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Yahoo Ups Stake in China Web Market

Posted on: Friday, 12 August 2005, 18:00 CDT

BEIJING (AP) -- Yahoo Inc. is paying $1 billion in cash for a 40 percent stake in China's biggest online commerce firm, Alibaba.com, strengthening the ties that international companies are forging in the world's second-largest Internet market.

Yahoo said it will merge its China subsidiaries into -Alibaba as part of Thursday's deal, the biggest in a flurry of investments by foreign Internet firms eager for access to -China's soaring number of Web users, now pegged at 100 million.

"This is Yahoo getting much bigger in China," Daniel Rosensweig, Yahoo's chief operating officer, said at a news conference in Beijing with Alibaba founder Jack Ma.

Alibaba runs a Web site that matches foreign buyers with Chinese wholesale -suppliers, plus the popular consumer auction site - Taobao.com, which competes with the Chinese subsidiary run by eBay Inc., the world's top -online auction company.

Rosensweig said the -alliance creates an entity with assets to compete across the full range of Internet businesses -- online commerce, e-mail and search engines. He expects China to become the world's biggest Internet market within five years.

The deal extends Sunnyvale, Calif.-based Yahoo's strategy of breaking into Asian markets by connecting with strong local partners. Yahoo and its Asian partners are now major forces in online auctions in China, Japan, Taiwan and Hong Kong, said Porter Erisman, Alibaba's vice president for international relations.

"This is really probably the knockout blow for eBay in China," he said. "This is going to make it hard for eBay to win in Asia."

EBay, which bought the Chinese auction portal Eachnet for $180 million in 2003, rejected suggestions that the Yahoo-Alibaba tie-up was a threat. EBay's share of China's auction market is 65 percent, according to Shanghai iResearch. TaoBao had 29 percent in 2004.

"It's business as usual for us," said eBay spokesman Hani Durzy in San Jose, Calif.-

That sounded like careful posturing to Hoefer and Arnett analyst Martin Pyykkonen. He noted that eBay CEO Meg Whitman has predicted that China will become the company's biggest market in five years, so the Yahoo-Alibaba alliance signifies "more than just a casual threat," he said.

China is expected to be a significant profit center for eBay this year or next, but eBay needs to start capitalizing on its investments in the country in 2007 and 2008 to propel earnings growth, he said.

EBay is expected to invest about $100 million in China this year, Pyykkonen estimated.

Source: Columbian

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