Alibaba's U.S. Startup Stakes Offer Strategy Clues
Posted 10/29/2014 05:07 PM ET
While it may make a U.S. mega-acquisition, Alibaba is also pursuing a lower-key strategy here: investing in promising U.S. tech startups.
The exact purpose of its investments is unclear. Some appear aimed at tapping technology that Alibaba Group (NYSE:BABA) needs to compete vs. Chinese Internet giant Tencent (OTCPK:TCEHY) and other rivals. Others may be more strategic and have a long-term focus on the U.S. and other markets. One key area seems to be mobile and entertainment content, where U.S. players like Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN) are already entrenched.
Alibaba's taking the long view, some analysts say.
Alibaba was among exhibitors at this trade show in its home market of China, but the firm plans to be a big presence in other markets soon. View Enlarged Image
"Investing in U.S. startups is a really long-term strategy, a strategic investment," said JG Capital analyst Henry Guo.
Others say that Alibaba is keen on introducing into China the cutting-edge apps and other tech that these firms have been developing. Getting an Alibaba stake is also a fast way for these startups to access the Chinese market.
Whatever its purpose, Alibaba is engaging in a stateside investment spree. On Oct. 9, Alibaba said that it had invested $50 million in Mountain View, Calif.-based startup Peel Technologies, developer of an app that turns iPhone and Android phones into remote controls for TVs. The investment follows smaller investments in Peel by Alibaba earlier this year.
Analysts view the stakes as an effort by Alibaba to move outside its core e-commerce business into the smart-home market and mobile entertainment apps.
commentary...I use this as a model on how the adjacent possible has shifted for QUIK, more and more as the dots are unveiled they will be unexpected good stuff, as opposed to unexpected bad stuff. For those who have been invested a looong time in this business it is/will be a very nice change.
In January, Alibaba invested in 1stdibs, an upscale New York City-based startup that sells luxury goods, plunking down $15 million in series C third-round venture funding.
It also poured $215 million into Mountain View-based Tango, the developer of a messaging and free-calling mobile app. Some analysts viewed the Tango investment as a defensive move against Japanese online retail powerhouse Rakuten, which is expanding globally and which said in February that it's buying Viber Media, a Tango rival, for $900 million. Viber is a Las Vegas and Cyprus-based Internet messaging and calling service.
Other U.S. startup investments by Alibaba include $250 million in series D fourth-round venture funding for San Francisco-based ride-summoning firm Lyft in April, and a $120 million investment in Kabam, a San Francisco-based video game startup.
Not to be outdone, Tencent has made over a dozen investments in U.S. startups in the last year. And Chinese search leader Baidu (NASDAQ:BIDU), another Alibaba rival, acquired TrustGo, a Santa Clara, Calif.-based mobile security app provider for $30 million in February 2013 in a push into mobile search technology.
As its rivals maneuver, JG Capital's Guo says that cash-flush Alibaba is looking far into the future where the U.S. market is concerned. With pockets bulging from its $25 billion U.S. IPO , Alibaba can take its time selecting the best mobile social apps and U.S. startups in which to invest.
"Investing in Tango doesn't make much difference to Alibaba's top line right now," Guo noted. "It's still too early."
Read More At Investor's Business Daily: http://news.investors.com/technology/102914-724029-baba-invests-in-us-mobile-app-developers.htm#ixzz3JMK6wTM8
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