Asia’s tech companies still have a reputation in the West for being copycats. But Alibaba’s massive IPO is proof that consumer tech innovations from Asia can no longer be ignored.
Alibaba finally filed for its highly anticipated initial public offering this afternoon. The IPO is widely expected to surpass the $16.4 billion raised in 2012 by Facebook. The public offering means several big Silicon Valley players will be rolling in dough, most notably Yahoo, which owns a 24% stake in Alibaba.
Media coverage of the IPO, however, has been relatively quiet. That may be because Alibaba is still best known abroad for its unglamorous flagship product, Alibaba.com, a business-to-business wholesale site.
Over the last 18 months, however, perceptions of Asian consumer tech companies have begun to shift.
Alibaba’s tech peers in Asia, including Tencent, Xiaomi, and Baidu still face challenges as they build an international user base, but the IPO of the world’s largest e-commerce company is a positive sign.
First, let’s take a look at several of Alibaba’s own innovations before moving onto other Asian tech companies.
Alibaba’s Leadership
Founded in 1999, Alibaba Group’s success stems in large part from its executive chairman Jack Ma, who combines a wide-ranging vision with pragmatism. In 2007, he told Tan Yinglan, a Kauffmann fellow, that Alibaba Group’s success was because, “We had no money, we had no technology, and we had no plan. Every dollar, we used very carefully.”
Alibaba Group’s early success in e-commerce was due to several factors. Instead of just focusing on one vertical, Alibaba Group immediately went with a business model that promoted a flagship site (B2B wholesale site Alibaba Group) while also focusing on other properties that combined features from Amazon, eBay, and Rakuten to appeal to the taste of Chinese consumers, Tan wrote.
One critical reason for the company’s rapid growth is that the e-commerce platforms of Alibaba Group, including C2C platform Taobao.com, have allowed small-to-medium sized businesses to flourish.
“By helping [small business] people make money, we [Alibaba] are making money,” Ma told Tan.
Alibaba is also busy creating a massive logistics network that will reach all of China, including the so-called third-tier cities in its western provinces. That is a savvy move because many e-commerce companies tend to hone in on large cities, like Beijing and China, in the east. Though there is a wide income gap between China’s inner provinces and its coastal cities, Alibaba is making a longterm bet that will ensure its continued position as the country’s largest e-commerce player.
Alibaba’s Innovations In Finance
But Alibaba Group isn’t just an e-commerce company anymore. Along with other Chinese Internet companies like Baidu, which is known mainly for its search products, Alibaba Group is also becoming a pioneer in China’s finance industry, which is subject to stringent and slow-to-adapt regulations from the government.
Alipay, An Alibaba Group affiliate, makes it easy for consumers to purchase goods online, while Alipay’s microfinance site Yu’e Bao (“leftover treasure” in Chinese), which launched in June 2013, lets users to invest tiny amounts of money — as little as one yuan (about 17 cents) — into a money market fund.
By the end of last year, Yu’e Bao had become the biggest single public fund in China, with 43.03 million users from more than 31 provinces who had made deposits of 185.3 billion yuan (about $30.4 billion).
According to iResearch China, public data shows that “medium-sized and small enterprises account for 98% of Chinese enterprises, create 85% jobs, develop 75% new products, invent 65% patents, fuel 60% GDP and pay 50% taxes in China.”
“The emerging and fast growth of Alibaba Financial will speed up the competition between financial trade organizations and therefore motivate the innovation and development of the traditional financial system,” said the report.
The decision by Alibaba Group and several of its competitors to move into the financial sector appear to be a big enough threat to state-owned banks that the government recently blocked new online payment services by Alibaba Group and Tencent. In March, the People’s Bank of China asked that mobile payments made by scanning a barcode be halted, citing security concerns.
The Chinese government also interfered with the plans of Alibaba and Tencent to launch their own virtual payment cards, which would have let customer buy e-commerce goods on credit. Despite that hiccup, Alibaba’s financial initiatives are a sign that the company will continue to innovate in a wide range of areas, and some of their initiatives may eventually influence companies outside of China.
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