After Yahoo deal, challenges abound for Alibaba

By Melanie Lee

SHANGHAI (Reuters) - China's Alibaba Group could command a Facebook-rivalling valuation of $100 billion when it comes to list its shares, possibly by 2015 - but its more immediate challenge is to hang on to top spot in the country's $36 billion e-commerce market.

Founded and led by Internet entrepreneur Jack Ma, Alibaba faces increasingly tough competition in its e-commerce stronghold from well-funded rivals 360buy, which is backed by Digital Sky Technologies, Dangdang Inc and Amazon.com Inc. Tencent Holdings, China's leading online games and social networking firm, has also said it will build up its e-commerce business by creating a separate unit.

"All the big Internet players have gotten into each other's spaces with this idea that you can create a hermetically-sealed world where users never have to leave your platform," said Mark Natkin, managing director of tech consultancy Marbridge Consulting.

Tencent's huge user base - it has 575 million active users on its Qzone social site, which is linked to the popular QQ instant messaging application - and record of expanding successfully into new ventures could challenge Alibaba, which needs to maintain its high growth rate for a successful future listing. Alibaba Group revenue grew at a compound annual rate of 72 percent in 2008-2010.

"Competition is going to get more intense with Tencent entering the market," said JPMorgan analyst Dick Wei.

CORE FOCUS

This week, Alibaba ended more than two years of often fractious negotiations with Yahoo Inc to buy back much of a stake held by the U.S. web giant and, crucially, reduce the voting power of foreign stakeholders including Yahoo and Japan's Softbank Corp - allowing Ma to focus on growing his business.

"With the Yahoo share disposal and the plans laid out for it, Alibaba's management team can focus more on the core business itself," said JPMorgan's Wei.