Alibaba says 'open sesame' to Weibo deal

Alibaba, China's largest e-commerce group, has acquired an 18% stake in social treasure trove Weibo, China's answer to Twitter.

by Rebecca Burn-Callander
Last Updated: 19 Sep 2014

Alibaba, the online 'matchmaker' that hooks up Western firms with Chinese manufacturers, has bought an 18% slice of Weibo for $586m (£378m). The deal values the social network, which boasts 500 million users (compared to Twitter's 140 million) at over $3.2bn.

The deal looks like a coup for both parties. Alibaba is hoping to generate more business leads through Weibo and drive more traffic to its online shopping sites - for example, Taobao the pseudo-eBay of China. All of which will be paid for through Alibaba's online payment service Alipay, naturally. And the microblogging network of choice for the People's Republic is counting on Alibaba's portfolio of clients to generate additional advertising revenue for the site.

The two firms reckon that the partnership will bring in $380m more in advertising and social commerce services revenue for Weibo over the next three years, which is good news for the service as it has struggled to bring in much revenue at all to date (hence mutterings over an inflated valuation). If the relationship is successful, Alibaba reserves the right to increase its ownership in Weibo to 30% at a mutually agreed valuation 'within a certain period of time in the future'.

As deals go, these two are already very cosy indeed. 'This strategic alliance helps to create a stronger Weibo,' says Jack Ma, chairman of Alibaba. 'It affirms our view of the vitality and importance of social media in unleashing value in e-commerce activities... [We will] cooperate in the areas of user account connectivity, data exchange, online payment and online marketing, among other things.'

Alibaba's (sizeable) bet could generate substantial rewards for the firm. The Asia Pacific region is the fastest-growing market for e-commerce in the world, overtaking North America last year. And China is the shopaholic of the East. Alibaba has been pretty spot on at predicting winners in the past. It was founded in 1999 and was one of the first pioneers to take advantage of the Chinese online sales boom. It has now reached a market cap of a staggering $40bn.

'Weibo and Alibaba's e-commerce platforms are natural partners,' says Charles Chao, chairman of SINA, the parent firm of Weibo. 'Together we provide a unique proposition not only to existing online merchants, but also to individuals or businesses, who wish to offer products and services on social networking platform to take advantage of the traffic shift toward social and mobile internet.'

Rumour also has it that this deal is part of Alibaba's strategy to boost the value of its business in preparation for an IPO. If it turns out to be a smash hit, SINA won't be the only benefactor either. Yahoo! also owns a fairly substantial stake in the business. CEO Marissa Mayer could probably do with a nice little earner while she's busy restructuring the internet giant...

The deal could give Twitter a few ideas too. Could eBay or Amazon benefit from a similar tie-up with the revenue-starved microblogging site? Food for thought.

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