Alibaba has invested more than half a billion dollars in a little-known Chinese handset maker as the world's largest online retailer pushes its own mobile operating system into the Chinese market.
In a statement, Alibaba announced that it has taken a $590 million stake in Meizu Technology in an effort to push Alibaba's YunOS, which the company describes as a cloud-based operating system developed by its subsidiary AliCloud, into more smartphones in the Chinese market. In return, Meizu will have access to Alibaba's massive e-commerce channels and other resources to promote its own products and services.
"The investment in Meizu represents a significant expansion of the Alibaba Group ecosystem and an important step in our overall mobile strategy as we strive to bring users a wider array of mobile offerings and experiences," says Jian Wang, chief technology officer of Alibaba, in a statement.
It is unclear how Alibaba plans to leverage its new partnership with Meizu to compete with local smartphone manufacturers such as Xiaomi, Huawei, and Lenovo that have quickly grown to dominate the Chinese smartphone industry, not to mention the multinational brands Apple and Samsung.
While Meizu has gone from a few hundred smartphones in shipments for the last few years to 2 million units in the last quarter of 2014 and 1.5 million units in January, it still comprises only less than 2 percent of the market share in China. Meanwhile, the leading five brands account for more than 60 percent of all smartphone units shipped in the country, says Nicole Peng, a Shanghai-based data analyst for research firm Canalys.
Meizu operates in Guangdong province, where the company employs more than 1,000 workers. On its website, it says it has more than 600 retail stores across China and has physical locations in Hong Kong, Israel, Ukraine, and Russia. Meizu sells only four smartphone models, and the models in its MX series of smartphones run on the company's own Android-based OS called Flyme.
While a $590 million investment in Meizu may seem like a drop in the bucket for Alibaba, which has a valuation of $213 billion, some analysts believe Alibaba could be risking a hefty sum of money in an investment that has yet to prove itself in both the Chinese and global industries.
"You could see they're spending $590 million to experiment a bit and see what happens - it's an expensive experiment, right?" says Michael Clendenin, managing director at Shanghai-based RedTech Advisors. "My concern is that some Internet players are confusing being able to spend just 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."
The Meizu investment, however, is not Alibaba's first foray into mobile. In recent months, the e-commerce company has been snapping up software and content investments left and right to complement its most recent stake in hardware. Its most recent ones include a $600 million round of funding for Chinese taxi app Kuaidi Dache, $280 million for messaging app Tango, and $120 million for U.S.-based game developer Kabam.