Yahoo Losing Favor with Asian Partners? Alibaba Reconsiders Relationship


It looks like Internet giant Yahoo (YHOO) may have offended its partner, Alibaba Group, with comments earlier this week that it may expand its advertising base into the Chinese e-commerce giant's territory. The group threatened Thursday to reconsider its relationship with Yahoo. "If Yahoo begins to compete with Alibaba in China, we will have to re-evaluate our relationship with Yahoo in light of their intentions," Alibaba spokesman John Spelich wrote in an email to DailyFinance.

If Alibaba ultimately does give its working relationship with Yahoo the heave ho, it would become the third Asian partner to cut its ties with Yahoo in less than three months. Last month, South Korean Internet search giant NHN said it would dump Yahoo's search technology in favor of its own when its contract with the U.S. company expires in November. And in August, Yahoo Japan said it planned to punt kick its U.S. counterpart's search tool in favor of rival Google (GOOG).

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The reasons for the apparently strained relations seem to fall within the parameters of business strategy, versus cultural differences. That said, however, Yahoo's CEO Carol Bartz is known for her brash, blunt and salty language, which may run counter to the way folks in China and Japan conduct business, according to various advisory books and consulting services on doing business in Asia.

In this most recent case, Alibaba was responding to comments made earlier this week by a Yahoo Hong Kong executive, who reportedly said that Yahoo was interested in wooing small- and medium-sized businesses from mainland China to advertise on its Hong Kong site, according to a Reuters article. Those were fighting words considering that Alibaba runs China's largest business-to-business e-commerce site, the story notes.

Why Yahoo Needs Asia -- and Alibaba

Yahoo, which doesn't have websites in mainland China, relies on Alibaba to access the massive market there. The relationship already ran into some turbulence earlier this year when Yahoo said it would support Google when it threatened to leave China over censorship issues. Alibaba chastised Yahoo for its comments, saying they were "reckless given the lack of facts in evidence."

Now, in addition to feeling Yahoo could be a political liability, Alibaba apparently is wondering whether its business partner could turn into a competitor.

Yahoo, however, sees things differently. In its statement, the Internet giant said:

Yahoo! holds the number one position in Hong Kong in terms of home page, news, search, e-commerce, and other key services. We are always looking for revenue growth opportunities, new ways to deliver audiences at scale to our advertisers and partners, and providing the best digital experience to our consumers.

Yahoo! maintains a 39% stake in Alibaba. China-based companies buying ads on the Yahoo! Hong Kong network does not affect the investment.

Yahoo's Asian investments are important to the company, given that they are believed to account for 40% or more of its value on Wall Street, says Clayton Moran, an analyst with The Benchmark Co. Moran values the Asian investments at between 40% and 45% of Yahoo, while some other investors believe they account for more than 50%.

"I think Yahoo is very committed to these investments, given the success of these businesses in relation to its own core domestic business," Moran says."There is a view out there in the investment community that one day Yahoo will be a play based on their Asian investments, more so than on Yahoo itself."