Jack Ma and Alibaba.com

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Case Details:

Case Code : LDEN043
Case Length : 14 Pages
Period : 1999-2006
Pub Date : 2006
Teaching Note :Not Available
Organization : Alibaba.com, Taobao.com Industry : E-Commerce
Countries : China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"For us, the goal has been to build a company that lasts 102 years and a company that changes China. We're only six years old, so while other people may call us a success, we still do not consider ourselves successful yet. We have a long way to go and the intense competition is what keeps us sharp. The success we've had so far has not made us lose our edge."¹

- Jack Ma, Founder and CEO of Alibaba.com,
China's largest e-commerce company, in 2006.

"If there's a company outside of America that can introduce a new business model to the world, it's Alibaba."²

- Masayoshi Son, Founder and CEO of Softbank Corporation³, Japan.

Introduction

On August 11, 2005, Alibaba.com Corporation (Alibaba), China's leading e-commerce company, struck a deal to acquire the operations of the US-based Yahoo! Inc.⁴ (Yahoo) in China. Alibaba would acquire Yahoo China's main website www.cn.yahoo.com and search engines including www.yisou.com and www.3721.com. Yahoo said that it would also invest US$ 1 billion towards a 40% equity stake in Alibaba. This would be the largest investment made by a foreign company in an e-commerce business in China. The deal gave Alibaba, which was already in the B2B and B2C e-commerce⁵ and online payments segments, through its proprietary online payment solution AliPay, a strong foothold in the Web search market.

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Alibaba strengthened its position as one of the largest Internet companies in China (Refer Exhibit I for Alibaba's businesses). Commenting on the deal, Jack Ma (Ma), Founder, Chairman and CEO of Alibaba said, "With the addition of Yahoo! China to Alibaba.com's business, we're expanding our services to provide a leading search offering to China's Internet users.

In China, Alibaba.com is winning in B2B, winning in C2C, winning in online payments and now we're going to win in search."⁶ According to industry analysts, the deal would give Alibaba greater access to the burgeoning Chinese e-commerce market (estimated at US$ 77 billion in 2005). The tie up with Yahoo would also strengthen Alibaba in fending off competition from the US e-commerce giant eBay⁷ in China. For Yahoo, it would mean an end to its longstanding problems in China. Bill Bishop, CEO of Red Mushroom (China-based online game developer) and co-founder of CBS MarketWatch⁸, commented, "No question this creates a monster in the China Internet. It will have a powerful combination of search, communications, commerce and auctions.

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1] Chua Chin Hon, "Yahoo! Jack Wants It to be No.1 in China," www.asiamedia.ucla.edu, April 28, 2006.

2] "Meet Jack Ma, Who Will Guide Yahoo in China," www.bdachina.com, August 12, 2005.

3] Founded in September 1981 and headquartered in Tokyo, Softbank Corporation has investments in e-commerce, financial services, Internet infrastructure, IT-related distribution services, publishing and marketing and technology services. For the year ended March 2006, Softbank's total revenues were 1,108,665 million yen and net income was 57,550 million yen.

4] Yahoo! Inc. is one of the leading online portals with a network of web sites – news, search engine, entertainment and e-commerce etc. Its primary source of revenues is through online advertising but it also offers commercial services such as online marketing, etc. For the year ended December 2005, its revenues were US$ 5.2 billion and net income was US$ 1.9 billion.

5] B2B or Business-to-Business e-commerce is trading between two businesses using the Internet. Examples of B2B e-commerce sites are chemdex.com and chemconnect.com which deals with selling chemicals online. B2C or Business to Consumer e-commerce relates to business transactions between a company and a customer using the Internet. Amazon.com is an example of a B2C e-commerce website. C2C or Consumer to Consumer e-commerce is trading between two consumers through the Internet. eBay is the world's most famous C2C online auction site.

6] "Yahoo! and Alibaba.com Form Strategic Partnership in China," www.alibaba.com, August 11, 2005.

7] Based in California, eBay is one of the largest e-commerce companies selling more than 45,000 categories of merchandise with about 180,000 million users. For the financially year ended December 2005, eBay's total revenues were US$ 4.5 billion and net income was US$ 1.1 billion.

8] CBS MarketWatch was acquired by Dow Jones in January 2005 and is since then called a MarketWatch. MarketWatch.com, the company's flagship website, is one of the leading websites offering business news, analysis and stock market data. Apart from this, the company also operates BigCharts.com and VirtualStockExchange.com.