“Mere
Paas Ma hai” Sashi Kapoor in the iconic film “Deewar”
Well, Vijay Sekhar Sharma of
Paytm could say just that, after Jack Ma, the head of China’s e-commerce giant
Alibaba, has taken a 25% stake in the firm. There were speculations that Alibaba
would buy into Snapdeal - since Alibaba’s marketplace model is close to
Snapdeal. Softbank - an early investor in Alibaba - has already invested
in Snapdeal. Ma surprised the market with an investment in Paytm, perhaps, to
chart an independent path. Just what goes on in the “mind of the strategist”, Ma,
a former school teacher who presided over Alibaba’s $25billion dollar IPO in
2014 - larger than e-bay & Amazon combined - can be understood by
connecting the dots across the acquisitions & investments made during the
last few years.
Alibaba maintains various
differentiated marketplaces: Alibaba, a B2B platform, started in 1999 that
connects Chinese exporters to companies globally; Taobao, a C2C platform - an
e-Bay equivalent - started in 2003, for individuals & small merchants; &
Tmall a B2C platform - an amazon equivalent - started in 2010, that connects
bigger merchants like Nike to sell directly to customers. It is a dominant
player in the Chinese e-Com market with an 80% share; over $250 billion worth
of merchandise moved on its platform, in 2013, generating $8.5 billion in
revenue with a 44% margin. It also owns, Alipay - with 300 million users - a
payment app that rivals Paypal
Jack Ma has made over 100 investments &
acquisitions - buying stakes in companies domestically & overseas – with a method
to the madness. The starting point of the investment philosophy - gleaned from
the prospectus submitted for the IPO – states thus “We have made, and intend to
continue to make, strategic investments and acquisitions to expand our user
base and add complementary products and technologies. For example,
we expect to continue to make strategic investments and acquisitions relating to
mobile, O2O services, digital media and category expansion as well as
logistics services. Our strategic investments and acquisitions may affect
our future financial results.”
Let us analyse each of those phrases.
Investments
to expand user base:
With domestic dominance,
Alibaba needs to expand abroad. While entry into India & US – the largest
e-com market in the world - has been outlined above, Ma has expanded into south
East Asia. A localized version of Taobao – which is otherwise in Mandarin - has
been launched to facilitate a better consumer experience. Since only 10% of Alibaba's sale, in China, comes from rural, the company is
planning a massive rural penetration drive by establishing about 1000 county centers & 1,00,000
village level service centers. Expect, therefore, more geographic expansion
internationally & rural penetration domestically as a key strategy to
expand user base.
Complementary
technologies:
Ma is planning dominance across platforms: search; messaging; gaming; & social media.
Alibaba, launched eTao, a shopping search engine in 2010
& invested in Quixey – a search engine for apps - in 2013. Ma has also invested in
Autonavi – a digital maps company, Youku Tadou – a youTube equivalent - &
Sina Weibo – the largest social media company in China. He launched Shenma – a web
search service – & Laiwang – a messaging app & since the
latter was only partially successful, invested in Tango with
200 million registered users spread across the North America, Middle East,
Taiwan & Singapore. With Buy buttons on messaging apps becoming popular
expect Tango to lead the e-com marketing drives in the geographies listed. Clearly the investments in search is with an intention to checkmate Baidu & Google & the investments on social media is to checkmate Tencent that owns the popular messaging app, Wechat. Not stopping at that, Ma intends to dominate gaming too.
Alibaba invested in a social mobile gaming platform –
Ktplay - & invested in Kabam It also agreed to take the cloud-gaming service
Ubitus Rovio’s Angry Birds Stella into China. According to market researcher Niko Partners, it is designing
a high-end gaming console to compete with Microsoft’s Xbox One and Sony’s
PlayStation 4 in China. Ma, therefore, is strengthening both the software &
hardware offerings in a bid to transform into a gaming powerhouse.
Complementary
products
Ma invested in Fanatics- a
Florida based exclusive online retailer of sports team apparel to address the
needs of consumers obsessed with sports leagues especially the NBA. He has also
invested in istdibs – an art & antiques firm that connects dealers,
designers and galleries to help sell fine art, jewellery, antiques, and other
high-end lifestyle goods. Incidentally, Chinese buyers account for 24% of the
worldwide art & antiques market.
Alibaba investment in Yinman - a
high-end online clothing retailer that sells its own branded apparel - is
perhaps another attempt to further consolidate its hold on the hi end customers
& thereby get higher margins.
