Alibaba Beats Amazon to the E-Commerce Prize in China

Say the word e-commerce in the US, UK and many other developed economies and one word usually comes to mind – Amazon. The Seattle-based multinational claims to be the world's largest online retailer. It has highly diversified operations that have taken the business well beyond the original proposition - selling books online. CEO and Founder Jeff Bezos launched Amazon.com in 1995 and over the next two decades Amazon has expanded its retail websites to dominate the market in Canada, the UK, France, Germany and elsewhere.

However, in China, say e-commerce and a different "A" word is on everyone's lips. Alibaba is a private Chinese company that is now the largest business-to-business and consumer-to-consumer company in the world. Amazon might dominate global business-to-consumer online retailing. But, in China, Amazon has a very small market share and it is Alibaba that dominates.

In fact, Alibaba can legitimately claim to be the world’s leading e-commerce business. Reports suggest that Alibaba handled total sales of $170 billion in 2012 – which is more than the transaction value handled by Amazon ($96bn) and eBay ($75bn) combined!

After more than eight years of effort, Amazon has less than 1 per cent of China’s $196bn e-commerce market. Alibaba is estimated to have a market share of nearer 75 per cent.

To put this into perspective, China’s e-commerce market is already the largest in the world and by 2020 is forecast to be bigger than the existing markets in the USA, UK, Japan, Germany and France combined. So Alibaba’s market share of over 70% makes it a very big player indeed.

Alibaba Founder - Jack Ma

Jack Ma and the Alibaba Product Portfolio

Alibaba was founded by Jack Ma, a former English teacher. As he has led and developed Alibaba, Jack Ma has become one of the best-known Chinese entrepreneurs. He is the first mainland Chinese entrepreneur to appear on the cover of Forbes Magazine and ranks as one of the world's billionaires. In 1995, Ma founded China Yellowpages, widely believed to be China’s first Internet-based company. Ma founded Alibaba in 1999.

As Alibaba developed, it sold a 40% stake to Yahoo, although this stake has recently been reduced to 24% as Alibaba had become sufficiently profitable to buy some of the shares back from Yahoo.

As mentioned above, Alibaba’s main activity is business-to-business, linking firms around the world looking for suppliers via the www.alibaba.com website. For example, Alibaba links wholesalers to distributors and retailers around the world, from the UK to China and to the US.

Alibaba also operates an online marketplace called Tao Bao (www.taobao.com) which is similar to eBay. So successful has Tao Bao been that eBay, which launched in 2002, shut down its Chinese operation just four years later. Tao Bao now features over a billion products and is one of the top 20-most visited websites globally.

A further part to Alibaba’s product portfolio is T-mall, where domestic Chinese and increasingly foreign firms like Disney, Levi M&S can set up an online storefront to connect with over half a billion Chinese consumers wanting to buy online. The rapid growth of China’s affluent middle class makes them an attractive potential customer base, but to reach them requires access using Alibaba’s business.

To support its transactional sites, Alibaba also operates Alipay, a novel payment mechanism (a bit like PayPal) which now has over 650 million account holders, making it a significant player in online financial services in China.

One more stat to help emphasise the dominance of Alibaba in China: its sites currently account for over 60% of the parcels delivered in China. Some 6 million vendors are listed with its various e-commerce sites and they ship an awful lot of products!

Where next for Alibaba?

As Alibaba has established such a dominant position domestically in China, it is now turning its attentions overseas.

Alibaba is widely expected to seek a flotation (IPO) on a public stock exchange which might value it somewhere in the same range as Facebook or possibly even bigger, which would make it one of the world's most valuable companies. Estimates of the value of Alibaba typically range from $50-120bn. A successful IPO would enable Alibaba to raise substantial finance which in turn might allow it to accelerate its expansion overseas, perhaps through acquisitions.

Alibaba has already made a start on an external growth strategy, buying mobile map application developers and 18% of Sina Weibo - the Chinese equivalent of Twitter in 2013.

Perhaps the more exciting (or threatening) prospect, depending on your point of view, is that Alibaba may now try to replicate its business model outside of China and go head-to-head with its main global rivals Amazon and eBay. In doing so, it might help sellers based in China accelerate their entry in developed economies such as the US, Japan and Europe. Then things really will get interesting for Amazon!