Has Yahoo finally got it right this time?

A pioneer in China's Internet market, Yahoo has never managed to capitalize on its international brand name, ready access to capital and technical expertise to become a major force in the world's second-biggest online market as measured by users.

Now it's paying US$1 billion (HK$7.8 billion) and throwing in all its existing China assets to acquire a 40 percent stake (with just 35 percent voting control) in Alibaba, a relatively narrowly focused Internet outfit that last year earned just US$46 million.

Though it won't be clear for some time if the deal is a smart one, Yahoo does seem to have learned one lesson from its previous ventures - by purchasing a minority stake it will leave in place a management team led by Alibaba founder and chief executive Jack Ma that's highly regarded and has a strong incentive to stay. In earlier deals, Yahoo bought mainland companies outright only to see top management depart in relatively short order, leaving behind operations that lagged domestic competitors.

Yahoo entered China ''when [Internet portals] Sina and Sohu were just beginning,'' said TR Harrington, partner at Mithras Consulting Group. ''But it never made it to the top.''

Its online auction arm, Ipai, a partnership with Sina, is a distant third in a market dominated by eBay and local upstart Taobao, a two-year-old Alibaba venture that's been gaining market share from its giant US rival. Even its best asset, No2 search engine 3721, which Yahoo bought in late 2003, has faced management turmoil, with founder (and Yahoo China president) Zhou Hongyi quitting in July.

``If Yahoo had a better management team, it could have done better in China,'' Harrington said.

Ma, a major shareholder who presumably will stick around at least until privately held Alibaba sells shares to investors, strikes some observers as just the ticket for Yahoo's China woes. ``He is more aggressive and knows how to do business in China,'' Harrington said.

JPMorgan China Internet analyst Dick Wei said: ``Alibaba has a proven track record, more experience working with foreign companies and with a [chief financial officer] who was educated in the US that makes them a better cultural fit.''

The deal has more obvious benefits for Alibaba. In addition to the massive cash infusion, it could also give Alibaba the breadth it needs to become a first-rank player in China's Internet market.

The company got its start in the business-to-business market running a Web site that served as a trading medium for China's legion of small and medium-sized companies, and for exporters and importers worldwide. It has dominated that market from the beginning.

It later added Taobao and its online pay system, Alipay, both of which have gotten off to strong start, though they remain in second place.

Alibaba's client base - 6.4 million registered Chinese-language site users and 1.5 million for its English-language equivalent - may boost 3721, said Alibaba spokesman Porter Erisman.

``Advertisers in search engines are mostly small and medium-sized companies, which are exactly the users of the Alibaba B2B market,'' he said.

Perhaps more importantly, certainly for Alibaba's many venture capital investors, the addition of Yahoo China's assets, even if they aren't market leaders, will give Alibaba a wider reach - making it far more attractive to investors. Its primary market, business-to-business, is too prosaic to fetch the kind of multiples that investors give broader Internet franchises, such as newly New York-listed Baidu. The closest US equivalent to Alibaba, Nasdaq-listed Global Sources, only trades at 19 times earnings or three times revenues.

With Yahoo China, Alibaba acquires a search engine and a portal. ``Now we have all the key growth elements of the Internet under one roof,'' Erisman said.

Alibaba's venture capital investors could be growing restless. Some put money in as far back as 1999, which means they're nearing the point at which most venture capitalists hope to cash out for a fat profit. In addition, to Softbank (Yahoo's partner in Japan), they include Fidelity Capital, Granite Global Ventures, Venture TDF of Singapore and Transpac Capital.

Yahoo's cash means Alibaba will face few immediate investment constraints. ``With US$1 billion from Yahoo, the partnership will have more money to spend on content and they can compete with Sina and could spend on acquisitions.'' JPMorgan's Wei said. sherman.so@singtaonewscorp.com