Alibaba Group to Split Taobao Online Retail Unit Into Three

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Alibaba Group Holding Ltd., China's biggest online-commerce company, reorganized its Taobao retail unit into three companies to better meet customer demands, Chief Executive Jack Ma said. Photographer: Nelson Ching/Bloomberg

Alibaba Group Holding Ltd., China’s biggest online-commerce company, reorganized its Taobao retail unit into three companies to better meet customer demands, Chief Executive Jack Ma said.

The unit will be split into Taobao Mall for consumers to shop from businesses, eTao for shopping-related searches, and Taobao Marketplace for consumers to buy and sell goods from each other, Alibaba said in a statement today.

Reorganizing Taobao will create more value for shareholders and the group “won’t rule out the possibility” of going public in the future to reward workers and investors, Ma told employees in a letter today. Still, separating the operations poses the risk of disrupting the business, said Daiwa Securities Capital Markets analyst Marvin Lo.

“There is better synergy as one company,” Lo said in a phone interview today. “From a business point of view, this is quite strange and it’s not clear this is the best thing to do. It doesn’t really make sense to me.”

The Taobao reorganization was necessary to meet competitive threats that emerged in the past two years during which the Internet and e-commerce landscape has changed “dramatically,” Alibaba’s Ma said in the letter. Social networking and e-commerce have witnessed disruptive changes as a result of open platform and social trends, while “countless” new companies have started, he said.

‘Big Company’

“We have developed into a big company so rapidly in a short period of time, but competitive advantage is not about size,” Ma said in the letter to employees, a copy of which was supplied by Alibaba. “A break-up may seem like a disadvantage on the scale front, as though Taobao has gone from “somewhere” to “nowhere.” However, through the “Tao” companies, Taobao will be “nowhere but everywhere. They will be omnipresent.”

Alibaba is already locked in a battle with its two largest investors, Yahoo! Inc. and Softbank Corp., over compensation for the divestment of Alipay, which Ma said was needed to expedite the application for an online payment license in China.

Last month, Yahoo said it wasn’t informed until March 31 about an August 2010 transfer of Alipay equity to a company outside of Alibaba. Ma previously said Alibaba’s board had discussed for three years the need to reorganize Alipay to comply with China’s restrictions on foreign investment in online payment operators.

Informing Investors

All three companies split from Taobao will remain wholly owned subsidiaries of the Alibaba Group, Alibaba spokesman John Spelich said by phone today. The group’s board and shareholders were informed in advance of the Taobao reorganization and supported the decision, Spelich said.

Dana Lengkeek, a spokeswoman for Alibaba investor Yahoo! Inc., confirmed the U.S. company was informed of the reorganization before the announcement.

The Alibaba Group is also the parent of Hong Kong-listed Ltd.

The three “Tao” companies will each be run by a president: Eddie Wu will run eTao; Leo Jiang will lead Taobao Marketplace, and Daniel Zhang will lead Taobao Mall.

Jonathan Lu, who previously served as chief executive officer of both Taobao and the listed unit, will now focus on his role at, and will also serve as a non-executive chairman of the Taobao Marketplace, the company said in a statement.

“Change is painful and undergoing change is hardly ever a smooth process,” Ma said in the letter. “We must change and we must change before change is imposed on us.”

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