being the first to IPO doesn’t affect the competitive landscape.

Spin-offs aren’t the only way an Internet company can grow. Compared to western counterparts, Chinese companies seem to see this as an effective way to incentivize employees, but it’s not right to over-emphasize spin-offs… Most US Internet companies like Yahoo and Google have never done spin-offs.”
– Zeng Fuhu, Vice President, Sohu Focus Network

While Mr. Fuhu’s remarks sound rational, the wave of spin-offs and vertical portals seeking IPOs appears to be just beginning. It may not be too soon before Sohu also considers spinning off Focus.

Well, headlines today are certainly a surprise (at least for me – I haven’t been following this space closely). Sohu, who has just led the formation of a “Online Video Anti-piracy Coalition” (my translation) with some other web partners, has decided to sue Youku.com 50-100MM RMB (about 8-15MM USD) for copyright infringement. A quick google search shows that lawsuits in this space have been heating up – earlier this year H.Y. Brothers, the leading local private film studio, sued a bunch of Internet properties (including Sohu and Youku); and before that Youku had also sued competitor Tudou.

While it’s clearly obvious that these lawsuits are tactics to pursue vested interests, I feel they are helping to push the industry towards a more mature stage where laws and regulations are properly enforced. One reason businesses like Netflix and Hulu don’t exist in China is because the cost of piracy is so low. Of course, Chinese consumers are spoilt in the sense that they have become accustomed to the fact that almost all forms of home media entertainment are free or very cheap (thanks to piracy), so any movement to enforce adequate copyright laws will be met with consumer resistance. But it should be clear that real businesses shouldn’t be founded in the hope that they will thrive due to the piracy environment – free may be a business model, but piracy isn’t.