China's Alibaba sets up fund to back mobile OS

The next version of Alibaba's mobile OS is slated to come out later this year.

Chinese e-commerce giant Alibaba Group is readying the next update of its mobile operating system as a company subsidiary launched a new fund to support app development for the OS.

In July, subsidiary Alibaba Cloud Computing unveiled its Aliyun OS, a Linux-based operating system aimed at helping the e-commerce giant promote its products in China.

On Monday, Alibaba Cloud Computing jointly announced the 1 billion yuan (US$157 million) fund with private equity firm Yunfeng Capital. The fund will invest in cloud computing businesses and developers building apps for the Aliyun OS.

While the Aliyun OS can run Android apps, the company wants to build more of its own "cloud apps" that work by accessing Alibaba's e-commerce service over the Internet. Alibaba Group is the parent of Taobao Mall and Taobao Marketplace, two of the largest online retail sites in China.

The Aliyun OS was first sold on a smartphone from Chinese handset manufacturer Tianyu, initially priced at $416. Alibaba Cloud Computing plans to release version 2.0 of the OS before the end year, with a new phone and tablet using the operating system being prepped for launch, according to an Alibaba Group spokeswoman. The specific launch dates will be determined by Tianyu.

Alibaba is investing in its own mobile OS as China's other top Internet companies also expand into the smartphone market. Dell has said China's largest Internet search engine Baidu is partnering with the PC vendor on a new smartphone. Tencent, the operator of several Chinese social networking services, has also launched handsets customized for its hit products. Both Baidu and Tencent also compete with Alibaba in China's e-commerce market.

"If others get into the mobile Internet market, then Alibaba has to do it too," said Sun Peilin, an analyst with Beijing-based research firm Analysys International. But for Alibaba, its a critical opportunity, given that the handset can become a tool to make purchases online.

Chinese-developed operating systems, however, have yet to catch on among consumers in the country. In the second quarter of this year, Nokia's Symbian OS had a 56.5 percent share of phones in use in the Chinese smartphone market, while Google's Android had 16.3 percent, according to Analysys. Apple's iOS had a 6.2 percent share.

To contend with the most popular operating systems, companies including Alibaba must partner with the top-tier handset makers, said Mark Natkin, managing director Beijing-based Marbridge Consulting. He noted recent reports that claimed Tianyu had only sold 70,000 of its phones running the Aliyun OS.

"For a mobile operating system to really gain traction requires good integration between software and hardware and requires the mobile OS developer to get several leading handset makers as partners," he said.

Tianyu did not immediately return a request for comment.

In addition to Alibaba's new 1 billion yuan fund, the company has also launched on Monday a 1 million yuan competition to encourage developers to build the best cloud apps for the Aliyun OS. The competition runs until the end of the year.

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