In preparation for the upcoming L2 Clinic “Winner and Losers in a Digital Age” we spoke to Research Director Danielle Bailey about her session titled “Is Alibaba Winning?” China’s 100-pound gorilla is set to IPO on September 19 at more more than $20 billion, which will be the largest US public offering ever.
In China, Alibaba controls half of the B2C market. Its reign is large enough that luxury brands have had to see past their tenuous relationship with the counterfeit goods marketplace to access the Chinese market. Luxury brands Burberry, Clinique, Clarins and Biotherm are now present on the platform with more than 2,000 foreign brands. For that reason alone, Alibaba is the e-tailer to watch in the foreseeable future, and perhaps the answer for brands struggling with the last mile in China, as Amazon has only 2% of the Chinese market. Unlike Amazon, Alibaba enables brands to maintain control. It does not sell products directly, it serves as a platform for sellers and makes money from service fees.
In the US, however, Alibaba is just getting started. Its new store 11main targets small businesses, and must build brand awareness and trust before becoming a major player. Bailey says the real threat to Amazon is an acquisition like eBay or Etsy from an Alibaba flush with cash from a recent IPO. Full Q&A below:
Why is Alibaba such a timely topic?
Alibaba’s IPO slated for September 19th is expected to raise more than $20 billion and become the largest ever in the U.S. Alibaba is the world’s largest e-commerce company in the world’s largest and fastest growing e-commerce market – China –and now it has its sights set on the global market.
Amazon was the topic of the year for L2 and member brands. Will Alibaba replace Amazon as the e-tailer of interest in 2015 or 2016?
Alibaba controls half of China’s B2C e-commerce market so in terms of accessing the Chinese consumer online, brands must contend with Alibaba. Historically, it has had a tenuous relationship with luxury brands because it is a marketplace for all goods, including pirated ones. The entrance of Burberry onto Alibaba’s Tmall platform in April was a critical marker. It lends legitimacy to the platform, and also forced Alibaba to clean up counterfeit goods. It will be interesting to see if Burberry is able to generate financial returns from its Tmall presence. Esteé Lauder and several P&G brands also maintain Tmall shops.
Many brands have struggled with the last mile in China. Alibaba is also building a logistics network to serve brands who want to enter the market. It will be interesting to see if any large brands leverage this as their ticket in. While Amazon maintains just 2% of the Chinese market, in the U.S. and Europe Amazon remains and will for the foreseeable future the e-tailer to watch.
There are many news headlines that claim Alibaba is the Amazon of China, others emphasize that it isn’t. What are some of the similarities and differences?
Alibaba is not just China’s Amazon (Tmall), it’s also China’s Ebay (Taobao). It’s China’s PayPal (Alipay), and in addition it is China’s dominant B2B e-commerce marketplace. With sales of $248 billion last year it is larger than both Amazon and Ebay combined, and unlike Amazon it does not sell any physical goods or hold inventory, but instead makes its money from service fees.
Alibaba launched an e-commerce site for the US called 11main.com. Will US companies need to adjust their strategy?
While Alibaba is the 100-pound gorilla in China, it still needs to build a brand, trust, and reputation with American consumers. 11main currently targets small businesses and isn’t seen as a threat to Amazon. The bigger threat is an acquisition of a brand such as eBay or Etsy by Alibaba, who is flush with cash from its IPO.