AUGUST 12, 2005
Inside Yahoo's China Gambit Co-founder Jerry Yang explains the
company's decision to partner with a local outfit and cede control of its
own operation there In a bold move to better tap the promising Internet
market in China, Yahoo! (YHOO <javascript: void showTicker('YHOO')> )
announced on Aug. 11 that it's investing $1 billion in Chinese Internet firm
Alibaba. Under the deal, Yahoo will cede control of its properties there to
Alibaba.
The combined outfit, of which Yahoo will own a 40% stake, will be an
Internet powerhouse in China, boasting popular online auction and search
properties. Yahoo co-founder Jerry Yang, who will sit on the board of
Alibaba, spoke with *BusinessWeek* Correspondent Ben
Elgin<[EMAIL PROTECTED]>to explain the strategy. Here are the
edited excerpts:
*Q: Why did you choose to partner with Alibaba rather than build up the
business in China on your own?
A:* We've been doing a lot of everything in China. We've been building,
partnering, and buying. We purchased a company a year and a half ago called
3721 that is the basis for our search business in China.
But this Alibaba arrangement is a unique model of partnership for us. We
believe that to be successful in China, we absolutely have to have strong
local management, and [Alibaba CEO] Jack Ma and his team are the
best-of-breed Internet management team inside China.
[Alibaba and Yahoo China are] probably the most unique basket of assets
assembled together. We are combining our strong No. 2 search and mail
businesses with Alibaba's first-place consumer auction platform, their
leading business-to-business franchise, and their AliPay, which is their
payment platform.
It's the only company in China that has commerce, search, communications,
and a very, very strong local management team. This is going to be a very
valuable franchise going forward.
*Q: What issues are there for other Internet firms looking to control their
own businesses in China?
A:* We've had experience. We were one of the first foreign Internet
companies to go into China in 1999. We've gone through several stages of
learning and understanding how to do business there.
To be successful as a foreign company in China there has to be a tremendous
amount of local knowledge and local relationships. One of the similarities
between Alibaba and our current search-keyword operations at 3721 is that
hundreds of thousands of small and midsize businesses are buying keywords or
listings on Alibaba.
Channel relationships, whether they are direct or reseller relationships,
are extremely local. This isn't a heavily self-service model yet like the
U.S. Over time it might be, but to get it off the ground and going, you need
a lot of local knowledge and local relationships.
*Q: Does partnering with a local outfit partially shield Yahoo when
decisions have to be made in China about, say, censoring content?
A:* The businesses that we're in today, which are search, communications,
and commerce, have less to do with more sensitive media areas like news and
potentially other kinds of media and content.
But I think you're right. There is a lot of regulation. Not just around
censorship, but a lot of regulation about a foreign company's role in media
in general. It's fair to say our focus around commerce, search, and
communications, which have both a technology and commerce aspect, are a lot
more open to foreign involvement. I think the government has been very
supportive of e-commerce companies in China.
*Q: But as the company grows, it will likely be involved in more
media-related businesses. MSN's (MSFT <javascript: void showTicker('MSFT')>)
efforts, for instance, to get into the blog space in China kicked up quite a
firestorm with their censorship efforts. This would almost seem to exempt
you from those types of decisions.
A:* If Alibaba and the management team chooses to become more of a media
company, they certainly have the backing of Yahoo's technology and
experience. But one of the things we love about this management team is
their relentless focus around things they know how to do well.
Commerce is a root of what they do. They have developed a strong passion
around search ... Look at the importance of integrating search and commerce
together, which is already happening in parts of the world.
Everything else that revolves around that -- communicating through e-mail
and IM [instant messaging], as well as payments through AliPay -- those are
the core things they're going to focus on. The growth is also in those
areas. If you look at e-commerce as a category, that's where the action is
in China. There isn't a very huge amount of media business in China.
*Q: With Alibaba taking control of your China operations, what are long-term
plans for Yahoo's brand in China?
A:* We think this is a marriage of very strong brands across the board.
Alibaba will continue to be the B2B [business-to-business] brand in a
product sense.
They have built a strong domestic and international trading brand around
Alibaba. Taobao, a unit of Alibaba, is the leading consumer brand around
auctions, and that will continue to be the case.
And all of the consumer Internet products will be branded Yahoo -- search,
mail, and anything new they decide to come up with. They definitely feel
that the Yahoo brand in China has not only global implications but a lot of
resonance.
------------------------------
Edited by Ira Sager
[Non-text portions of this message have been removed]
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