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Internet equity deal a boost for both sides

By Ding Yining (Shanghai Daily)

08:32, May 06, 2013

The largest equity deal in China's Internet sector has drawn generally positive reviews and considerable speculation about how an alliance will affect future prospects for the nation's most popular social network and its largest online shopping site.

Alibaba, China's largest e-commerce group, has bought a US$586 million, 18 percent stake in Weibo, the Twitter-like microblog platform operated by Sina Corp. The deal also grants Alibaba the option of increasing its ownership to 30 percent in the future.

Major investment banks upgraded their ratings for Sina, which is listed in the US, citing positive effects from the collaboration.

"Compared with its brand advertising and web-based online gaming, it's easier to profit from e-commerce with Alibaba's assistance," Deutsche Bank wrote in a research note. It reiterated a "buy" rating on Sina, with a target price of US$63.30.

In announcing their new alliance last week, the companies said they would jointly explore ways of enabling merchants on Alibaba e-commerce platforms to better connect and build relationships with Weibo's 503 million registered users.

"It will create huge business opportunities," Sina CEO Charles Chao said.

His company estimates the link-up could be worth about US$380 million in added revenue in the next three years.

Sina shares rose as much as 13 percent on the Nasdaq following the announcement.

"Sina, which has been under profit pressure for a long time, will have a very clear business model with Alibaba as a strategic partner," said Hu Yanping, founder of Internet researcher Data Center of China Internet.

"Alibaba is also a winner in the deal because Weibo complements its e-commerce ecosystem with strong social networking."

Social networking is regarded as an indispensable part of the future development of e-commerce, but making money from such sites has always been problematical.

Keen to share

Of total short links shared on Weibo in the past year, Alibaba's Taobao and Tmall sites comprised 8.1 percent, signaling that buyers and vendors are keen to share shopping information and comments.

Acquiring new consumers has been a zealous target of online shopping sites. Major market players, including and Tmall, have launched a series of price wars aimed at picky consumers.

Taobao is eager to attract more users to less well-known online sellers with few resources to promote their products through normal advertising channels. Alibaba's individual vendor marketplace accounts for about four-fifths of its overall retail sales, and small vendors made up nearly 90 percent of those sellers.

It's fairly easy to track how many postings of online merchandises are forwarded on Weibo and how much traffic is generated through e-commerce sites, compared with traditional banner advertising.

Weibo provides a good marketing channel for online sellers, especially smaller ones, because they can recommend specific products tailored to a user's previous Weibo postings and product preferences.

Weibo postings also provide a convenient way for smaller vendors to promote products with pictures, short descriptions and links to Taobao.

Sina needs to boost Weibo's profitability amid fierce competition from rivals such as Tencent's mobile phone chatting software WeChat, which offers more intimate connections among close friends. Just two years after its launch, WeChat boasts more than 300 million users.

The number of registered users on Sina's Weibo rose 73 percent last year. The average daily user base rose 82 percent in December to 46.2 million.

Natural partners

Sina has been stepping up efforts in the past two years to make money from the popular service.

"Weibo and Alibaba's e-commerce platform are natural partners because we provide a unique proposition to existing online merchants and to individuals," Chao said.

Back in 2011, he cited targeted advertising, online gaming, real-time searches, e-commerce, wireless value-added services and digital content as the six potential money-spinners for Weibo. Last year, revenue rose to US$66 million, while costs were reported at US$93 million.

The company is planning to launch an online advertising system to 300,000 company accounts on Weibo and will experiment with more advertising on mobile applications, Chao said earlier this year.

So far, none of the visions has borne fruit.

Teaming up with Taobao clearly offers Sina new opportunities, but what will alliance mean for ordinary users of Weibo?

Probably more advertising from Taobao sellers.

Sina must be careful that excessive advertising doesn't turn ordinary users off the site, according to Yu Ming, head of ZC Digital Marketing Institute.

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