Yahoo’s Yang finds yin with Ma of Chinese Alibaba

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: It started with walks along China’s Great Wall and culminated at California’s Pebble Beach resort, where Yahoo Inc.! cofounder Jerry Yang decided to make a $1 billion bet on Alibaba.com CEO Jack Ma.

The friendship the two formed on their Wall hikes led to Yahoo’s purchase of 40 % of Ma’s privately held Alibaba, China’s biggest electronic-commerce company and No 2 online auctioneer. The question is whether the acquisition will help Yahoo overtake EBay Inc., China’s leading online auctioneer, and win more customers in the second-biggest Internet market after US.

‘‘The Alibaba purchase gives Yahoo a strong local entrepreneur, a heavyweight in the industry, who can drive the company to success,’’ says Duncan Clark, managing director of Beijing-based technology consultant BDA China Ltd. ‘‘China is a high-maintenance market. It is highly regulated, highly sensitive and difficult to manage from 15 hours’ time difference away.’’ Yahoo controls just 3 % of China’s online auction market and ranks second among search engines.

To turn the company from a laggard into a leader, Ma, 40, faces the challenges of winning loyalties of Yahoo’s 600 China-based employees and attracting customers in a relatively undeveloped electronic- commerce market. ‘‘Chinese Internet users tend to focus on online games and spend a lot less on e-commerce,’’ says Frank Shi, an analyst at CLSA Ltd. in Hong Kong.

Risks

Ma also has to ensure that Yahoo employees in China don’t defect, says Victor Gao, CEO of China State-Owned Enterprise Investment Co., a Beijing-based merger consultant. ‘‘There is a risk that the staff at Yahoo China may not want to follow Ma,’’ Gao says. Zhou Hongyi, Yahoo China’s current president, said that he didn’t think the Alibaba transaction made sense. “Alibaba has its own B2B and consumer-to- consumer revenue models, while Yahoo is strong in search engines and e-mails,’’ says Zhou.

$1 Billion deal