Bloomberg News

Alibaba Vows ‘Sleepless Nights’ for Baidu in Search Market

September 12, 2011

(Updates share price in 10th paragraph.)

Sept. 12 (Bloomberg) -- Alibaba Group Holding Ltd. started its search-engine service last year to “cause sleepless nights” for Baidu Inc., the industry leader in China, Chief Executive Officer Jack Ma said.

“Making life difficult for companies with established positions is what we most want to do,” Ma said Sept. 10 at a conference in Hangzhou, eastern China, where Alibaba is based. He didn’t elaborate on the remarks about Baidu.

Alibaba, China’s biggest electronic-commerce company, started its eTao search engine last year and expanded in mobile- phone operating systems this year, seeking new revenue sources. Baidu fields more than 80 percent of China’s search-engine traffic after overcoming competition from U.S. rival Google Inc., the world’s largest search service operator.

“If Alibaba wants to compete on search, bring it,” said Kaiser Kuo, a Baidu spokesman. “Baidu doesn’t obsess about what the competition is doing. We obsess about what our users want.”

Ma is also overseeing changes at Hong Kong-listed flagship Alibaba.com Ltd., whose website is used by companies including Wal-Mart Stores Inc. to find suppliers.

Alibaba.com, which said in February that some buyers were defrauded by vendors on its site, is now offering product inspection and escrow payment services to help boost protection for buyers, Director of International Marketing Linda Kozlowski said last week. All Chinese exporters that pay Alibaba.com to market their products will be audited, she said.

‘Proactive Cleanup’

Customers on the China Gold Supplier program declined as Alibaba.com started a “proactive cleanup,” Kozlowski said. The increased monitoring of customers was “a good thing,” she said.

Subscribers for its China Gold Supplier program for exporters fell by more than 4,200 in the quarter ended June to about 112,000, Alibaba said last month. In the previous three months, the company lost more than 4,800 Gold Supplier members.

More than 2,300 vendors used Alibaba.com’s website to defraud buyers, and about 100 employees were responsible for letting sellers create bogus storefronts, the company said in February.

Alibaba.com, which has lost 44 percent of its market value this year, fell 4 percent to HK$7.87 as of 1:54 p.m. in Hong Kong trading.

Baidu accounted for 75.9 percent of China’s search-engine market by revenue in the second quarter and 75.8 percent in the previous three months, according to research company Analysys International. Google’s share dropped to 18.9 percent from 19.2 percent, the researcher said.

Alibaba Group aims to increase transactions on Taobao, its consumer-oriented arm, to 1 trillion yuan ($156 billion) next year, Ma said. Taobao generated 396 billion yuan of transactions last year, according to estimates by Credit Suisse Group AG.

Taobao, Alipay

In June, closely held Alibaba reorganized Taobao, China’s biggest online shopping operator, creating separate divisions that serve bigger retail brands and smaller wholesalers.

Alipay, the online payment business at the center of a dispute earlier this year between Alibaba Group and biggest shareholder Yahoo! Inc., is making Chinese banks “worried” because it’s lowering transaction fees, Ma said.

Yahoo, owner of the most-visited U.S. Web portal, said in May that Alibaba Group spun off Alipay to a private company controlled by Ma without consulting shareholders. Ma said that month the reorganization was necessary to facilitate an application for an online payment license in China, and was discussed by Alibaba’s board for three years.

In July, Alibaba reached an agreement with Yahoo and Softbank Corp., another shareholder, over compensation for the Alipay spinoff.

--With assistance from Mariko Yasu in Tokyo. Editors: Dan Liefgreen, Garry Smith

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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