From its origins 18 years ago, Alibaba has grown to become the world’s largest retailer – surpassing even US giant Walmart – while diversifying into media creation and cloud computing according to Gary Greenberg, Head of Emerging Markets at Hermes Investment Management. Often described as the ‘Asian Amazon’, the company’s business model also replicates that of eBay, and the business is reputed to generate more gross merchandise value (GMV) than eBay and Amazon combined.
Founder Jack Ma describes Alibaba’s goal as creating a global platform for small businesses everywhere to access consumers. By 2036, Alibaba hopes to serve 2bn consumers, with a GMV equivalent to the GDP of the UK, the fifth-largest economy in the world. To reach this target, Alibaba will need to add another 1.2bn customers outside of its existing 800m in China. With South East Asia an important part of that equation, the company recently increased its stake in ecommerce business Lazada, which operates across the region, to 83%
Harnessing big data
Most businesses today follow the 80/20 rule, where 80% of their revenues come from 20% of their clients. Alibaba wants to turn this model on its head, serving the 80% of people who don’t have access to the global marketplace for 20% of the profit. By harnessing big data, this approach can make sense.
Sophisticated segmentation of a massive data set of both merchants and consumers enables Alibaba to create a bespoke user experience. AI is embedded in the business, with more than 90% of customer service calls handled by intelligent chatbots, while a shopping-assistant bot is under development.
One recent and very successful initiative is a platform for Alibaba’s home-grown celebrities, allowing them to post live video feeds where the prices of the clothes they are wearing pop up, and can be purchased with a click. Meanwhile, the retail site Tmall allows impressive targeted selling through special ‘event days’. According to the CEO of Maserati’s China business, who was on stage at Alibaba’s 2017 Investor Day, a recent exhibition for Maserati saw the car manufacturer sell 100 cars in 18 seconds. To put that into perspective, the firm sold 749 cars in Europe throughout in April.*
Tackling cyber crime
Alicloud is the largest provider of online security in China, hosting 37% of all websites. International clients include Philips, Schneider and Shiseido. To build its capabilities, the company hired 200 senior police detectives to devise thousands of fraud scenarios, which were then built using machine learning. It claims to foil 1.6bn hacks each day from 35,000 hostile IP addresses. The company’s cloud computing arm is expected to end 2018, its eighth year of operation, by generating positive cash flow (its current EBITDA margin is -0.7%). The business grew by 103% in 2016 and its prospects for growth in 2017 are equally strong.
Alibaba’s video-streaming subsidiary Youku creates original content including the variety show ‘Intelligence Bureau from Mars’, whose second season boasted 2.4bn views. They have already stepped outside the Chinese market, collaborating on the film, ‘A Dog’s Purpose’ which grossed $64m in the US.
In Alibaba’s home city of Hangzhou, intelligent cameras identify congestion to optimise traffic flow and adjust the reach of street lights. ET Industrial Brain, a joint project with heavy machinery company XCMG, is building a public cloud to run middleware for its internet of things. At the same time, ET Medical is working with Intel to develop medical imaging solutions that can detect early signs of lung cancer.
Meanwhile, Alipay’s online ‘Credit Public Library’ will lend and deliver books for 3 to 5 yuan ($0.44 to $0.73). The Library uses electronic price tags which connect to a store’s IT systems via Bluetooth to enable dynamic pricing of products. Ant Financial, a company incubated by Alibaba, is rolling out its ‘Smile to Pay’ facial-recognition functionality, with150m authenticated users that can simply smile at a sensor to purchase goods. Money-market fund Yu’E Bao, a subsidiary of Ant Financial, recently amassed $210bn in assets, having doubled in the past year.
New tech evangelist
Like many of his entrepreneurial counterparts in the West, Ma sees himself not as a salesman, but an evangelist, and Alibaba as embodying a long-term vision for a better world rather than an opportunistic grab for profit. Asked why the company is led by a partnership of founders rather than a mere board of directors, Ma says the arrangement guarantees the company a social purpose, satisfied customers and happy employees.
As he says in his pitch to small businesses: you can’t build another Amazon or Alibaba, but if you want to exploit Alibaba’s potential you have a tremendous opportunity to leverage its search engine, data capability and network.