Alibaba’s Smart Phone Play

Alibaba is taking a $590 million stake in a Chinese smartphone maker, Meizu Technology Co, that is virtually unknown internationally as the megafirm continues to explore ways to expand its mobile reach in a tightly competitive market.

Alibaba has said it will take an as of yet unspecified minority stake in Meizu. The pair up is designed to help Alibaba push its mobile operating system throughout China using the phones – Guangdong-based Meizu will now have access to Alibaba’s e-commerce sales channels in return.

Alibaba, despite its size, faces a very competitive landscape for smart phone with its operating system. Domestic leaders Xiaomi, Huawei Technologies Co Ltd [HWT.UL] and Lenovo Group – and international leaders like Apple Inc and Samsung Electronics Co Ltd – pose serious impediments to Alibaba OS’s progress. Those five leading five brands accounted for nearly 60 percent of China’s smartphone market in the fourth quarter of 2014.

“You could say they’re spending $590 million to experiment a bit and see what happens – it’s an expensive experiment, right?” said Michael Clendenin, Managing Director at Shanghai-based RedTech Advisors.”My concern is that some internet players are confusing being able to just spend a couple hundred million dollars to buy a piece of hardware that looks pretty cool but is essentially a copy of what Apple has done and what Xiaomi has done,” he said.

And competition is not the only difficulty in this space, as Alibaba also has to deal with a smart phone market that is slowing down internationally.

Some 557 million people access the internet via mobile devices, according to government data. But shipments in China were 389 million phones in 2014, down from 423 million the previous year, according to China’s Ministry of Industry and Information Technology.


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