Rumor: Alibaba Acquires Online Music Service Xiami.com?

Rumor broke by local portal Tencent claiming that Alibaba the ecommerce behemoth has stealthy acquired Chinese online music service Xiami.com.

Xiami which also based in Hangzhou was founded in 2006 by former Alibabaers. It started as a service to exchange music through its P2P network and make money off uploading music for downloads. Illegitimate as it sounded like, the service also tried to whitewash its offering in moves like sharing revenue with record companies as royalty rates. For instance, it costs RMB 80 cents to download a piece from Xiami, people who uploaded the piece gets 20 cents, label gets 40 while Xiami per se gets the remaining 20. According to Wang Hao, co-founder and CEO of the company, Xiami generated about RMB 400k in sales from downloading in 2010 and the number was expected to be doubled in 2011 to million RMB.

Xiami claimed more than 5 million registered accounts or 10 million (lots of users use the service without signing on board) users.

We broke last year that Chinese music services were advised or regulated to charge music downloads in an alliance in an aim to protect copyrights. China’s state-owned English news service China Daily also reported last year that “according to an insider of the online music industry, record companies and the major online music platforms have been discussing the feasibility of a paid service for about six months”. There might be chance that Xiami would have to sell itself out to someone with enough cash reserve and resources like Alibaba as going towards copyrighted contents is the irreversible trend for Chinese online music industry and royalty expenditure could be a big burden if it keeps fighting alone.

xiami.com homepage

Alibaba’s quaint yet sense-making investment mindset

On the flipside, what is going on with Alibaba? After investing into a bunch of remotely or even no-at-all related online services like Momo, DDMap and the rumored Sina Weibo, the Xiami case added a new layer of mystery to the company’s quaint investment philosophy to many. But if we peel away the onion skins and looked deeper enough, we’ll see the intrinsic logic behind.

DDMap which has already established itself on mobile front as a coupon finder could be served as an outlet to underpin Alibaba’s any online-to-offline initiatives, Taobao has already launched some services combined with local merchants and the company would be putting more efforts into that area in the foreseeable future. DDMap with its claimed 11 million users (as of last November) could be easily leveraged. By and large it’s better than launching a dedicated app and growing a user pool from scratch for every o2o services Alibaba would be working on, so why not.

Xiami case also makes sense as first of all Xiami needs money to support royalty expenditure – the startup raised two rounds in 2008 and 2010 respectively and probably was facing money-shortage problem – and second of all music download could make up a big part of Alibaba’s digital distribution services. Especially when some of Alibaba’s rivals like Jingdong Mall and Amazon china all stepped toes into the field. Chinese government’s determination and support in legitimating online music certainly bodes well for digital content businesses. Alibaba could neither allow nor afford to lose ground in the area.

The long-rumored and back-and-forth Sina Weibo case showed Weibo’s value in routing social ecommerce traffic. A HitWise report showed that Weibo contributed at least 2.5% traffic to Taobao/Tmall, even higher what Meilishuo and Moguji generated for the two Ts.

Momo seems like the an irrational case made after hangover at the first sight, but don’t throw dust in your eyes by forgetting Alibaba’s all-failed attempts in building a SNS product. Its own Taojianghu struggled against other major Chinese social networking services and then finally – for god sake – was shut down. Alibaba then private-tested and killed several social products. But it never forgo courting decent SNS products. Momo’s 20 million user base is just one tenth of that of Weixin’s (or Wechat outside of China), but it might be the only mobile SNS product out there in the market has the potential to “compete” with Weixin from some aspects. And as Tencent has been keeping upscaling its joke-like ecommerce arm, Alibaba couldn’t just sit tight without fighting back into Tencent’s strong suit of social.