Yahoo! Beefs Up its Search for China's e-Billions

In China, the Internet crowd is partying like it's 1999. Stocks like Sohu and Sina.com — Yahoo! or MSN equivalents — are soaring. IPOs are hot (Baidu.com, a.k.a. the Google of China, debuted on the Nasdaq recently and quadrupled in price on its first day of trading). And so important is China to e-commerce giant eBay that CEO Meg Whitman has been camped out in sweltering Shanghai for most of the summer, making sure eBay gets its China strategy right.

Her task just got more complicated: Yahoo's intention to invest $1 billion for a 40 percent stake in eBay rival Alibaba-Taobao, a company that was already making life difficult for eBay in China, means the fight for control of the world's next great e-commerce market will be fierce, as Yahoo! co-founder Jerry Yang acknowledged in an interview with TIME.

Most people don't think of Yahoo! as an e-commerce company, but it actually drove eBay out of Japan's huge e-commerce market three years ago, and is the market leader in Taiwan. The allure of China, of course, is obvious: There are already 100 million internet users there, and in a decade's time most analysts believe that number will reach 250 million if not more. But the e-commerce business is just starting to get traction — only 4-5 million of those 100 million internet users currently shop on the net, although that number also is expected to explode over the next decade. Yahoo's Yang told TIME he expects China eventually to surpass Japan's $6 billion market.

The company Yahoo! is buying into, Alibaba, is already a profitable business-to-business e-commerce site. (The company is privately held — it plans to go public next year — and doesn't publicly disclose financial results.) The more direct competitor to eBay, called Taobao (searching for treasure in Mandarin) isn't yet profitable, but according to Yang is a great franchise in the making. Both sites were started and are run by 40-year-old internet entrepreneur Jack Ma, who will remain in charge. This is definitely an arrangement where we think have great assets coming together, but this (deal) would not have happened without Jack and his team, says Yang. They'll continue to run things as they see fit.

To date Ma has reveled in playing David against Meg Whitman's Goliath — even though Taobao surpassed eBay in the second quarter of this year in terms of the value of transactions done on its site. Now that Yahoo! is giving him $1 billion to go after Whitman and eBay, his 'David' days are over. But the fight for the world's next great e-commerce market had just begun.