Alibaba Group Holding Ltd, China’s Internet giant, has decided to launch its IPO in the U.S. rather than in Hong Kong. The company is expected to raise as much as $15 billion in the listing, making it one of the largest ever in the U.S.
Currently, the two major U.S. stock exchanges, NYSE and Nasdaq, are competing for the high-profile listing by offering discounts on certain fees and increasing visibility. It is widely believed that the exchange that “wins Alibaba will have bragging rights and momentum” for other technology IPOs, leading to greater financial impact and trading revenues.
So here comes the question: Who is Alibaba?
The company is like as a mix of Amazon, eBay and PayPal, with a dash of Google thrown in, all with some uniquely Chinese characteristics.
Phase 1 – The Legendary Inception
Alibaba was created in 1999 by Jack Ma, an English teacher in the eastern Chinese city of Hangzhou. Internet was like a UFO to most Chinese at that time, so when Jack tried to promote Alibaba.com, a trading website that connected Chinese manufacturers with overseas buyers, many people considered him as a fraud. “How can you sell things in the virtual world of Internet? That is impossible!” Jack was rejected repeatedly. Instead of giving up, he was persistent and embraced a breakthrough by obtaining funds from Softbank, a major angel investor in Japan. Through Jack’s continuous concept pitch of Internet and online business, the company achieved profitability in late 2001.
Phase 2 – The Era of E-Commerce
Initially, Alibaba was focused on the B2B marketplace (Businesses to Businesses). Starting 2003, the company began to diversify its portfolio by creating Taobao.com, a C2C marketplace (Consumers to Consumers), and Tmall.com, a B2C marketplace (Businesses to Consumers).
Taobao is mostly for small businesses, on which they don’t pay to sell products. Instead, they pay Alibaba for advertising and other services to allow them to stand out from the crowd. Comparatively, Tmall was designed for bigger merchants, including many well-known brands such as Nike and Apple, on which they have to pay a deposit and an annual fee, as well as a commission on each transaction, for sales.
In 2012, the combined transaction volume of Taobao and Tmall topped one trillion yuan ($163 billion), more than Amazon and eBay combined.
Phase 3 – Go Beyond: A Conglomerate across Various Sectors
Alibaba’s huge success in e-commerce allowed it to break into sectors other than Internet for even larger impact on China’s economy.
The company claimed that Taobao and Tmall account for more than half of all parcel deliveries in China. Following that, Jack has integrated the company’s advantage in transaction volume, data mining, and extensive networks to create a logistics firm called Cainiao. The vision is to facilitate infrastructure development by teaming up with other major players in the private sector as well as the Chinese government for more efficient online orderings and parcel deliveries.
One of the key determinants for the company’s success is the initiative of Alipay, an electronic payment system that protects buyers if sellers don’t deliver. This effective tool has been leveraged for the development of lending and financial products. On one hand, the company created an affiliate called Small and Micro Lending Group to address the financing problem facing China’s small and medium businesses. On the other hand, it launched a money-market fund for the general public, which became one of the world’s largest in just eight months. Furthermore, Alibaba was selected as one of the five private banks in a pilot program aimed at breaking the state-dominated banking monopoly in the country. As a result, the Internet giant will be capable of running businesses of corporate finance, investment management, venture capital, and even more.
Probably no one can accurately predict the size of Alibaba in the future, but what we can say for sure is, its magic will continue.
A recent article on canadianbusiness.com, “Why Alibaba’s IPO will make it the next global tech powerhouse,” discusses the strong potential of an online Chinese tech giant I had not heard of up until now- Alibaba. After reading the article, I couldn’t believe I had never heard of it before. Get this:
- “In 2012, two of Alibaba’s platforms processed more than US$160-billion worth of goods, more than Amazon and eBay combined.”
- “Mark Mahaney, a tech analyst for RBC Capital Markets, recently pegged its worth at $150 billion. That makes it the third-most-valuable Internet company in the world, after Google and Amazon.”
