Alibaba merges two unites to fend off rivals

The merger is seen as a means to use Taobao, the stronger of the units, to bolster funding and presence for Alimama, which launched in November and is largely viewed as having had little impact in the ad exchange market. Other Chinese online brands are launching products to compete with Alibaba.

Search engine Baidu has begun closed beta tests of an e-commerce site that the company hopes will directly rival Alibaba. Tencent, operator of instant messaging service QQ, announced a new advertising exchange product on the site of its digital payment service TenPay. According to Lawrence Wan (pictured), general manager of OMG Digital in China, Alibaba’s restructure may alienate users and advertisers who worry it is losing its focus. "On the surface, it is probably the right move for Alibaba because its ad network hasn't picked up steam as Google AdSense or Baidu Union have among large advertisers," he said.

"This move takes it a bit further away from its initial model of focusing on SMEs. It is moving away from a niche service to become everything to everybody."

CEO of Chinese search agency CultureFish Media Lonnie Hodge said this shift opens up opportunities for Alibaba’s rivals to target small businesses. Tencent "has a real shot of succeeding, with the best talent and distribution system in the country".