When Jack Ma founded the Chinese e-commerce company Alibaba in
1999, one of his stated goals was to build a company that will
last for at least 102 years so that it would span from the 20th
to the 22nd centuries.
That kind of long-term thinking helped make Alibaba a
powerhouse in Chinese e-commerce. It also attracted investment
from Silicon Valley, including an earlyYahoo (
"Products, technology and marketing -- what Alibaba has done
is a great combination of all three. That's why they're the No. 1
player in a market like China," said Guru Gowrappan, who, as a
Yahoo employee, worked on the team that invested about $1 billion
in Alibaba in 2005.
Yahoo's $1 billion investment equalled a 40% stake in Alibaba
Now Alibaba is the leading e-commerce site in China, valued at
close to $195 billion, according to data from research firm
Alibaba, which plans an IPO on the NYSE sometime this year,
handles as much as 80% of the nearly $290 billion in annual
e-commerce sales in China, according to International Strategy
and Investment Group research.
Not An EBay Or Amazon
Alibaba operates Taobao.com, an online marketplace in the vein
) oreBay (
Alibaba also runs Tmall.com, a business-to-consumer site, and
Alibaba.com, which handles some international and
The company has managed to stick a finger into every facet of
online sales in China, says Gowrappan.
"I think we'd do it an injustice if we compare them to Amazon
and eBay -- I think they're far bigger than that," he said
recently. Gowrappan is now chief operating officer at
, a U.S. search firm for which Alibaba led a $50 million funding
Beyond Alibaba and its 80% share of China's e-commerce market
are a spate of smaller competitors in China, includingE-Commerce
China Dangdang (
) andJD.com (
Consumers and the broader environment of offline retailers are
still discovering online sales and shopping. The e-commerce
market is by all accounts growing quickly, but over-the-Web sales
are still only a small fraction of all retail transactions,
according to data from iResearch.
Just 9.1% of all retail transactions are expected to take
place via the Web in 2014. That's up from 7.9% in 2013 and is
forecast to jump to 11.5% by 2016.
In the U.S., by comparison, online transactions are expected
to account for 60% of all retail by 2017, according to Forrester
As e-commerce sales rapidly expand to a broader portion of
China's population, the biggest threat to Alibaba is
brick-and-mortar retailers with brand names that consumers
recognize, "particularly those establishing online marketplaces,"
says Alibaba in a U.S. regulatory filing. That's an advantage
that the online-only Alibaba will have to grapple with.
Smartphones Gaining Faith
Another big trend in China is the adoption of mobile
Many of them are landing in the hands of users who haven't
before had Internet access.
Unlike the U.S., where PCs and laptops preceded smartphones,
China is a land where users are entering the online world as
Even so, Chinese consumers are only now beginning to trust
their mobile phones enough to make purchases with them, says
Thibault Villet, co-founder and CEO of Glamour Sales, an
e-commerce company that partners with about 1,100 brands to sell
luxury goods in China.
Technology marketing firm IDC forecasts more than 450 million
smartphone sales in China for 2014. Many of the buyers will be
new to mobile and will be shopping online for the first time,
says Villet. In the U.S., most online shopping is still done via
a PC or laptop. Those devices are old school by comparison and
not as widely used in China.
"What's happening nowadays is that most of the e-commerce
business is shifting very rapidly to mobile," says Villet, who is
French but has lived and worked in China for 16 years.
China's Social Scene
Social media is also increasingly driving e-commerce sales in
China. Many Chinese consumers depend on social networks for
product photos or reviews, says Villet.
Alibaba has moved to capture that traffic by making large
investments in social networking.
Alibaba in April 2013 invested $586 million inWeibo (WB), one
of China's leading social networks, with some 144 million active
)-like network in turn integrated an Alibaba button into user
posts. The button allows shoppers to buy goods from Alibaba
without even navigating away from Weibo.
And the Alibaba-Weibo partnership is expected to continue
evolving with new features. Alibaba poured an additional $486
million into its Weibo investment -- bringing its stake up to 30%
at the time of Weibo's U.S. initial public offering in April
A Hotly Anticipated IPO
Hangzhou-based Alibaba in early May
filed U.S. regulatory paperwork
for its IPO. Analysts expect the company to sell about $16
billion worth of stock.
Its market capitalization conservatively pencils out between
$150 billion and $180 billion. Many have placed it above that
Alibaba is in its pre-IPO quiet period and declined to comment
for this story.
The company, and Chinese e-commerce in general, have plenty of
room to grow, according to data compiled by research firm
Chinese business-to-consumer e-commerce sales are expected to
jump 63.8% this year, placing China in the top global growth
India is expected to post the next-quickest growth at an
expected 31.5%. The U.S. comes in at 7th at 11.8%, according to
Just 46% of the population in China is now online, according
to data released by the official China Internet Network
Information Center. That's vs. 83.2% in the U.S. and 88.9% in
U.K., according to IDC.
"So, obviously, there is still a big online growth
possibility," says Glamour Sales CEO Villet.