At the signing of US-listed internet portal Yahoo’s minority equity investment in China-based electronic commerce group Alibaba back in 2005 there was a nice picture of two of the companies’ co-founders walking along the Great Wall of China.
The picture symbolised the cultural connections between Jerry Yang, co-founder of Yahoo, and Jack Ma, his peer at Alibaba, at an iconic place showing the long history of China’s achievements. (In 2005, Ma said he became friends with Yang, who was born in Taiwan and grew up in California, seven years earlier after the latter was visiting China to explore his cultural homeland and the country’s internet market just at a time when Ma’s first project — Hangzhou Hope Networks Consulting, an online directory of Chinese businesses that he founded in 1995 — had just been shut in a government crackdown on websites.)
In some ways, the negotiations Yang and Ma held doing their walks on the Great Wall also symbolised the welcoming of Americans into China over its defences.
The gradual divorce now being undertaken with Yahoo this week selling half its 40% stake in Alibaba back to the company for $7.6bn shows both the potential financial returns but also much more about the relative challenges of international corporate venturing between countries as companies evolve and relative fortunes and personnel change.
Indicative of the changes is, as of Tuesday afternoon, Yahoo’s remaining 20% stake in Alibaba was valued at about $8.1bn, representing nearly half of the American company’s $18.9bn market value, according to news provider New York Times. Yahoo has agreed to sell a further 10 percentage points back to Alibaba when it floats on a stock exchange and the remainder afterwards. The timetable of Alibaba’s listing is unclear as the company has been reorganising including buying in May the 27% of its Hong Kong-listed Alibaba.com subsidiary for about HK$19.6bn ($2.5bn).
What is more indicative is how Alibaba has come to view Yahoo as a financial investor rather than strategic role model.
In 2004, Alibaba raised $82m in its series D round from a consortium including mutual fund manager Fidelity’s corporate venturing unit and Japan-based internet conglomerate Softbank. At the time of the D round, Masayoshi Son, executive president of Softbank, said: “We have been extremely pleased with our initial investment in Alibaba four years ago [leading a $20m round].
“With this substantial additional investment now, we are excited to have the opportunity to explore synergies between our two businesses [including in search as Softbank owns 42% of Yahoo Japan set up as a regional joint venture with the eponymous US firm that owns 35%].
“Alibaba has the potential to become another extraordinary success like Yahoo.”
A year later, in 2005, Yahoo bought 40% of Alibaba for $1bn in cash and its China assets then worth $700m. The vendors of the Alibaba shares included Fidelity and Softbank, although Son’s company retained 27%. Yahoo also bought 8.1% of Alibaba.com during the subsidiary’s flotation in 2007 for $13.50 per share and divested its final direct holding of 1.1% for $150m in 2009.
But while Alibaba has expanded its business-to-business and business-to-consumer e-commerce services into the cloud – Alibaba has just spun off a mobile operating system it incubated, Aliyun, with $200m – and online payments, the Chinese company’s search and Yahoo-style portal has relatively languished as market leader Baidu and others expand.
But there has been little help from Yahoo, which has been through a succession of chief executives since the departure of Yang, weakening the personal connection between his company and Alibaba. Yahoo has struggled to retain its own relevance in the US as an internet service with the rise of search engine Google and social network Facebook, which has focused minds on business back at home.
Tim Morse, chief financial officer at Yahoo, spoke at a Goldman Sachs Investing conference in May last year (the US investment bank led the $5m seed funding for Alibaba in 1999) and emphasised that Yahoo was just a financial stakeholder in Alibaba. Yahoo has gradually been selling its corporate venturing holdings round the world, while Alibaba has been building up its venturing programme in the past few years, including joining the consortium in mobile internet browser UCWeb.
Ma has continued to chart Alibaba’s rise, laying out in its 10th anniversary ‘Alifest’ celebrations in 1999 a vision of a much larger global services provider.
As with the other Chinese internet titans of search engine Baidu and media group Tencent led by charismatic founders and with previous US corporate venturing backing (Google and International Data Group respectively), the long-term growth opportunities of a relatively fast-growing economy and increasing internet penetration among the population allied with US companies investing for short-term financial gain and providing support has helped drive their business success.
Rather than putting up a wall to provide protection, therefore, Chinese companies, such as Alibaba, are viewing their strategy as like another of the country’s national symbols: bamboo – flexible, fast-growing and strong; and around for the longer-term.
(This comment is based on a forthcoming profile of Alibaba for the consumer sector issue of Global Corporate Venturing magazine.)