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3 reasons why Alibaba invests on Sina Weibo

  36 Kr      2013-04-29 20:30:05      2,927    0

Last night, Alibaba announced acquisition of 18% shares of Sina Weibo with $586 million, according to sources close to the deal, after the completion of this deal, Alibaba will become the second largest shareholder of Sina Weibo and may become the largest shareholder in the future.

This deal was supposed to be completed before Chinese Spring Festival, but because Alibaba and Sina had a heated argument about the share holding of Sina Weibo which resulted in substantial delay in the time to complete the deal. Alibaba Managing Capital, Alibaba Group vice president Hongping's statement also confirmed this, he said on the Weibo that the strategic investment on Sina Weibo took six months with 46 negotiations.

The 18% shares is the final result of a compromise  between both sides, but it also left a chance for Alibaba to control Sina Weibo. In this deal, Sina granted Alibaba an option which allows Alibaba to increase the proportion of shares up to 30% with a pre-agreed price in the future. According to sources, Alibaba will hold  shares of Sina Weibo holdings to 30% in the future, it will become the largest shareholder and absolutely control Sina Weibo.

We believe that there are three major reasons why Alibaba gives up the complete acquisition of Sina Weibo at the last minute in favor of comprising with a strategic investment in Sina Weibo.

The first reason is to please the capital markets.

Since Sina Weibo commercialization has been hampered, in addition to the capital operation, no other way can bring confidence to investors. The $586 million of funds from Alibaba brings more time of trial and error to Sina Weibo. Because of this news, Sina share price rose 18% in the last trading day, reaching the highest in 52 weeks.

On the other hand, this also provides an excellent reference for Alibaba to be listed on the share market in the future, Sina Weibo has 500 million users, how to connect these 500 million users with Alibaba's e-commerce platform will leave people much imagination space.

The second reason is to seize the flow inlet and greet the era of big data.

To snatch mobile Internet traffic entrance, Alibaba invested or acquired some mobile network and social network related companies such as Meituan, Momo and UCweb, Alibaba will be the most influential Internet giant in the field of mobile Internet in China. Only Tencent can compete with it since it has WeChat.

Today's network has entered the era of big data, The accumulated data in the mobile Internet and social networking will be a gold mine, If Alibaba is able to control the entrance of the mobile Internet and the do big data analysis, it will overturn the current Internet giant.

The third reason is to challenge Tencent by strengthening social relationships.

The social e-commerce was Internet's hottest topic in the past two years. Alibaba deliberately stressed to merge the accounts between Weibo and Taobao, which means that Sina Weibo and Taobao ID can access each other's platform. A large number of Weibo buyers which have the purchasing power will be able to achieve interoperability with Alibaba sellers. Its significance and impact will be far more than that of the Taobao.

The reason why Tencent is powerful is the relationships chain among QQ users, for example Cross Fire players can get specific representation on QQ so the player's friends can know what game he is playing, then his friends may become the Cross Fire players as well. After the merge of Alibaba and Sina Weibo accounts, its user relationship chain is not inferior to Tencent in theory. If operating properly,Alibaba will become the first Internet company which has a user relationship chain similar to Tencent in China,

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