Home Ecommerce Why Alibaba’s IPO Could Ignite A Commerce Spending Spree

Why Alibaba’s IPO Could Ignite A Commerce Spending Spree

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alibabaAs Asia-Pacific commerce powerhouses like Alibaba and Rakuten push West, it’s still unclear how they will grow large US-based audiences. One such method is through acquisition.

Alibaba late last week priced its IPO at $60 to $66 per share and expects to raise $24 billion when the company begins trading on the New York Stock Exchange in the days to come. With a market cap of $155 billion, which was priced slightly lower than previous estimates of around $170 billion, it pits Alibaba just behind Amazon and Facebook in public market valuation.

Although Alibaba has singlehandedly cornered the ecommerce market in mainland China, an earlier investment in US-based subscription ecommerce site ShopRunner demonstrates interest in growing its domestic audiences, or at least to help US-based companies expand their Chinese footprint.

Alibaba faces a host of competitors in this regard, ranging from Rakuten Japan, (reportedly in talks to acquire ecommerce company Ebates for $952 million after spending a similar amount on messaging app Viber) to Amazon, which is doubling down on streaming media with its acquisition of Twitch.

AdExchanger asked Bryan Wang, VP, principal analyst and China country manager at Forrester Research, about Alibaba’s growing digital influence.

AdExchanger: Many have called Alibaba’s public market entrance the “largest IPO ever.” Could it impact Amazon?

BRYAN WANG: Alibaba’s business is still mostly in mainland China, which is a very small market for Amazon.  I [don’t think it will] really be comparable. Also, their business models are very different, too (ads vs. retail).

Which US-based company’s commerce model is Alibaba most akin to, then?

Alibaba’s model is actually very similar to eBay or Google. EBay gets commission from any sales, while Alibaba get revenues by [placing ads] on their websites plus product recommendations for consumers. Google gets advertising revenues when consumers use any Google service [and through publisher relationships].

Alibaba owns the technology and platforms, but to get into the US/western market requires [more than] technology. The most critical [factor] is customers. How to attract consumers to Alibaba’s platform will be the key for it to sell advertisements to merchants and brands. If Alibaba wants to use its commerce platforms to service Western consumers, it needs to seriously evaluate acquiring any existing ecommerce players that already have customers, as (new) customer acquisition may be too time consuming and costly starting from scratch.

With Alibaba revealing it nearly tripled its gross merchandising volume to $296 billion last quarter, a bulk of the percentage coming from mobile, what does this indicate about its future growth path?

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The GMV for the overall ecommerce market in China will still grow in the next three to five years, but at a slower growth rate.  However, there will be a higher proportion of those purchases that will be from mobile devices, which is true for Alibaba as well as its local rivals. For Alibaba, [the goal will be to] match consumers’ purchasing behaviors with their… mobile and digital services ecosystem. With that, Alibaba will be able to offer merchants better customer profiles, which lead to more precise product recommendations to consumers and sell at a higher price as compared to those currently happening on PCs. So Alibaba’s growth rate for ad-derived revenues on its ecommerce platform may (experience a) higher growth rate than GMVs in the next couple of years.

 

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