HANGZHOU, China — Alibaba Group Holding Ltd. bought NetEase Inc.’s Kaola e-commerce platform for about $2 billion and invested in its music streaming service, forging a rare partnership between two of China’s largest internet giants.
The deal hands Alibaba the biggest Chinese online marketplace for foreign brands after its own Tmall Import and Export. Kaola will now operate independently but with a new chief executive, Alvin Liu, appointed from Tmall. Separately, Alibaba and Jack Ma’s Yunfeng Capital will pour $700 million into NetEase Cloud Music, the companies said in a statement. NetEase will remain the controlling shareholder of its music app.
Both companies compete against social media titan Tencent Holdings Ltd across several fronts. For Alibaba, the emergence of Tencent-backed rivals like Pinduoduo Inc. is testing its longstanding dominance of Chinese online retail. While NetEase has long been the closest rival to Tencent in gaming, it has also expanded into music streaming — another area where Tencent leads. Alibaba has its own music app Xiami.
For NetEase, selling its low-margin Kaola platform would allow the company to focus on its bread-and-butter gaming business.
The Kaola deal will make Alibaba the “go-to” venue for consumers seeking imported goods, Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam wrote in a note Friday. Together, Alibaba and Kaola controlled almost 60 percent of all transactions on China-based platforms for foreign brands in the second quarter, according to research firm Analysys.
NetEase Music most recently raised $600 million in November when Baidu Inc., General Atlantic and Boyu Capital participated. Its latest capital injection comes after China’s antitrust authority launched a probe into its much larger rival, Tencent Music Entertainment Group, over its content relicensing practices.
Under government pressure, Tencent Music and NetEase Music last year agreed to relicense more than 99 percent of their music catalogues to each other. “What really matters is the 1 percent exclusive content,” said Shawn Yang, a Shenzhen-based analyst with Blue Lotus. “Now that NetEase has new funding that can be used to buy copyrights, it will definitely be a threat to TME.”
By Zheping Huang; editors: Edwin Chan and Colum Murphy.