Chinese e-commerce giant Alibaba began the week with one heck of an announcement, stating in an official release that it had just forked over US$590 million for a stake in Chinese smartphone manufacturer Meizu.
The investment from the Hangzhou-based company, which in September last year completed a record-setting US$25 billion IPO on the NYSE, was for an undisclosed “minority” stake in the relatively unknown Chinese handset manufacturer.
This is the first time Alibaba has actually directly invested in a smartphone manufacturer.
The deal looks to boost Alibaba’s presence in the mobile arena — a space where rival internet giant Tencent has become a dominant player — by pushing Alibaba’s own mobile OS (operating system) YunOS (or Aliyun) on Meizu’s phones.
Meizu will now have access to Alibaba’s formidable e-commerce presence and marketing muscle. It is help the former, who has been struggling in recent years against competition from the likes of Xiaomi, Huawei and Lenovo, gain a larger foothold in the world’s largest mobile market.
According to a company statement, “Alibaba Group will provide Meizu with resources and support in the fields of e-commerce, mobile Internet, mobile operating system and data analysis with the aim of developing Meizu’s smartphone ecosystem.”
“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,” said Jian Wang, Chief Technology Officer, Alibaba Group.
The decision to invest in Meizu, as opposed to one of the larger handset manufacturers such as ZTE, is probably because of what happened between Alibaba and Google in 2012, and requires some basic understanding of the history of the Android operating system.
The thing with Android, unlike Apple’s iOS, is that it is an open source piece of software, which means that anyone can have access to the root files that comprise Android and tinker with them as they please. This is how we get custom versions of Android like Cyanogen and Xiaomi’s MIUI. Companies that manufacture hardware and software for Android are often member of the OHA or Open Handset Alliance, a consortium of companies that work towards things like mobile standards and the like.
All members of the OHA are forbidden from developing a version of Android that is “forked and incompatible” with other forms of Android, which is to say that any application written for Android in general should work on any version of Android, regardless of whose Android “skin” it is.
Acer is one of the members of the OHA, having joined in 2009. In 2012, they tried to release a smartphone preloaded with Alibaba’s YunOS. Google did not take kindly to this and managed to stop Acer from selling the device. Google’s argument was that YunOS was not its own OS, but rather incorporated many elements of Android into it and therefore, was subject to the terms and conditions of the OHA. Google’s Andy Rubin said that “the Aliyun OS incorporates the Android runtime and was apparently derived from Android”.
Alibaba opposed this notion, telling Ars Technica that, “It is ironic that a company that talks freely about openness is espousing a closed ecosystem. Aliyun OS is not part of the Android ecosystem, so of course Aliyun OS is not, and does not have to be, compatible with Android. This is like saying that because they own the Googleplex in Mountain View, therefore anyone who builds in Mountain View is part of the Googleplex. Will someone please ask Google to define Android?”
What does this have to do with the investment in Meizu, you may ask?
Well, according to Wang Yanhui, Head of the Mobile Phone China Alliance, in a statement to the Financial Times, Alibaba had to rely on smaller smartphone makers in order to push its OS. In the report, Yanhui went on to add that , “Larger companies, any manufacturers with international business, are afraid that they’ll be punished by Google. When they go outside of China, they still have to play by Google’s rules,” he said.