The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Weibo has reason to “open sesame” to Alibaba. A possible purchase of a 15-20 percent stake in China’s Twitter by the country’s largest e-commerce group, Alibaba, as reported by China Business News, makes strategic sense. It could pave the way for owner Sina to spin Weibo off, and create revenue synergies for both.
Micro-blogging service Twitter is powerful in shaping public opinion, but weak at monetizing its 400 million person user base. Alibaba could help. Its Taobao and Tmall commerce sites are popular with small businesses, who could be incentivised to pay for sponsored sites on Sina’s micro-blogging service. Alibaba might benefit too, by directing more high quality Weibo users on to its shopping sites.
Getting an anchor investor may also be the first step in a Weibo spin-off. Sina’s chief executive has said the company is considering such a move, to help Weibo garner a better valuation. An Alibaba investment would give an indication of value. The $3 billion valuation mooted in Alibaba’s talks compare with analyst estimates from $1 billion by Goldman Sachs to $4 billion by Credit Suisse.
Social networks are increasingly important to Alibaba. Almost 4 percent of Weibo’s total traffic goes on to Tmall and Taobao, according to online marketing blog HitWise. Sites like Meilishuo, a site part-owned by Sina rival Tencent, bring traffic too. But an investment in search engine Sogou had little strategic impact – Alibaba sold its stake back for $26 million to original owner Sohu in July.
The two companies have reasons to work together to fight off pressure from Tencent, which is becoming a threat to both. Its communication and social networking service Weixin has grown to 200 million mobile phone users. Tencent, a newcomer to e-commerce, could challenge Alibaba’s lead, with its own Web-based micro-blogging service and mobile application Weixin.
How to agree on a Weibo valuation may be the biggest challenge – the service has only just started to create revenue. Still, an early deal could leave both sides better off.