Alibaba is coming: meet the Chinese Internet giant that outsells Amazon
Chinese e-commerce company Alibaba will go public this month in what could be the largest initial public offering in US history. It has more active users than Amazon and eBay combined.
You have likely never heard of Alibaba. Get ready to learn more about this Internet giant – and fast.
It runs the world's biggest online shopping mall and has plans to upend the global retail trade. Last year it sold $5.8 billion in goods on a single day in China.
Today, the company started a two-week roadshow to pitch its stock to investors across the United States and in London, Hong Kong, and Singapore. By the end of the month, the firm is expected to go public on the New York Stock Exchange in what may be the largest ever initial public offering.
Alibaba has grown rapidly by building a blend of Amazon and eBay that sells mainly Chinese-made goods at home and abroad. It already has more active buyers than both those American companies combined.
In the future, as Asia’s consumer class balloons, Alibaba’s sites will grow by offering western-made goods to Chinese and other Asian shoppers, analysts predict.
The upcoming IPO “is an awakening to what the world is like today,” says Park Seung Ho, a professor at the China Europe International Business School in Shanghai. The eastward shift of buying power “is inevitable… and I’m sure Alibaba will grab this opportunity.”
Alibaba’s numbers are astonishing. Experts value the company at around $170 billion, up there with Facebook, IBM, and Oracle; its platforms sold nearly $250 billion worth of goods last year (including $5.8 billion on a single day, a world record); and those goods accounted for more than 60 percent of the Chinese postal service’s parcel deliveries.
But the company is interesting not so much for its size as for its style, strongly shaped by Jack Ma, its charismatic founder and executive chairman.
A former English teacher who is known in China as “Crazy Jack,” Mr. Ma has seized the Chinese imagination. He has done so both with stunts such as dressing up in a waist-length blond wig, leather jacket, shades, and lipstick to sing in front of a stadium full of employees, and by epitomizing entrepreneurial success. The fact that he took on US giant eBay in the Chinese market and beat it hands down also helps.
“He is the closest thing to a Chinese Steve Jobs that I have met,” says Warren McFarlan, a professor at Harvard Business School who has studied Alibaba since its inception in 1999. “He is a genuine and credible iconic figure who can make a place come alive when he walks in.”
'China's Steve Jobs'
Ma founded Alibaba in his apartment in Hangzhou, a city in eastern China, as a business-to-business wholesale platform; it quickly became the biggest venture of its type.
The firm made itself an indispensable feature of Chinese consumers’ lives with the launch of Tao Bao, which means “Treasure Hunt” in Chinese, that allowed small-scale manufacturers and retailers to set up online storefronts selling to individual consumers.
Crucially, Ma let vendors onto the site for free, whereas eBay charged a fee. Tao Bao now controls of 80 percent of e-commerce sales in China, and makes money by selling advertising and charging vendors to make their wares more visible on the site’s search engine.
This has not just been a success for Alibaba and Tao Bao; it made commercial success possible for the millions of mom and pop operations that sell goods on the platform, says Porter Erisman, an American who worked for Alibaba for eight years and made a film about the company, “Crocodile in the Yangtze.”
“Tao Bao harnessed the entrepreneurial energy of the entire country,” says Mr. Erisman. “It provided a platform on which to build businesses and set up the infrastructure for commerce that was lacking.”
Alibaba has since branched out. Its T-Mall site carries brand name goods from fashion giants such as Burberry and Zara. On the back of its Alipay payments system Alibaba is building a financial services arm, offering consumer and small business loans that traditional Chinese banks do not provide.
A threat to US players?
Alibaba also recently bought a controlling share of an American shopping site, 11Main. Though this could serve as a launch pad for an assault on the US online retail market, few experts expect Alibaba to go after Amazon or eBay on their home ground.
They are already too well established in America, says Prof. Park, and “there is still a degree of mistrust in American consumers’ minds about Chinese companies, especially online.”
The IPO “is a pure China play at this time,” says Prof. McFarlan. “They do not need to go to America because there is still so much potential in China.” Instead, the gravity could pull in the opposite direction. “They want to get American companies excited about selling on Tao Bao and T-Mall” to Chinese consumers, McFarlan says.
New investments beyond e-commerce
Alibaba’s listing could raise more cash than the $16 billion that Facebook made in 2012, analysts predict. Its IPO prospectus says only that it will use the money “for general corporate purposes” but the listing will replenish the company’s cash pile after a two year acquisition spree.
Alibaba has spent nearly ten billion dollars on a wide range of investments since early 2013, including stakes in a film production company, mapping services, and China’s top ranked soccer club among other purchases.
The company sees China’s mobile Internet arena as the next big growth industry, with 750 million mobile Internet users expected by 2017, and it is aiming for supremacy in this field.
While new directions may open up new opportunities, cautions Park, diversification and the company’s rapid expansion means that “the challenge will be how to manage such a big enterprise well. They have to become not just a bigger company but a stronger one.”
Ma, who stepped down last year as CEO, has said he intends the company he founded to live for 102 years. “Alibaba is a good company,” says Park. “Can it be a great company that will sustain its success? A lot of questions remain.”