- “Consider that total U.S. sales on Cyber Monday in 2012 reached $1.5 billion, according to data from Bloomberg. Alibaba’s sales on Singles’ Day, a modern Chinese celebration held around the same time as Cyber Monday, totaled $3 billion.”
The company hasn’t even gone public yet and is already posting revenues bigger than practically all well-established U.S. tech companies.
The natural question to ask after seeing such dramatic figures is what is Alibaba and what is making it so successful? In short, Alibaba is an online retailer based in China that offers numerous platforms that connect buyers and sellers. Some of its more notable platforms include alibaba.com (connects small and mid-sized Chinese and international producers to international buyers), taobao.com (ebay-like platform that connects individual sellers to individual buyers), tmall.com (allows well-established, brand-name producers to sell directly to consumers and is set to surpass Amazon in 2015 as the biggest online retailer). The platform that I think has some of the most potential, though, is Alibaba’s payment program called Alipay, which, as the article states, now accounts for roughly half of China’s online payments market. Alipay has expanded its efforts from just offering a safe environment for transactions, and now offers loans to budding entrepreneurs and startups that eventually sell their products on Alibaba’s platforms. Additionally, Alipay is the likely candidate to become the dominant online payment system in emerging economies in Africa and Latin America. In so doing, Alibaba is slowly growing its influence over production, marketing, and selling of consumer products.
Furthermore, practically all of the world’s production of consumer products is done in China and Alibaba already has a firm link to Chinese manufacturers and wholesalers. With its IPO looming, its influence will grow far past the Chinese market, allowing it to connect Chinese producers to consumers worldwide. It will be very interesting to observe the development of impact of Alibaba on world markets in the coming years. With connections to a vast amount of producers and the largest population of consumers, Alibaba is heading for the top spot in the tech-giant rankings.
This winter has been tough to retailers.
J.C. Penney on Wednesday announced its decision to close 33 underperforming stores, eliminating around 2000 jobs for cost savings. The company was considered of having slow-coming turnaround, despite of its claim that it was “pleased with its holiday performance”.
In 2013, holiday retail sales advanced 3.8 percent compared to the 2012 holiday, which was below its forecast 3.9 percent gain.
Definitely, inefficient turnaround was not the only issue facing retailers.
First, the industry was under the shock of e-commerce, a trend that significantly outperformed growth in traditional physical store in 2013, based on more efficient online operations and cost-saving strategies. Apparently, higher cost associated with physical presence might be a burden for retailers, but such presence could be turned into a competitive advantage if retailers could work on in-store user experience to strengthen the bond between consumers and their brand.
For example, Intel’s booth displayed a full length “mirror” that allows shoppers to try on multiple outfits, then view, compare and share photos of the outfit with friends. Technology from Motorola scans what items consumers bring into the dressing room. Consumers can then tap a screen to order an out-of-stock item before they change back into their clothes.
Second, there has been an increasing privacy concern after the unprecedented data breach for Target. So retailers have to be more prudent in the future when it comes to data collection and payment process. Moreover, they have to show their respect to consumers by fully releasing their monitoring policy and detecting any prospective threat to consumer’s privacy.
Third, “price war” was intense as retailer tends to offer endless discount for promotion. Actually, they would be better off if they could innovate and diversify their product offerings.
From a long-term perspective, the rise of “click and collect” may prevalent since the concept highlighted the importance of the interaction between virtual space and physical space, as customers order online and pick up their items in store. It tends to be welcome by both e-commerce runners and retailers because of the great integration of online effectiveness and in-store experience. Nevertheless, the counter-parties still have to work on various issues, including display of items and sharing of profit .
In conclusion, the retail industry is going through a rapidly evolving period as increase in online consumption tends to be inevitable. Nevertheless, opportunities still await retailers if they could take advantage of its physical presence, work on privacy protection, and team up with online sales.