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The Tao of Yahoo!

Yahoo! (YHOO), in a bold, strategic and expected move, paid $1 billion in cash for a 40% stake in Chinese ecommerce company Alibaba, a bid to grab a piece of the fast-growing and fast-evolving Internet market in Asia.

The deal puts Yahoo!, which everywhere else in the world is the leader in online media and lags only Google (GOOG) in online search advertising, among the lead players in China's burgeoning ecommerce market, a sector it has been happy to leave to eBay (EBAY) and others in Yahoo!'s home U.S. market.

Yahoo!, which as of March 31 had $3.8 billion in cash and short-term investments, will pay for the Alibaba deal in cash. In the past, Yahoo! paid $1.7 billion for search-technology pioneer Overture in 2003 as well as $3.5 billion for Geocities and $5 billion for Broadcast.com in 1999.

Those deals were paid for in Yahoo!'s own stock, making the Alibaba deal unique, if not in its size then in currency -- a wrinkle that had not been anticipated in earlier reports. But Yahoo! feels it was worth the splurge.

"China is the fastest-growing Internet market in the world, and it will be the largest Internet market in the world in a couple of years," said Jerry Yang, a Yahoo! co-founder and current director who has played a leading role in the company's China strategy. "In Alibaba, we saw the chance to combine it with Yahoo! China and become the largest Internet company in China, period.

"To do that in China requires a strong management team, and we found that in Alibaba," Yang said in an interview. "Alibaba offers a great management team. When you combine Yahoo!'s brains with Alibaba's, you have the only company in China that has auctions, search, communications, commerce, search and payments. And that's pretty awesome."

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