Call it Business Gambling or Big play, Alibaba is Ready to Invest $590M in Local Smartphone Maker
Business and risk go head-to-head. And China’s Alibaba Group seems the biggest believer of this philosophy. Look at its recent venture, as reports the Reuters: the Group is investing $590 million in a local smartphone maker which is very much unknown until this time when I’m writing this story.
It appears as the e-commerce giant has decided to risk this huge amount of money in its endeavor to expand its mobile operating business in a handset market whose business is plummeting.
Alibaba confirmed on Monday that it was going to take a stake in smartphone maker Meizu Technology Co. Meizu’s share in China’s smartphone market is negligible – below 2% suggest analysts’ estimates. Alibaba’s investment may uplift the company which often goes unnoticed under the shadows of giant rivals like Xiaomi Inc.
Nonetheless, Alibaba definitely wants to promote its mobile operating systems in China. And the medium through which it is going to do this promotion is Meizu’s handset. Guangdong-based, privately owned, Meizu will be given access to Alibaba’s e-commerce sales channels as a form of compensation, the new partners confirmed in a statement.
Alibaba, which is as big in e-commerce as Apple is in iPhone making, possesses the astonishing market value of $213 billion. Despite the huge market value it has, still investment of $590 million in an obscure company by Alibaba seems a big gamble. And the challenge is not of merely selling operating system with support of a local small company, but the chief problem is existence of tech giants as the competitors.
Meizu is, in fact, dwarfed or blunted by Xiaomi, Huawei, Lenovo, the leader in processor production Samsung and the popular iPhone maker Apple. According to various analyses, the aforementioned five companies contribute 60% of the total smartphones in Chinese market.
So the risk is obvious. Even the consultants and analysts do not consider this a rationale business initiative.”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.