Thinking About Thinking

The U.S. Company That Knows More About China Than China Does

Posted in Technology by larrycheng on July 30, 2010

What if there was a U.S. company that knew more about commerce and money flow in China, than China itself does?  Firstly, China would not be happy about that.  And, they’re not.  Secondly, this company would own an incredibly valuable asset, which they do.

This company has 300 million Chinese users using its payment platform to process payments.  This company also had the largest online retailer in China with 200 million Chinese shoppers.  This company also owns the largest B2B trading platform in China with 50 million suppliers on it giving it a granular view into China’s trading industry.  Between all of these properties – this U.S. company would be collecting invaluable data daily about how Chinese consumers shop, how Chinese businesses are transacting, and how money flows within and outside of China.  What if this were the case?

This is the case, and the company might surprise you.  The company is Yahoo.  Yahoo put itself in an incredibly compelling position in China through its $1B+ investment in Alibaba in 2005.  They are now the largest shareholder of Alibaba.  Since 2005, the three primary properties underneath the Alibaba Holding Company have all grown to become landmark properties in China.  These properties are Alibaba (largest B2B marketplace), Alipay (Chinese Paypal), and Tao Bao (Chinese eBay).  The growth and leadership position of these properties in China have put Yahoo in the position of having as much or more visibility into Chinese online commerce and money flows, than perhaps any other company in the world.  And, for that reason, China is not happy about it.

Something has to give in the middle of this conundrum as “China’s Alibaba” is now trying to buy back Yahoo’s stake.  But, why would Yahoo sell its stake in a holding company that is arguably worth more than Yahoo itself?  Something has to give as it is untenable that the Chinese government would let a U.S. company sit in such a strategic position in the Chinese economy.  It’s one of the more interesting dramas to watch over the next several months on the global technology landscape.

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5 Responses

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  1. Tom Foremski said, on July 30, 2010 at 3:42 pm

    Good stuff, something to think about.

    But it seems the Chinese government is far more concerned with competitors in the sphere of ideology rather than commerce. The fact that Yahoo enables commerce in a country with few credit cards is a good thing rather than a competitive thing…

  2. Paul Denlinger said, on July 30, 2010 at 10:55 pm

    Yes, Yahoo! is the largest western shareholder in Alibaba, but it has also kept very quiet about its chunk of Alibaba. Jack Ma has expressed interest in buying out Yahoo!. There are no signs that Yahoo! would use its knowledge of Chinese business in any way which would jeopardize things.

    Furthermore, the payment system you mention is Alipay, which was introduced by Alibaba. It belongs to Alibaba just as much as Paypal belongs to eBay. I can’t imagine Yahoo! asking for access to that database, and I can’t Alibaba giving access to it if Yahoo! asked for it.

    So yes, on the shareholder level, Yahoo! is the largest western shareholder, but I think both Yahoo! and Alibaba have deliberately kept a low-profile on this issue to avoid complicating issues.

    You mention that Yahoo!’s position is “untenable” as an Alibaba shareholder. Exactly what has happened?

  3. Sean said, on July 31, 2010 at 2:28 am

    What if there was a U.S. company that knew more about commerce and money flow in China, than China itself does?

    Do you have any evidence that Yahoo has this? Yahoo is essentially a passive investor, no? Alibaba has stripped the value of all the Yahoo brands in the mainland. It has complete control. Yes, I’m sure Ma and the government are regretting selling the stake now, but it’s only for claims to ownership. I seriously doubt Yahoo would be able to push Ma around for anything proprietary.

  4. Chyan said, on July 31, 2010 at 10:44 am

    Its stake in Alibaba aside, Yahoo! effectively has nothing in and knows nothing about China.

  5. Daniel Eriksson said, on October 5, 2010 at 9:58 am

    I guess it is right that China does not want Yahoo to know about this company and insight in Chinese economy. However, China is the biggest owner in both stocks an property in the USA. They like control, dislike being controlled or overlooked.
    I saw this in a documentary about the US economy.

    Daniel
    -CFS


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