People are seen at the check-out counter of a physical store of Netease's e-commerce platform Kaola, in Zhengzhou, Henan province, China August 11, 2018. Picture taken August 11, 2018.REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.
A Kaola bricks-and-mortar store in Zhenghou. Kaola is China's largest cross-border ecommerce platform © Reuters

Alibaba has acquired online shopping platform Kaola from NetEase for $2bn, creating China’s largest cross-border ecommerce platform and giving the Chinese tech giant another leg up in its bid to dominate online shopping globally.

The acquisition will also see both companies, ostensibly rivals, collaborate further on digital entertainment in a bid to take on Tencent Music Entertainment, with Alibaba buying a $700m minority stake in NetEase Cloud Music as part of the company’s latest funding round.

The Kaola acquisition more than doubles Alibaba’s market share in cross border ecommerce.

The company is China’s largest cross-border ecommerce platform, capturing about 27 per cent of the cross-border market share in the first half of 2019. The second-largest, Alibaba’s Tmall Global, has about 25 per cent, according to a research note by Jefferies, an investment bank.

NetEase, better known for its gaming and music operations, has been seeking to sell its Kaola ecommerce unit for nearly a year, the Financial Times reported in August.

One of the big themes in China this year is companies more tightly controlling costs, especially in noncore businesses, said Jerry Liu, head of Hong Kong and China internet research for UBS.

“We haven’t seen many notable [China internet] assets change hands since 2015, when intense competition forced a lot of players to sell or merge assets,” he said.

The investment into NetEase Cloud Music is being made with Yunfeng Capital, the private equity firm co-founded by Chinese billionaire and Alibaba founder Jack Ma.

NetEase and Alibaba have already been working together to strengthen their platforms to compete with Tencent Music, often called China’s Spotify. NetEase Cloud Music last year struck a partnership with Alibaba’s Xiami Music streaming service in order to share parts of their libraries so that users of each platform could have an expanded catalogue of artists and songs.

“We believe NetEase Cloud Music can benefit from potential synergies with the Alibaba ecosystem,” Jefferies said in a research note.

Tencent Music, the Nasdaq-listed music arm of Tencent, is China’s largest music streaming company and has used its clout and cash to outbid rivals for distribution agreements with western labels.

Last month Tencent said it was in talks to take a 10 per cent stake in Universal Music, the label of artists ranging from Taylor Swift to The Beatles, marking the Chinese technology group’s latest move to expand its footprint in the global music industry.

Alibaba said in a statement the company would contribute to the development of NetEase Cloud Music and is “exploring innovative collaboration”.

According to the announcement, Kaola will operate independently under its current brand. Alvin Liu, the import and export general manager for Alibaba’s Tmall, will serve as Kaola’s new chief executive.

Unlike Alibaba, where merchants largely sell their goods, Kaola buys inventory from international brands. As of last year, it worked with more than 4,300 brands from 50 countries.

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

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