Alibaba plans to revolutionize the language market
too. It has invested in Tutorgroup which offers language learning courses:
TutorABC for English language learning students & TutorMing for Chinese
language learners internationally.This supplements Alibaba’s own education
platform xue.taobao.com.
Mobile
UCWeb – acquired by Alibaba in 2014 - is one of the biggest web browser companies
in China, with more than 50% market share. It also surpassed Opera as the top
mobile browser in India last year and now holds a 35% market share according to
StatCounter, compared to Opera’s 25%. The move is significant because it builds
up Alibaba’s mobile strategy, making it a more formidable competitor to other
Chinese companies like Baidu, This shall also help penetrate markets like
India.
O2O services
In a bid to integrate online & offline- a brick & click strategy
- Alibaba acquired a stake in Intime retail to form a joint venture that shall
run shopping malls, department stores and supermarkets. Alibaba’s Tmall.com
will have access to Intime’s inventory, broadening the variety of merchandise
available, and customers can pick up online orders in Intime stores. This
perhaps gels in with Ma’s intention expressed in 2013 to create a delivery network
to reach any place in China within 24 hours.
With Intime, Alibaba is targeting high-end consumers, who are often
trendy urbanites on the leading edge of smartphone usage. Alibaba aims to get
those shoppers accustomed to using its mobile payment app, Alipay Wallet, to
pay for goods. Going forward
Ma could tie up with telcos to offer location based services the fulfilment of
which shall be at physical retail that he has currently acquired.
Digital Media Strategy
Ma is busy creating a media
behemoth that encompasses print, TV & digital assets along with the
necessary content.
Ma in 2014, has bought a stake in Youku Tudou, &
a controlling 60% stake in ChinaVision Media
Group Ltd, giving it access to TV and movie content – to retain current users
and attracting more. The Hong
Kong-based company, China Vision, co-manages the Beijing Times, the biggest
morning newspaper in the Chinese capital, and has mainland mobile TV broadcast
rights to English Premier League soccer for the next three seasons. Alibaba could
add certain entertainment and media content into its instant messaging app,
Laiwang - which is currently floundering - to increase the popularity of the app.
This
comes close on the heels of its launch of its Ali TV operating system last July &
launch of a mobile gaming platform this year to compete with Tencent.
Alibaba
acquired Xiami - a major music-streaming service - & by April 2013, began rolling out a functionality by adding a “My Music” tab to users’ of “My Taobao” pages. This allowed Taobao users to play music while they shop online, perhaps with an
intention to ensure greater consumers stickiness to the site & propel impulse purchases.
Logistics
Logistics is a key vector in the success for any e-com venture. Ma, therefore, has acquired
a 10% stake, in Singapore post to strengthen the regional logistics value chain
in SE Asia. He already has a 39% stake
in a US
based online shopping platform - Shoprunner based in Pennsylvania - that offers a guaranteed 2 day
delivery, for a $79 annual subscription fee, much cheaper than its direct
competitor, amazon Prime. While occasional shoppers might not be
attracted towards such a proposition, heavy users find the offer irresistible. Ma, is alos pursuing innovative logistics solutions.
Perhaps, Ma expects taxi aggregator services would
evolve into logistics partners. He has therefore invested in Kuaidi Dache, a Hangzhou-based
taxi-hailing app – similar to Uber - & integrated it into its e-com payment
ecosystem Alipay. He has invested in Lyft – a US competitor in the transportation
network & ride sharing space.
Alibaba
Group will invest in appliance maker Haier Electronics Group Ltd in a deal
aimed at expanding the Chinese e-commerce giant's logistics reach to the
millions of consumers in China's vast interior. China's vast interior is
expected to see rapid retail growth as more people move into urban areas and
their spending power increases. The logistics for large-size goods is the next
nut for Alibaba to crack. Haier's Goodaymart online market has some 90 delivery
centres, and a vast network capable of reaching counties, townships and
villages.
Conclusion
Alibaba is therefore poised to become a true multinational
& scorch the e-commerce & related industries space. While Ma has stepped
aside as CEO to become Executive Chairman, in 2013, he continues to guide the
company he founded into uncharted yet lucrative territories. A mix of e-Bay
& Amazon, Ma’s Alibaba already is but his ambitions seem to indicate that
he shall not rest till Alibaba also becomes a Google, Facebook, Zynga Walt Disney &
Netflix combined.
For Alibaba's valuation read Aswath Damodaran, Prof., Stern School's blog.
No comments:
Post a Comment