Alibaba and Yahoo Set to Shake Things Up

A first mover in China’s Internet market, but never the top tier player,
Yahoo pushed $1 billion into the game this week to buy a
big chunk of Alibaba, China’s largest e-commerce site.

But was the hefty price, which included adjusting existing assets in
China to acquire a 40 percent stake in Alibaba, a savvy move, or possible
miscalculation that may end up draining company resources in the
region?

Alibaba, dubbed the ‘Chinese eBay’, last year earned a mere $46 million
in the world’s second-biggest online market. That fact alone has some
analysts questioning the costliness of the move, but most seem to believe it means
big things for both companies.

“No question this creates a monster in the China Internet,” Bill Bishop,
CEO of Red Mushroom and co-founder CBS MarketWatch, said in his blog. “It
will have a powerful combination of search, communications, commerce and
auctions.”

Alibaba
operates three sites:
Alibaba International, a worldwide
English-language business-to-business play; Alibaba China, the local online
marketplace for business-to-business dealing; and TaoBao, a free eBay-like
consumer e-commerce marketplace.

“All they need is a game component and they could have a shot at becoming
number one,” wrote Bishop in his blog.

Yahoo launched a
Chinese-language version
in September 1999 but for the most part failed
to capitalize on its brand name. In January 2004, it partnered with the
Chinese portal Sina.com to create an online auction marketplace aimed at
small- and medium-sized businesses and buyers and sellers in mainland China.

Although the previous forays into China didn’t yield as much fruit as
Yahoo initially believed they would, many analysts say the Alibaba move is spot on.

And that could spell trouble for eBay. Alibaba’s
Taobao consumer auction site was already more than competitive against eBay
before this move.

“This deal is potentially disastrous for eBay in China,” said Bishop.
“Taobao was eating its lunch on a small budget; now they have the backing of
Yahoo to ramp up their efforts several notches.”

This week Standard & Poor’s Equity Research reiterated a “hold” rating on
eBay, saying the deal between Yahoo and Alibaba is a negative for the online
auction company.

Global Sources Chairman and CEO Merle Hinrichs, whose company competes
with Alibaba, and has a strategic agreement with eBay, disagrees with the
doom and gloom assessments being tossed eBay’s way.

“Well, we’re probably as puzzled as many about the pricing of this
transaction,” he said a statement.
“Yahoo… doesn’t really change the competitive landscape for us.”

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