Alibaba.com, whose parent is preparing for a US$1 billion share sale in Hong Kong, will compete with 40 per cent shareholder Yahoo in the online search engine marketing business, raising concerns the group's internal competition may hurt the interests of Alibaba investors, sources said. Alibaba.com is a subsidiary of the mainland's largest e-commerce venture Alibaba Group. The group, established by chairman Jack Ma in 1999, has applied to list shares on the Hong Kong stock exchange. Goldman Sachs, Morgan Stanley and Deutsche Bank are sponsoring the initial public offering, sources said. Alibaba.com's main business is providing an online platform for small and medium-sized mainland enterprises to promote their business to overseas buyers or partners. Industry sources said Alibaba.com generates sales of 1.5 billion yuan to two billion yuan a year, and had 18 million registered member enterprises. The company, the market leader in the mainland, gets about 10 per cent of its traffic from overseas, according to industry watchers. 'Foreign buyers are more reliant on search engines such as Google and Yahoo to find partners or suppliers in the mainland,' said one analyst. 'Yahoo, which has a global presence, should be in a better position to capture Alibaba.com's dominant share if it launches a similar service.' Yahoo can provide a similar service to Alibaba.com through the search engine marketing business previously known as Overture, which was acquired by the United States-based company in 2004. Under search engine marketing, also known as sponsored searching, a company buys key words that place it at or near the top of a search results page when an internet user types them in. This is aimed at increasing brand awareness and boosting traffic to a company's website. Sponsored searching targets small and medium-sized businesses, the same customer segment served by Alibaba.com. 'Alibaba.com may face a negative impact if Yahoo aggressively promotes search engine marketing in China,' the analyst said. Market sources said Yahoo initially wanted to introduce the service in the mainland but was stopped by Mr Ma. 'Mr Ma doesn't want Alibaba's dominance to be threatened by Yahoo,' the analyst said. However, Yahoo seems to be adopting an aggressive approach to promoting the search engine marketing service in the mainland through its Hong Kong subsidiary. 'Yahoo is trying to sell this service to mainland enterprises through its Hong Kong office,' a source close to Yahoo said. 'Of course it is on a low-profile basis.' The two internet companies are chasing a market in which the number of mainland-based websites increased 55 per cent in the first six months of this year to 1.3 million. 'Mainland enterprises prefer to establish their own websites and use search engines to generate new businesses overseas,' the source said. Market watchers believe the potential competition between Alibaba.com and Yahoo could raise concerns during the hearing process for the Alibaba listing on the Hong Kong stock exchange. Under existing rules, a listed company must fully disclose businesses that it is in direct competition with that are owned by its shareholders and the reason why such businesses are not put into the listed company. 'As Alibaba has established a new Alimama online advertising business unit, which also targets small- and medium-sized enterprises, together with Yahoo's search engine marketing, investors will be frustrated as the group's internal business overlap will hurt the profitability and prospects of the listing company,' an internet stock analyst said.
