Posted: October 1, 2013 |  AUTHOR: KEN FOX | CONTACT ME

 

Alibaba is China’s largest e-commerce company. It’s planning the biggest IPO this year (2013) but will likely skip the London and New York Stock exchanges. The company’s valuation is estimated to be in the $60-70 billion U.S. dollar range (Facebook’s IPO was $58 billion). Reports suggest Alibaba Group Holdings Ltd. will avoid the U.S. exchanges due to U.S. regulatory requirements and any future disagreements between the Chinese and U.S. governments. Its likely public offering will be on the Hong Kong Stock Exchange.

Alibaba’s growth has been rapid and helped by the growing Chinese PC, smart phone, lap top markets and availability and increased use of shopping on line. Unlike Amazon, “Alibaba does not sell products, but makes money through advertising and other services it offers to millions of merchants using its marketplaces. “ Among other services, Alibaba owns and offers:

taobao

-Taobao-China’s largest on-line consumer marketplace, lists more than 800 million products from approximately seven million merchants, mostly small businesses. It was started by Alibaba on May 10. 20113. It is similar to Amazon and eBay in that sellers are able to post new and used goods for sale. A seller places an item for sale on Taobao Marketplace either through a fixed price or by auction. However, the vast majority of goods offered on Taobao represent brand new merchandise sold at a fixed price.

catthing

-Tmall-This is Alibaba’s business to consumers (B2C) one line retail site which has a 50% market share in China. It has over taken eBay to be the world’s second largest internet retailer, after Amazon. Tmall broke all single day sales records on November 11, 2012 when it processed $2.1 billion U.S. dollar sales in a single day. Alibaba may take this site to new global markets including the U.S., Japan and the U.K.

On-line retailing in China has more than doubled each year from 2003 to 2011, and is projected to grow to $395 billion from 2011-2015, according to McKinsey & Company.
The Taobao and Tmall portals together generated annual sales of about $170 billion U.S. dollars in 2012, more than EBay and Amazon combined. Alibaba is on track to become the world’s first e-commerce company to handle $1 trillion a year in transactions.

According to the Economist: “Alibaba’s greatest untapped resource is its customer data. Its sites account for over 60% of the parcels delivered in China. It knows more about the spending habits and credit worthiness of the Chinese middle class, plus millions of Chinese merchants.”

driver

The key driver of Alibaba’s growth is company founder Jack Ma, now 48 years old. A former English teacher, Mr. Ma owns about 7.4% of Alibaba Group, and is personally worth about $4.2 billion. Mr. Ma has an interesting personal history. Born in Hanzhou, China, he failed his college entrance exams twice before enrolling in a local teacher’s college. After trying to get a job and working at a Chinese KFC, he borrowed $2,000 and started the website “China Pages.” and then ran an information technology company for the Chinese government. In 1999, he raised $60,000 from friends and from his apartment started what is now Alibaba. Jerry Yang, the founder of Yahoo had invested $1 billion in 2005, showing confidence in the new Chinese company. In turn, Yahoo owns a 24% stake in Alibaba and has a representative on its board. Yahoo representatives claim it may sell is investment after Alibaba goes public again.

Mr. Ma stepped down from the chairmanship of the Alibaba Group in May 2013. He feels Silicon Valley is the “Center of Global Innovation,” and plans to launch a U.S. based fund to invest in Silicon Valley startups. The new CEO of Alibaba is Jonathan Lu, who was previously chief data officer. Mr. Ma will still work for and help Alibaba but has a bucket list of others things to do. This includes opening a tai chi club with actor Jet Li and building an entrepreneurship university in Hangshou, China.

Investors and finance experts are waiting for the Alibaba Group to announce its new public offering. Mr. Ma had taken the company public in 2007 but then took the company private in 2012. Mr. Ma claims the company took a big hit during the financial crisis and needed a number of structural and other changes.

Alibaba has invested in acquisitions, joint ventures and alliances prior to going public again. These include companies involved in key mobile services. Some recent investments include:
Buying an 18% stake in Weibo, a Chinese social media site similar to Twitter in the U.S. for $586 million
In August 2013, Taobao started integrating its services with Sina Corp’s Weibo micro-blog, after Alibaba paid $586 million for an 18% stake in the business (in April 2013). Products listed on Taobao can now be purchased on Weibo, analogous “to buying eBay items on Twitter.”
Alibaba is apparently working with five Chinese handset manufacturers to use its operating system, called AMOS, as it plans to take on Google and China based Tenecent Holdings which operates a successful Chinese social messaging service called WeChat.

The company is planning to offer a credit payment service to provide consumer credit to Taobao Marketplace and Tmall.com shoppers.

dogpaw

Another Chinese competitor to watch, besides Tenecent Holdings, is Baidu, which is the dominant search company (similar to Google). Baidu claims a 70% search market share in China. The company posted increases of more than 50% in revenues and profits in 2012. It’s also expanding its services beyond search, including a video streaming service (iQiyi) and travel services (Qunar), recruitment (Baijob) and online payment system, called BiaduPay.

Commentary
The Chinese government, while controlling media (newspapers, TV, radio, foreign news broadcasts and search engines) has allowed Alibaba to move forward and grow. The government probably realizes Alibaba represents, along with Lenovo and others, a Chinese brand they can be proud of, and leverage globally. The huge, growing and electronic savvy Chinese young population is emulating what the U.S. started in Amazon and eBay. Jack Ma had the vision to take Alibaba to new places, literally. Supported by Yahoo’s early investment and left alone by the Chinese government, Jack MA has taken a Chinese company and made it consumer and customer driven. It is a success story for China and the world. We can now look forward to new efforts by Jack Ma to be launched in the U.S. and elsewhere, as he moves beyond Alibaba.

Resources:
1. Alibaba Seen Avoiding Facebook Flop with IPO, below 100 billion, Bloomberg, May 6, 2013
2. Jack Ma, Weekend Confidential, Wall Street Journal, Saturday/Sunday Edition: May 11-12, 2013
3. Why Alibaba’s Future Looks Bright, TechinAsia, May 21, 2013
4. Alibaba Braces for Mobile Revolution, Wall Street Journal, September 9, 2013
5. Report: China’s Alibaba to Skip U.S. Markets in Mega IPO, FoxBusiness, May 29, 2013
6. Baidu: China’s Search Engine, Fortune, May 20, 2013
7. Why an Alibaba I.P.O. is both Promise and Problem for Yahoo, The New York Times Dealbook, July 30, 2013
8. Prediction: Tmall will Overtake Amazon by 2015 to become the largest Internet Retailer in the World, Euromonitor International, November 27, 2012
9. The Alibaba Phenomenon, The Economist, March 23, 2013.

[information_box]©2013, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance.

The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analysis.

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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