5 big reasons Alibaba is spending over $4 billion to acquire a video site

TV is dying. TV is thriving. (Photo by Melissa Segal)

Alibaba made it clear earlier today that it wants to acquire China’s top video site in a deal that would value Youku at over US$4 billion. But what does China’s ecommerce giant want with video content?

Youku and sister site Tudou (which merged in 2012) get 900 million video views each day – a figure that tripled from 18 months prior. The company has 150 million daily active users.

That’s a sizeable user base for Alibaba to snap up – but the deal is all about strategy, not sheer numbers. You could say there are five main reasons:

1. Digital is a growing part of ecommerce

Alibaba is China’s top ecommerce company. Its Taobao and Tmall marketplaces dominate the China market. Alibaba’s 367 million buyers spent US$109 billion on its online stores in April to June. While a lot of that was for physical products that shoppers get in the mail, some of that massive expenditure is for goods of all kinds – for cinema tickets, flights, and online services.

zomg (via @thepekingorder) pic.twitter.com/Bl6XPCJq0F

— Steven Millward (@SirSteven) October 16, 2015

The company knows that digital products of are an increasing part of what people buy, and it needs to be in there early. Digital entertainment is a huge chunk of that.

Alibaba may have missed out on a chance to control and profit from the boom in apps and phones with its own failed smartphone OS and devices, but it’s not going to make the same mistake with the next digital content explosion.

2. Alibaba wants to cover all kinds of ecommerce

It’s not just digital content that Alibaba feels it must cover as the definition of “ecommerce” stretches. Local, web-connected services are something the company is also throwing billions of dollars at. Alibaba already has a stake in China’s top taxi app startup, Didi Kuaidi, as it evolves into a broader on-demand transportation app that’s fighting off Uber’s advances.

That’s why Alibaba has committed to invest US$1 billion to build up its mobile-oriented marketplace for local services. That comes after Alibaba found itself outrun by hundreds of startups rushing in to things like food delivery, massages, mechanics – all of which can be summoned to your home with an app.

That whole sector is often referred to as O2O – which means online-to-offline.

3. People are moving away from TV

4. TV becomes just another internet screen

5. Hollywood, baby

China’s tech giants get even stronger