Yahoo, Alibaba and eBay

WSJ writes in the wake of the Yahoo-Alibaba deal in China:

Yahoo will pay $1 billion and hand over all of its Chinese operations to Alibaba in return for a 40% equity stake in the Chinese company. Yahoo will become Alibaba’s biggest outside shareholder, taking one seat on Alibaba’s four-person board, and will have 35% of the voting rights in the company. Part of the $1 billion will go to buy existing shares from current shareholders.

The deal marks a supreme vote of confidence in Mr. Ma, whose knack for bold statements and charismatic leadership has helped build his company but has rankled local and foreign competitors along the way. The Yahoo connection will cement the 40-year-old as one of the most prominent public faces of China’s new entrepreneurial culture and give him a much larger platform from which to pursue his ample aspirations.

The tie-up will create a company with a formidable presence across all major segments of the Internet industry in China, combining Alibaba’s existing business-to-business and consumer-auction sites with Yahoo’s stable of Chinese search engines and communications services. Executives said the transaction values closely held Alibaba, which reported revenue last year of $46 million, at more than $4 billion.

Another WSJ article writes about its challenges in China: “…in China — whose 100 million Internet users are second only to the U.S. — eBay officials have had to modify their expansion playbook to deal with unusual challenges. Chinese consumers are generally less affluent than eBay users elsewhere and have shown reluctance to buy items from strangers via computers, which is what eBay is all about. A relatively small 6% of Chinese have computers at home. That means many users log on at Internet cafes, where they are much less likely to launch a major shopping or selling spree. And now there is the suddenly more imposing Alibaba, based in Hangzhou and backed by Yahoo and Softbank.”

Also read what Bill Bishop has to say: “No question this creates a monster in the China Internet. It will have a powerful combination of search, communications, commerce and auctions. All they need is a game component and they could have a shot at becoming number one…This deal is potentially disastrous for Ebay in China.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.