* Alibaba the king of online retail on personal computers in China
* E-commerce giant now trying to boost transactions on mobile devices
* But purchases on mobiles generate less money for Alibaba
* Rival Tencent already making inroads on mobile transactions
* Alibaba headed for big IPO in New York this year
BEIJING, July 1 (Reuters) - Chinese e-commerce giant Alibaba Group Holding Ltd may have dominated online retail on personal computers, but is some way from replicating that leadership in shopping by smartphone and other mobile devices.
Alibaba, which is heading towards a bumper New York IPO later this year, is throwing billions of dollars at figuring out how to thrive as half a billion people, 80 percent of China's 618 million internet users, go online via mobile.
The Hangzhou-based firm said last month that mobile has become an increasing source of transactions, now accounting for more than a quarter of the value of goods sold across its online marketplaces. But Alibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce.
The quick-hit impulse buys commonly seen on mobile generate less money for merchants, and advertising on smartphones is a challenge few internet companies have overcome. Both problems threaten to squeeze future profitability.
Making life tougher, rival Tencent Holdings Ltd has already planted its flag on smartphone screens with WeChat, the nearly ubiquitous app that has gone from a mobile messaging tool to a digital Swiss Army knife.
"They're not just competing with other e-commerce companies, they're going against messaging apps. It completely changes how competitive they can be," said Sameer Singh, an analyst who writes about technology at Tech-Thoughts.net. "I don't think the same margins are realistic."
Alibaba has spent more than $3 billion this year on mobile-focused investments. In its latest initial public offering prospectus, filed in the United States last month, "mobile" was mentioned 304 times - well ahead of "online" (264) and "internet" (144), while "computer" figured just 36 times.
ON THE DEFENSIVE
Alibaba's leadership is still trying to shore up the firm's position on mobile, even as the competition surges ahead, said people familiar with the matter.
This includes Alibaba moving beyond its comfort zone and attempting to control how users access content on their mobile devices - though Laiwang, its attempt at a social messaging app to rival WeChat, has seen little traction among users in China.
Alibaba has also invested in Tango, a U.S. messaging app company, and spent more than $1 billion apiece for full ownership of mobile browser UCWeb Inc and digital mapping firm AutoNavi Holdings Ltd.
While these new ventures are in their early stages, Alibaba admits that profitability could suffer.
"Our strategic investments and acquisitions may affect our future financial results, including by decreasing our margins and net income," it said in its IPO filing. "Increases in our costs may materially and adversely affect our business and profitability, and there can be no assurance that we will be able to sustain our net income growth rates or our margins."
Alibaba has also driven the mobile percentage of gross merchandise volume (GMV) - the value of goods transacted through its businesses - to 27.4 percent of the group's total GMV in January-March, up from 10.7 percent a year earlier.
But while mobile may already account for more than a quarter of all transactions, it's far less profitable than the rest of Alibaba's e-commerce business. For January-March, mobile made up just one eighth of total online retail revenue.
Nevertheless, monetisation is improving. Alibaba's mobile monetisation rate - mobile revenue as a percentage of GMV - jumped in January-March to 0.98 percent from 0.47 percent a year earlier, but still less than half of the overall e-commerce monetisation rate.
While Alibaba is making progress in its transition to mobile, Tencent's WeChat holds the aces.
Tencent doesn't break down its WeChat users between domestic and overseas, but with close to 400 million monthly active users as of end-March, and overseas user numbers still limited, that could mean that close to four of every five mobile internet users in China is on WeChat.
WeChat started out as a messaging app similar to WhatsApp , but with stickers and emoticons and the ability to leave short voice messages. Today, WeChat, known in China as 'Weixin' (micromessage), allows users to book a taxi, find a nearby restaurant, get a deal on movie tickets, read the news and, like Facebook, update their social network profile.
"Of course everybody uses a communications app, WeChat," Joe Tsai, Alibaba's executive vice-chairman, told Reuters in an interview in March. "But that's communications, not commerce."
"A user coming to use the commerce function is much, much more valuable ... we're very focused on driving usage and engagement on our e-commerce apps," he said.
Tencent, though, isn't just in communications. In March, the Shenzhen-based social networking and gaming company bought a 15 percent stake in JD.com, China's No.2 e-commerce firm and Alibaba's main online shopping rival. By tying JD.com's online shopping into WeChat, Tencent has begun funnelling its hundreds of millions of users directly to Alibaba's competitor.
Last week, Tencent also bought a 20 percent stake in 58.com Inc, known as the Craigslist of China, in a bid to improve its location-based e-commerce business on WeChat and its other social networks.
Baidu Inc, China's biggest online search engine, is another of China's internet traffic gatekeepers. Its search app is widely pre-installed on Chinese smartphones, allowing the Beijing-based firm to dictate the results its users see and the websites they visit.
Alibaba depends on its user traffic to encourage its customers, the online merchants, to pay for advertising, its most lucrative source of revenue. In the year ended March 2014, more than half of Alibaba's total sales came from online marketing services.
"Advertising has always been much less profitable on mobile," said Ben Thompson, who writes about technology at stratechery.com in Taipei. "The challenge for Alibaba is figuring out a model that works for mobile, much like Facebook had to do."
(Additional reporting by Deepa Seetharaman in SAN FRANCISCO; Editing by Ian Geoghegan and Dean Yates)