Yale School of Management

The Alibaba Group

Overview:

By July of 2011, Yun “Jack” Ma had achieved his goal of creating one of the world’s leading e-commerce companies. Ma founded the Alibaba Group and took advantage of growing internet usage in China to launch the leading B2B, C2C and B2C sites in the country and capture a huge market. Despite his success, Ma had a troubled relationship with Yahoo!, the largest investor in the Alibaba Group. Ma’s decision in January of 2011 to transfer Alipay (the Alibaba Group’s online payment unit) from the Alibaba Group to a company under his personal control was just making matters worse.


When Ma founded Alibaba.com in 1999, he faced competition from a number of other Chinese B2B web portals. Ma made a number of strategic decisions that allowed his portal to grow as others fell by the wayside. By 2003, Alibaba.com had emerged as the dominant B2B site in China. With Alibaba.com prospering, Ma entered the C2C space by creating Taobao.com which quickly overcame eBay-EachNet as China’s dominant internet consumer space. He also created Alipay (PayPal type site) to allow for easy transactions and T-Mall a B2C portal allowing merchants to sell directly to Taobao.com consumers.


Expansion required capital and technical expertise. Ma hoped to obtain both by striking a strategic partnership with Yahoo! in 2005. Under the terms of the agreement, Yahoo! provided Alibaba with $1 billion in capital, access to Yahoo’s search technology, and the control of Yahoo! China. In return, Yahoo received a 40% stake in the Alibaba Group, the entity that Ma created to own his various ventures. In the intervening years, tensions had flared between Yahoo! and Ma over the direction of the Alibaba Group. Indeed in 2010, Ma had sought to buy back Yahoo!’s share in the venture.


These issues came to a head in May of 2011 when Yahoo! investors reacted negatively to a disclosure that Alipay had been spun-out of the Alibaba Group. Ma claimed that he was forced into the transfer by Chinese authorities who insisted that Alipay be controlled by domestic Chinese investors or risk losing its license to operate. After the disclosure of spin-out, Ma promised to make sure that Yahoo! and his other foreign investors were adequately compensated for the transfer. But two months after the disclosure, negotiations over how to compensate the foreign shareholders in the Alibaba Group had yet to be resolved.

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Teaching Note:
No
Suggested Citation:

Yi Guo,Yao Jing, Charles Liu,Michelle Wang,Jaan Elias ,and Zhiwu Chen, “ The Alibaba Group,” Yale SOM Case 10-020, July 14, 2011

Keywords:
  • China
  • Internet
  • e-Commerce
  • Yahoo
  • Women in Leadership
Perspectives:
  • Competitor/Strategy
  • Entrepreneurship
  • Investor/Finance
  • Law & Contracts

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