Yahoo and Alibaba announced a definitive agreement to form a long-term strategic partnership in China. Alibaba operates auction marketplaces and an online payment service that competes head-to-head with eBay Eachnet. The China market is one of eBay's top priorities, with CEO Meg Whitman reportedly spending much of the summer in China, launching PayPal China, and pledging $100 million to boost eBay Eachnet in 2005. Alibaba CEO Jack Ma has upped the ante, receiving $1 billion from Yahoo along with its search properties.

Under the terms of the agreement, Yahoo will contribute its Yahoo China business to Alibaba, and the two companies will work together in an exclusive partnership to grow the Yahoo brand in China. Additionally, Yahoo is investing $1 billion in cash to purchase Alibaba.com shares from the company and other shareholders. The agreement gives Yahoo an approximately 40 percent economic interest with 35 percent voting rights, making it the largest strategic investor in Alibaba.com. As stated in the press announcement, the partnership leverages one of the best local management teams, while taking advantage of Yahoo's global resources.

The combined entity will consist of: Alibaba International, one of the world's largest online marketplace for global trade; Alibaba China, one of the largest online small- and medium-sized enterprise community in China; AliPay, an online payment service; Taobao, a domestic auction site; and, the Yahoo China properties, which includes the Yahoo China portal and its communications and advertising services, Yahoo Search Technology, and 3721, a leading keyword search service. Yahoo also intends to contribute its interest in 1Pai, a consumer commerce offerings in China, into Alibaba.com.

"Teaming up with Yahoo will allow us to deliver an unmatched range of ecommerce services to businesses and consumers in China," said Jack Ma, chairman and chief executive officer of Alibaba.com. "With the addition of Yahoo China to Alibaba.com's business, we're expanding our services to provide a leading search offering to China's Internet users. In China, Alibaba.com is winning in B2B, winning in C2C, winning in online payments and now we're going to win in search."

The combined entity will have a four-person board. Management of Alibaba.com will hold two seats, with CEO Jack Ma serving as the board's chairman. Other directors will include Jerry Yang, Yahoo's co-founder and Chief Yahoo, and a representative from Softbank.

The transaction is subject to customary closing conditions and is expected to be completed in the fourth quarter of 2005. The overall transaction is valued at more than US$4 billion.

Alibaba Factoids
Alibaba has 2,300 employees and 2004 Cash Revenue of US$68million and GAAP Revenue of US$46million. More than 100,000 businesses in China pay between US$250-US$10,000 per year for Alibaba's online marketing services, most of whom are small- and medium-sized enterprises. In China, Alibaba maintains a national direct sales force of more than 1,000 sales and service specialists, serving and training China's exporters and domestic traders in ecommerce.

Alibaba International is Alibaba's business-to-business marketplace for global trade with 1.5 million registered users. Members are located in over 200 countries and territories and had an estimated 2004 transaction volume of US$1.5 billion.

Alibaba China is a Chinese-language online marketplace for domestic China B-to-B trade. It has 6.4 million registered users and estimated 2004 transaction volume of US$3 billion, with 6 million listings on the site.

Taobao.com is a consumer marketplace with 7.2 million registered users and Q2 2005 transaction volume (Gross Merchandise Volume or GMV) of US$200 million, and 8.5 million listings on the site.

AliPay is an online payment system with 3.4 million registered users and June 2005 transaction volume of US$17 million.

Taobao and Alipay services are currently free to users.