Alibaba has announced plans to consolidate two of its subsidiaries into one company. Alimama is the company’s ad network for Chinese SMBs, and Taobao is the company’s auction platform, which is best known for dramatically driving eBay China out of the China market after eBay bought Eachnet.

This is likely a measure to counter Baidu’s plans to enter the e-commerce market. According to this report from Keso, Taobao has blocked Baidu’s spiders from crawling Alibaba. Spiders from other search engines are not blocked. It is very unusual to hear of one search engine’s spiders being singled out for blocking; I have never heard of this until now.

Can you say hardball?

Spiders are software programs used by search engines to crawl other websites; they detect changes in websites and report changes back to the mothership search engine which are used to update the search engine’s search index.

According to Keso’s report, Jack Ma of Alibaba believes that Alibaba’s SMB e-commerce platform represent the family jewels, and he already has enough users to allow him to make such a dramatic parting of way’s with Baidu. Baidu is currently China’s largest search engine player, with more than 60% market share.

For Baidu, losing the capability to crawl Alibaba’s sites represents a huge loss, and puts more pressure on their nascent e-commerce platform to succeed. Otherwise Baidu’s e-commerce search results will look very weak, just as e-commerce is showing signs of takeoff.

Now, Google China is the wild card which might benefit from the Alibaba/Baidu faceoff. Significantly, Google China’s spiders are not blocked from crawling Alibaba’s sites. Jack Ma has three options:

• Build his own search engine team which would build its own search engine to crawl Alibaba sites;
• Make Google.cn the default search engine for Alibaba and its subsidiary companys;
• Go to Google China and propose a joint venture company which would have a separate search engine to crawl Alibaba sites. Search advertising revenue would be split between the two companies.

From a technology perspective, search engines are more challenging to build. Specifically, they need to continuously update their search index, although if the search engine is only pointed at the Alibaba community, it would not be as difficult. Search engines need to be continuously updated and modified to get accurate search results, although optimization on organic and paid search are very different in how they are updated and modified.

From the SMB users’ perspective, the key to success is providing a smooth and transparent transition between search advertising and online business transactions. Bad user experience has led to the downfall of many a business, most recently eBay in the US, which has continuously raised fees on its auction platform, driving away its originally fanatical loyal user base, and forcing it into a retail model which competes on unfavorable terms with Amazon, the online retail ecommerce leader in the US.

Things are getting interesting…

Technorati Tags: alibaba, alimama, amazon, auction, baidu, China, Chinese, ebay, ecommerce, programming, search, taobao, user_experience

The story of western social network sites losing out to local Chinese competitors continues; this time MySpace China joins the list as its CEO Luo Chuan makes it official that he is going to leave to join a local online video startup.

Although it is a well-known fact that local management teams need to be empowered to compete successfully in the Chinese market, western tech companies continue to make the same mistakes over and over again. I believe that the reasons for this are:

• While there is much talk about diversity, there is the firm belief that “brands” must be protected with a unified set of features and look all over the world;
• Most VPs of marketing are not fluent in other languages and cultures, and try to dictate from headquarters. When they visit the local office, they appear sympathetic, but when they return to HQ, everything learned from visits to local subsidiaries is quickly forgotten;
• Local Chinese competitors are unrestricted by these considerations; they just do what they need in order to win users. There is very little if any discussion of “brand” and “look and feel”. These are the horses VCs like to bet on;

When you come right down to it, there is little a global brand can bring to the table in China. Most add a burden of a faraway headquarters without empowering the local management team to be more competitive. This is not a problem which is unique to China, it is also happening in the social networking market in Japan.

My conclusion: The problem does not lie with China, but instead lies with the reluctance of western social networking sites to empower their local management to do whatever they need to win users and market share. By trying to force common features, standards and branding too early from their headquarters way before the market is mature, they cripple their local companies’ chances of success, and cede the market to the local competitors.

That is why the successful local competitors get such high valuations; they make ideal acquisition candidates and give their founders a good exit strategy.

Ask Meg Whitman, former CEO of eBay.

Technorati Tags: brand, branding, ceo, China, ebay, globalization, japan, local, management, marketing, myspace, social_networks, western