Yahoo and Alibaba have tried to put a brave face on their dispute over the ownership of online payment service Alipay, releasing a terse one-sentence joint statement that the companies are “committed” to working out a solution and that “productive” negotiations are underway.
Yahoo owns a 43 percent stake in Alibaba, which—along with Yahoo’s stake in Yahoo Japan—has been one of the financial assets on which Yahoo CEO Carol Bartz has been using to keep the company stable as it streamlines operations and refocusses on core businesses. However, Yahoo saw its stock take a broadside last week from the investment community when it disclosed that Alibaba had spun off its Alipay online payments service into a separate entity. Yahoo says it was informed about the move only at the end of March, and Alibaba’s board (of which Yahoo is a member) or shareholders never approved the deal. Alibaba says its board (of which Yahoo is a member) has been talking about spinning off Alipay for nearly two years.
The dispute highlights the increasingly antagonistic relationship between Alibaba Group CEO Jack Ma and Yahoo’s own outspoken CEO Carol Bartz. Although the companies have cooperated for years—and Bartz has repeatedly indicated Yahoo has no intention of letting go of its share of Alibaba—industry watchers speculate that spinning off Alipay into a separate entity may serve two purposes. One is the explicit reason Alibaba gave for the move: complying with Chinese regulations regarding foreign ownership of online payment companies. A second motive might be to give Alibaba a strong negotiating position with Yahoo, since the move means Alipay can’t use used as a chip between the companies.
From a business perspetive, Yahoo’s interest in Alibaba has proven a reasonable long-term strategy: where American Internet companies like Google have struggled to be competitive in the Chinese market, Yahoo has kept a solid footing in China through Alibaba. And where Yahoo saw its net income drop by 26 percent in its first quarter of this year, Alibaba.com (the group’s main entity) saw its income jump 37 percent. However, Yahoo hasn’t managed to avoid all the difficulties of conducting business in China: several Chinese bloggers and political activists have been imprisoned in part using information on their online activities turned over to Chinese authorities by Alibaba.
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