Yahoo Reportedly Eyeing Stake in China's Alibaba

A rumored deal whereby Yahoo (Nasdaq: YHOO) would purchase a US$1 billion stake in Chinese e-commerce company Alibaba is highlighting the efforts by U.S. companies, also including eBay (Nasdaq: EBAY) and Google (Nasdaq: GOOG), to get deeper into the Chinese market. This difficult endeavor includes issues of resistance to foreign investment and local competition, as well as censorship and human rights concerns.

Nevertheless, companies such as Yahoo are aggressively pursuing strategies, investments, acquisitions and dealings with the government as they look to tap what is generally considered potentially the largest consumer market in the world.

"American companies, everybody, is waking up," Yankee Group senior analyst Laura DiDio told the E-Commerce Times. "Everybody is acutely aware that China represents a huge, untapped market. That's 80 million new cell phones," she added as an example. "It's a staggering amount."

Target Market

Published reports this week indicated Yahoo was in negotiations to take a major stake in Alibaba, a local business-to-business (B2B) company that operates both auction and trading Web sites. While there was no confirmation of the reports from Yahoo, the supposed talks fall in line with a number of U.S. company efforts amid higher interest and valuation of Chinese Internet companies.

Earlier this month, Chinese search company Baidu saw huge leaps in its valuation with an IPO, causing some to speculate an Internet bubble similar to what happened in the U.S. five years ago might be taking shape in China.

While there is little argument over China's significance, there was also speculation that Yahoo's reported Alibaba interest was a sign Yahoo's own Chinese auction site, 1pai.com.cn, was not bearing fruit.

Yankee Group's DiDio said while the U.S. and North American markets are not saturated, product lifecycles have lengthened, and China represents a much more fertile marketplace.

"This is a great market to sell into, and it's more of a services market, and it's not something even the communist government can regulate," she said.

DiDio added that U.S. companies -- Yahoo, AOL, MSN, Google -- are all attempting to get into the Chinese online market before homegrown equivalents from China make it even more difficult.

Unstoppable Wave

Issues of censorship and other political matters are unlikely to hold up China's emergence as the world's top market for technology, software and services, both from China's perspective and from U.S. companies that must undertake a "tricky tap-dance" when working in the region, the analyst said.

In addition, the Chinese government has actually opened up on its control of Internet use. Regardless of the government's action, the analyst indicated the Internet is likely to combine with China's population to create an unstoppable force.

"It's hard to hold back the tidal wave of Internet usage," DiDio said. "This is not state-run television."

Learned Their Lesson

Although there have been some arguing that there is a bubble forming around the Chinese and Indian markets, Frost and Sullivan senior analyst Mukul Krishna told the E-Commerce Times that all companies around the world have learned their lesson from the bubble that burst in North America.

"They have very recent history to look at," he told TechNewsWorld.

The analyst said companies entering the Chinese market would have to spend too much on research and development and cutting through bureaucratic red tape if they did so alone. Alternatively, companies are acquiring Chinese brands that are similar to their own brand and business.

"That is a main strategy," Krishna said. "You go after countries where you have strong economic growth, which usually translates to more disposable income to spend."