Yahoo Bets Big on China

Small business entrepreneurs in China may be getting a boost in the coming months after Yahoo on Thursday said it will pay $1 billion cash for a 40 percent stake in the Chinese Internet company Alibaba.

"Yahoo's investment underscores our long-term commitment to the Chinese market," Terry Semel, Yahoo's Chairman and CEO, said in a statement. "We believe the combination of Yahoo and Alibaba is the best approach for Yahoo to win in this region."

The deal is expected to close in the fourth quarter. When it does, Yahoo and Alibaba will pool portal, search and e-commerce properties to create one of the largest Internet companies in China. In the U.S., Yahoo stands as one of the largest e-commerce hosting providers, claiming more than 30,000 online stores. It also offers free small business hosting for businesses that want a Web presence.

The companies said the combined entity, which will be run by Alibaba CEO Jack Ma, is valued at $4 billion.

Alibaba operates three sites: Alibaba International, a worldwide English-language business-to-business play; Alibaba China, the local online marketplace for business-to-business dealing; and TaoBao, a free eBay-like consumer e-commerce marketplace.

In an October interview, Ma told internetnews.com that his sites were fending off attempts by eBay and Yahoo to take over the Chinese market with a combination of price-slashing and understanding of the local market.

Regarding the consumer-to-consumer market, he said, "We have the experience of building an e-marketplace with Alibaba China. Ebay may be very famous in the U.S.A., but in China, if you ask 100 people have they heard about eBay, I believe that less than 10 percent have heard of that. But if you ask 100 people if they've heard about Alibaba, about 90 percent know about us. Our name is growing."

eBay is pursuing the Chinese market vigorously, encouraging its sellers and developers to take advantage of an explosive market. During June's eBay Live! conference in San Jose, the auction giant said eBay China saw a record 1.8 million new users in Q1 2005.

Yahoo launched a Chinese-language version in September 1999. In January 2004, it partnered with the Chinese portal Sina.com to create an online auction marketplace aimed at small- and medium-sized businesses and buyers and sellers in mainland China.

In the October interview, Ma was dismissive of the Yahoo/Sina.com joint venture auction site. "I think it's dead," he said. "There's no traffic."

In contrast, Ma said he sees new opportunities now that Alibaba will share Yahoo's tools.

"In China, Alibaba.com is winning in B2B, winning in C2C, winning in online payments and now we're going to win in search," Ma said in a statement.

This article was adapted from InternetNews.com. Devin Comiskey contributed to this article.