Alibaba stocks up on
mobile deals before share sale
By Sherman So
HONG KONG - Chinese e-commerce giant Alibaba Group, which is said to be preparing for a public share sale that might be worth more than US$70 billion, is building up its mobile Internet business with a rash of acquisitions as the country's Internet users increasingly switch to mobile-phones and tablets rather than office-bound computers and home laptops.
The move to build up its mobile interests coincides with the transition to a new group chief executive, with Jack Ma, who helped found the company in 1999, stepping aside this month to be succeeded by Jonathan Lu after announcing his intention in
January. Ma will continue with the company as executive chairman.
Last month, China e-commerce giant Alibaba Group acquired an 18% stake in Sina Weibo, one of the country's largest social network sites, for US$586 million. The deal also gave Alibaba the option to further increase its holding in Sina Weibo to 30%. Other targets include UCweb, China's leading mobile browser, Meituan, a leading group-buying company in the country, Momo, a popular mobile social networking app, and many more.
The purpose of behind the rash of purchases by Hangzhou-based Alibaba may be to beef up its business before the IPO, according to some speculation, while others view the goal as development of a mobile Internet empire that will bolster its present core e-commerce dealings. (Alibaba has two major businesses. Alibaba.com is its business-to-business marketplace and Taobao, which at present earns more than Alibaba.com, is its consumer-to-consumer marketplace.
"They are preparing for an IPO and therefore they want to beef up their business with M&A," said a venture capitalist active in China. He said a large portion of Alibaba acquisitions were done in stocks, rather than cash. The target companies "loved Alibaba's stock, too, because it will get listed soon and its stock could be worth much more".
The market believes Alibaba is aiming for a United States share listing this year. On May 14, investment bank Goldman Sachs wrote in a report on Yahoo, that it had increased Alibaba's valuation to US$70 billion, from US$35 billion. US Internet firm Yahoo owns 24% of Yahoo.
If Alibaba is listed, it might become the most valuable China Internet company in the public market. US-listed Baidu, China's leading search engine, which is worth about US$33 billion. Hong Kong listed Tencent, which has built its Internet empire with instant messaging service QQ is valued at about US$69 billion.
Alibaba's acquisitions may, however, be intended to build up its mobile Internet business, say some business insiders. As smart phones become increasingly popular, people's online habits are also changing, with less time spent on computers and more on their mobile phones.
"For the three China Internet giants, Tencent, Baidu and Alibaba, how to migrate their dominance in Internet to mobile Internet is the question they are most concerned with," said Li Li, a writer at China Business Journal.
Tencent has already figured out its route to mobile Internet with WeChat. Three years after its official launch, Tencent's mobile chat app has over 300 million users. It has become a must for every Chinese using a smart phone, and it has also started to develop an overseas market.
"Just as Tencent uses QQ to branch into other Internet businesses, such as news portal, online gaming, search engine, and so on, Tencent will use WeChat to develop other mobile Internet businesses," said an industry insider.
The functionalities of WeChat have been increased since its launch. Besides permitting instant communication between friends, it offers news and, like Facebook, scope for posting blogs.
"As the functions of WeChat increase, its stickiness to users will also increase, and Tencent has more and more opportunities to get revenues from its users, such as promoting mobile games," said the industry insider.
Alibaba has been less fortunate in its mobile endeavors. Although the mobile performance of Taobao (Alibaba's consumer-to-consumer marketplace) is acceptable, Alibaba has failed to create a mobile product that is as popular as Tencent's WeChat.
According to local media, there are 100 million heavy users of Taobao and only 30% of those use its mobile application. Failing to build a good-enough mobile business on its own, Alibaba started to buy.
In July 2011, Alibaba, together with other investors, invested US$50 million into Meituan; 30% of Meituan's transactions are done through its mobile app "Meituan" and "Meituan Movie". Since then, increasing numbers of Alibaba's acquisitions have been for mobile-related businesses.
In November 2011, it acquired mobile app Momo. With Momo, users can find out who is nearby and send messages, photos and their locations to the other parties. Less than two years since its official launch in August 2011, Momo has more than 30 million users. Momo chief executiveTang Yan defines Momo as a location-based social networking app. "This matches very well with Alibaba's mobile strategy," said an industry insider.
Alibaba then co-invested into Ddmap with Citibank. Ddmap provides local information for city-dwellers, such as maps showing shops and offices of public utilities, coupons, local news, and so forth. It has both a mobile app and a website. Zhang Hongping, managing director of Alibaba Capital, said Alibaba invested in Ddmap as it believed in its online to offline (O2O) business.
He believed Ddmap's coupon business (which allows buyers to access special offers at restaurants and other businesses) is one of the best ways of developing an O2O e-commerce platform and it can create a lot of synergy with Alibaba's other business departments.
Alibaba recently invested in a taxi app, Kuaidadi, which allows travelers to book taxi rides directly from their smart phones. According to Kuaidadi, it has over 30 million users. More than 30,000 taxi drivers use the app, covering 70% of all the taxi drivers in Hangzhou, the largest city in eastern Zhejiang province.
Numerous rumors are circulating over other potential Alibaba acquisitions. One such is Umeng, said to be worth around $80 million. Umeng is the most popular tool for mobile app developers in China to analyze their app traffic and users, and its data are its most valuable asset. It will help Alibaba to analyze users' preferences, so that small retailers on Taobao can better target their customers.
Another possible target is UCweb, a mobile browser with over 400 million users in China and overseas, in which Alibaba may increase its investment after taking a stake in 2009.
Alibaba's investment in Sina Weibo will secure access to its huge user base. Twitter-like Sina Weibo is China's largest microblogging service, with over 46 million daily users and more than half of its traffic comes from mobile devices. Even so, Sina Weibo has difficulty in getting revenue from its users.
"Alibaba's appetite for mobile traffic and Sina Weibo's need to monetize its traffic match very well," said Li of China Business Journal.
Alibaba may also invest into 91 Limited, which has one of China's most popular smartphone management tools and mobile app store. Altogether there are over 20 companies confirmed and unconfirmed on Alibaba's acquisition list, many of them related to mobile Internet.
"The logic of Alibaba's investment is very clear. Everything is around Jack Ma's idea of mobile business ecosystem. Those, which can bring mobile traffic directly, will be its key focus," said Li.
However, the strategy of growth by acquisition has its pitfalls. Many companies fail to deliver their initial promise after acquisition. Momo, the location bases mobile social app in which Alibaba invested, is less popular now than it once was, said an industry insider.
Worldwide, examples of failed acquisitions are everywhere. Online auction giant eBay acquired instant messaging tool Skype in 2005, mistakenly believing there was synergy between the two. eBay sold Skype in 2009 to a group of investors and it was later bought by Microsoft.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
