Alibaba buys NetEase’s Kaola for US$2 billion to create China’s biggest cross-border e-commerce platform

Jane Zhang

Chinese e-commerce giant Alibaba Group has acquired Kaola from gaming and entertainment giant NetEase for about US$2 billion, creating the largest cross-border e-commerce platform in the country, according to a statement from Alibaba on Friday.

Kaola will continue to operate independently under its current brand and Alvin Liu, the import and export general manager of Tmall, one of the largest third-party online e-commerce platforms for brands and retailers in the world under Alibaba, will serve as Kaola’s new chief executive officer

“With Kaola, we will further elevate import services and the experience for Chinese consumers through synergies across the Alibaba ecosystem,” Daniel Zhang, chief executive of Alibaba Group, said in the statement.

China’s cross border e-commerce market was expected to reach 10 trillion yuan (US$1.4 trillion) by the end of 2019 as the country’s E-commerce Law came into effect earlier this year, aimed at nurturing the healthy development of the industry, according to a report released in August by Chinese market research company iiMedia Research.

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In the first half of 2019, Kaola and Tmall Global were China’s largest and second-largest cross-border e-commerce platforms with a market share of 27.7 per cent and 25.1 per cent respectively, iiMedia Research said.

”This [deal] should optimise competition and cooperation in China's internet industry,” said Cao Lei, director of the China E-commerce Research Center. “Through strategic investment and cross-shareholding, companies can be exposed to ... a better business, ” said Cao Lei, director of China E-commerce Research Center.

In addition, Alibaba together with private equity firm Yunfeng Capital, which was co-founded by Alibaba’s founder Jack Ma, will invest about US$700 million in NetEase Cloud Music in its latest round of financing. NetEase will remain the controlling shareholder of NetEase Cloud Music.

NetEase Cloud Music had about 132 million monthly active users (MAU), ranking fifth in the country behind four Tencent-backed music apps Kugou, Quanmin K Ge, QQ Music and Kuwo, according to an April 2019 report from research firm Questmobile.

However, NetEase Cloud Music has grown rapidly in terms of MAU with a year-on-year growth rate of 27.5 per cent, the fastest among the five apps, Questmobile said.

“Completion of this strategic transaction will allow NetEase to focus on its growth strategy, investing in markets that allow us to best leverage our competitive advantages,” said William Ding, chief executive of NetEase. “As the controlling shareholder of NetEase Cloud Music, we will continue to fully support the growth of this business, helping it to realise its strategic goals in the music industry.”

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