Yahoo in Deal With China Online Trader
Aug. 11–Yahoo is investing $1 billion in Chinese online trading company Alibaba and ceding control of its operations in China to the company, a move that could reshape that country’s Internet landscape and boost the Sunnyvale company’s presence there.
The Internet company said it is buying a 40 percent stake in Alibaba and combining its Chinese properties with Alibaba’s, creating a wide-ranging player in China’s fast-growing Internet market.
Yahoo co-founder Jerry Yang said the partnership combines the No. 2 Chinese online auction site — Alibaba’s Taobao — with Yahoo’s Internet search service, which the company says is the second-leading search site in China, behind Baidu. The new operations will carry the Alibaba name, but Yahoo will continue to be a “very prominent brand,” Yang said in an interview with the Mercury News.
“Alibaba will be the company that grows and hopefully cultivates the Yahoo brand in China,” Yang said. “The combination really gives Alibaba the breadth and depth of leading assets that is really unrivaled in China. They will be the only company in China to have leading search and auction assets.”
Yahoo Chief Executive Terry Semel said the Alibaba partnership is similar to its presence in Japan, where Yahoo is the second-largest shareholder of Yahoo Japan.
“It’s one company that combines all the assets of both companies, giving the company the opportunity to be really, really strong in each of the three or four most important areas of the Internet, from search to commerce to communications.”
Yahoo said the deal was expected to close in the fourth quarter of 2005.
The partnership could boost Yahoo’s fortunes in China, where observers say some of the company’s business ventures have failed to perform as hoped.
In contrast to its dominance of the U.S. market, Yahoo China is the fifth most-visited Web site in China, rated the top site by just 6 percent of Internet users, according to a recent study. That puts it well behind other portals such as Sina, Sohu and NetEase and search engine Baidu.
In 2003, Yahoo China acquired 3721, a Chinese company that makes a popular browser plug-in that lets people easily access a Chinese-language online business directory. It also partnered with Sina last year to launch an online auction site similar to eBay. Those operations will move under the control of Alibaba.
“They are not a leading portal in terms of brand awareness or traffic,” said Dick Wei, analyst with JPMorgan Technology Research in Hong Kong. “There have been lots of management issues.”
But Semel took exception to the view that Yahoo China has underperformed. He says that Yahoo runs the second-leading search site and e-mail service in China, and only entered the auction business a year ago.
“When you think long-term in China, the revenues and profitabilities are in their very early stages,” Semel said.
Alibaba is viewed as a highly successful Chinese company with grand ambitions. Led by its brash Chief Executive Jack Ma, the privately held company based in the eastern Chinese city of Hangzhou runs two business-to-business trading sites, one international and one that is China-only. Together, members of the two sites sold $4.5 billion worth of goods in 2004.
Alibaba expanded its reach two years ago with the launch of Taobao.com, an eBay-like auction site for consumers that now commands about 40 percent of the online auction market. Unlike eBay’s auction site in China, eBay-Eachnet, Taobao does not yet charge for listings, considerably boosting its popularity.
The total value of goods traded on Taobao in the second quarter of this year was $200 million, according to the company.
Analysts said Yahoo was likely attracted by Ma’s charisma and marketing acumen.
“Jack Ma is very good at promoting things,” said Jim Sun, a Shanghai-based technology industry analyst with Evolution Securities. “I believe Yahoo China really needed to find a good, strong leader.”
The combined venture will have a four-person board. Alibaba’s management will hold two seats, with Ma serving as chairman. Yahoo’s Yang and a representative of Softbank will also be on the board. Yahoo will have 35 percent voting interest in Alibaba.
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