Alibaba: the next step

For most people, Alibaba remains a mystery; such that its upcoming IPO on the New York Stock Exchange, foreseen as the biggest by market value ever, has largely failed to excite small investors.

Aside from the US parochialism, why would Americans ignore this company? It was founded in 1999 by Jack Ma, a man described by many as a light bulb, both for his physiognomy and his brilliance, and is now the world’s biggest online retailer, with three main pages (Alibaba.com, Taobao, and Tmall), hundreds of millions of users, millions of traders and businesses of all types, 22,000 employees, and a turnover of $248 million, 80 percent of the Chinese ebusiness market.

This is a company with 231 million regular customers, with 136 million smartphone users, and that has changed the lives of millions of Chinese living in remote corners of this vast country thanks to Taobao, the Chinese equivalent to eBay. To get an idea of this company’s size we would need to combine Amazon with eBay.

Once it goes public, Alibaba will become one of the biggest companies in the world: the IPO has been registered at the SEC with a worth of $1 billion, but the banks put valuation expectations closer to twenty times that sum. Asside from Taobao and Alibaba.com (B2B), the company also includes Tmall (B2C), Juhuasuan (offers and discounts), eTao (a price comparison search engine), Aliplay (online payment system), a cloud computing platform, and several other sites.

Aside from being the richest man in China even before his company goes public, Jack Ma owns 9 percent of the company, making him the largest single investor, and effectively makes all the decisions. A born entrepreneur, he came into contact with the internet in the United States, setting up China Pages in 1995, a directory for Chinese companies looking for foreign customers, which was eventually taken over by the Chinese government. He then set up Alibaba. Along with 17 co-founders, most of them friends, Jack has bult a structure that allows him to personally oversee all decisions, and that has secured significant foreign investment interested in entering the Chinese market.

But Jack also admits to not using any of his company’s products, saying that were he to do so, he would spend his time trying to improve them. But there is evidence that he and his colleagues used to buy everything that appeared on the site in a bid to stimulate demand.

What few US investors seem to realize is that joining the New York Stock Exchange is the first step toward establishing Alibaba as a global brand, extending its control over the Chinese market to the rest of the world, in other words, challenging US control of ebusiness. Alibaba.com is everything that the B2B sites are the beginning of the century were trying to be, but expanded to Chinese dimensions.

Some analysts are describing Alibaba as a major disruptive element in the supply chain in an age when just about anybody with a $1,000 3-D printer can created prototypes of anything, find cheap labor on Alibaba, and request industrial quality manufacturing using the same designs as the prototype.

The business possibilities of a business of this kind once it has access to the US capital markets are beyond imagining. A few moments before he announced the IPO, Jack Ma wrote an email to all his employees worth reading. In it he warned of big changes ahead, as well as the dangers the markets represented, announced a share-plan for employees (advising them to spend any money they make wisely), and assured them that he would remain loyal to his priorities: “the client first, the employee second, the shareholder third.”

The IPO is not a goal in itself, but simply a means to an end, a service station to fill up before making the next stage of the journey. The clout that comes from controlling the world’s biggest market, coupled with the resources that will pour in from the upcoming launch means that it is difficult to anticipate what will happen next. But if it bears any relation to the progress of the last 15 years, then we better get ready for some big changes. This is a juggernaut that will take some stopping.


(En español, aquí)