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Yahoo Dealing for a Big Move into Chinese E-Commerce

Posted on: Tuesday, 9 August 2005, 09:00 CDT

Yahoo, one of the biggest Internet companies in the world, is negotiating to acquire a stake in Alibaba.com, the largest Chinese e- commerce company, people familiar with the talks said Monday.

The two Internet companies have held discussions for months, and it is still unclear whether they will reach an agreement soon, these people say. But an alliance between Yahoo and Alibaba would greatly intensify competition in China's growing Internet auction market.

The deal could result in one of the largest foreign investments ever made in a Chinese technology company, and it seems certain to create an even stronger competitor in China for eBay, the online auction giant.

People who have been briefed on the discussions say that Alibaba.com has been eager to raise more cash and find a partner before offering shares to the public and that Yahoo has been seeking to make a larger push into China.

One of the largest investors in Alibaba.com is Softbank of Japan, which also holds a sizable stake in Yahoo. Officials at Yahoo and Alibaba.com declined to comment on reports about the negotiations. Forbes magazine, which was the first to report on the discussions, said on its Web site on Sunday that Yahoo might spend as much as $1 billion to acquire a 35 percent stake in Alibaba.com.

Some of the largest technology companies are racing to extend their reach in China in hope of profiting from its explosively growing online market.

"Everyone's trying to tap into the high-growth Internet space in China," said Dick Wei, the China Internet analyst at J.P. Morgan. "Right now only about 8 percent of the population is using the Internet. But it's growing very fast."

As a result, Microsoft, Yahoo, Google, eBay and Amazon.com are all scrambling to invest more money or to find strategic partners in China, where there are now an estimated 100 million regular users of the Internet. By some forecasts, China will overtake the United States to have the largest number of Web surfers as early as 2010.

In the past few years, Amazon.com has acquired Joyo.com, the largest online bookseller in China, for $75 million; eBay has bought the Chinese auction site Eachnet for $180 million; and Yahoo has purchased a Chinese search engine called 3721.

Yahoo's discussions with Alibaba.com are also a barometer of the dot-com excitement and the flood of speculative capital that now surround Chinese Internet and technology companies.

Shares of Baidu.com soared 353 percent on Friday after its stock made its debut on the Nasdaq market in the United States, creating the most valuable technology company in China, with a market value of about $4 billion. It was the largest opening-day gain for any Nasdaq stock since the dot-com bubble burst in 2000. Baidu, which operates the most popular Chinese search engine, had about 700 employees and $13 million in revenue in 2004. The stock slipped $7.04 on Monday, its second day of trading, to close at $1115.50. Other Chinese companies are also trying to cash in on the country's increasingly technically savvy consumers, who are using instant messaging, downloading movies and swapping goods online.

Companies listed on Nasdaq like Shanda Interactive Entertainment, Sina, Sohu.com, Ctrip.com and Netease have become household names in China's biggest cities and have given rise to the country's own cadre of dot-com millionaires.

U.S. venture capital firms have been trying to invest millions of dollars in Internet start-ups in Beijing. Last month, Accel Partners, one of the largest venture capital firms in Silicon Valley, said it was going to help form a $250 million fund to invest in Chinese technology companies.

Alibaba.com, which bills itself as the world's largest business- to-business Web site, is considered one of the most important online franchises in China. The privately held company, founded in 1999 by Jack Ma, a former English teacher turned technology entrepreneur, has more than 10 million registered users swapping products online.

Based in Hangzhou, Alibaba.com has gone head to head with eBay in China and expects to have revenue of $100 million this year. The company even created Taobao.com, its own no-fee consumer-to- consumer auction site, which is competing more directly against eBay in China.

People familiar with the talks say Softbank has played an important role in coordinating Yahoo's discussions with Alibaba.com.

Analysts say one reason Yahoo wants a large stake in Alibaba.com is that it has struggled in the Chinese market.

"Yahoo hasn't done great business since the company entered the mainland market in 1999," said Lu Weigang, an independent Internet analyst based in Beijing. "If Yahoo wants to tap the business market, Alibaba.com is the best choice."

***

John Markoff contributed reporting from San Francisco.

Source: International Herald Tribune

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