Steven SchwankertBy Steven Schwankert
For those of you who cashed in your Netscape shares early and spent the last six years in a cave, at sea on your yacht, meditating in the Himalayan foothills, or otherwise out of touch with the world: welcome back. You'll notice that a few things are different. New York is now short two very tall buildings, there's a Bush fighting a war in Iraq again, Hong Kong has a new chief executive, and gasoline is really, really expensive.

But when it comes to dotcom dementia, it's deja vu all over again. Yahoo agreed to purchase a 40 percent stake in Hangzhou-based e-commerce player Alibaba for US$1 billion, and inject its China unit into the deal. The Grouch wonders: what else were the Yahoo people injecting when they came up with these figures?

One. Billion. Dollars. US dollars. Even with the greenback in its currently weak state, that's a hefty stack. Let's take a different approach from Yahoo's brainiacs and examine the deal rationally.

Paying $1 billion for a 40 percent stake, plus the China unit (which includes last year's Yahoo acquisition of Chinese-language search engine 3721.com) means that Alibaba is now, on paper, just under a $3 billion company. Yeah, right.

Wall Street, which despite almost weekly record-high oil prices hasn't come close to crashing or bottoming out, seems to think that not only is China The Next Big Thing, but it's also The Next Next Big Thing (Wall Street doesn't have the attention span to think of a Next Next Next Big Thing).

Alibaba's total revenue for 2004 was US$68 million. It's unclear from the news reports whether or not that includes any revenue from Taobao.com, its consumer auction site. Regardless, in the real world, a company with that kind of revenue should have a book value somewhere in the neighborhood of about US$350-500 million. Total.

Compare this to the values of other Chinese Net players, such as, say, Linktone. Chinese consumers continually demonstrate that they are willing to pay for mobile services such as ringtones, games, and SMS contests. These results represent not hope, not wishful thinking, but actual money paid by China Mobile and China Unicom to Linktone, for stuff that people bought. Although Alibaba is not yet public, Linktone, despite its real world revenues, has a stock price in the single digits (LTON).

The Yahoo/Alibaba deal represents unfounded exuberance. It's not based on revenue. It's not based on the future. Runaway economic growth in China, like Dotcom Boom Part One, and the 17th century Dutch tulip mania, will not last forever. It probably won't last until the end of the decade. Once the Olympics are over, all bets are off.

No chance that Beijing will let a little civil unrest or an economic downturn spoil the 2008 party, but after that, it's possible that the chips will be allowed to fall where they may.

The Grouch doesn't claim to the best technology reporter in the region. But he has a good memory. He remembers the night that Jack Ma, Alibaba's founder and CEO, stood before a packed house at the (now demolished) Furama Hotel and addressed the salivating crowd at I & I (remember that?), less than a month after closing the company's second round of funding–a US$25 million investment from luminaries including Goldman Sachs and Softbank. The next morning, the Grouch wrote on asia.internet.com: Jack Ma had told the crowd that Alibaba was "running too fast for revenue." Jack, you may now stop running.

TVG also remembers being the only foreign reporter to attend an event held in Hangzhou in 2001 billed as "Weekend with the Warriors." Jack and some of his Net pals–including Sohu founder and CEO Charles Zhang, Sina's then-CEO Wang Zhidong, then-Netease CEO and founder Ding Lei, and then-CEO of then-company 8848 Wang Juntao–got together for a bit of panel discussion, a bit of stretching to pat themselves on the back, and the chance to hang out with a modern Chinese legend, kung fu novelist Louis Cha, a.k.a. Jin Yong.

The theme was that Internet entrepreneurs were the new "swordsmen." And this was after the dotcom crash. Read that list. How many of those guys are still in the CEO's chair? Charles and Jack. Perhaps adopting an English name before becoming CEO of a Chinese net venture is the real key to success?

Alibaba's been around for a while. So has the Grouch.

Frankly, the Grouch is glad that Jack Ma has cashed in. Jack was always a nice guy who always treated the Grouch with courtesy and respect. Good on ya, Jack.

Missed the first Internet boom? Welcome back, 'cuz here we go again. We still have the Alibaba IPO to look forward to.

About the author:
Steven Schwankert is a former editor of Computerworld Hong Kong, based in Beijing. He can be reached at [email protected]

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