Alibaba – Threat or Hype?
Alibaba is coming! Should we be worried? Today, let’s move away from trade shows specifically, and talk about a major business deal that’s brewing with the potential to shake up global commerce at very high levels. The Chinese retailer Alibaba, founded in 1999, is an online retailer similar in size to Amazon and Ebay (Combined!), and is reportedly close to a public IPO that would also make it very likely to become a player in American markets.
This is causing a lot of concern and consternation among domestic businesses, because Alibaba is seen as a threat by many.
But is it worth all the fuss?
I did a little digging. Let’s see whether this whole Alibaba thing is as big as it’s cracked up to be.
What Makes Alibaba Different?
Alibaba is generally considered China’s biggest online business, and is sometimes cited as the biggest online business in the world, depending on which numbers you’re adding up. At any rate, it’s fair to list it in the same breath as companies like Amazon and eBay, in terms of size and scope.
In fact, they’re something of a combination of Amazon and eBay, with their own PayPal-style e-payment system thrown in to boot. The biggest difference between Alibaba and most other online retailers is that they own no products or stock of their own. In many ways, they’re a giant matchmaking service, or closer in concept to a mall than a department store.
Imagine if Amazon eliminated its own stock and ran solely on the Amazon Marketplace of third-party retailers, combined with “hands off” fulfillment and mediation policies closer to those of eBay. Alibaba makes no claims themselves as to the products and services, acting only as a go-between for sellers and buyers.
However, on the flip side, because of this Alibaba includes basically everything, for every market, including wholesale and enterprise-level offerings, up to and including weaponry. And they get a piece of it all.
Some go so far as to claim Alibaba is more like a holding company than an actual retailer, as they tend to shunt users off into Alibaba-branded services that they acquired elsewhere. Alibaba buys service companies, and then finds ways to incorporate them into their offerings to indirectly increase their profits.
Why Is Alibaba A Potential Threat?
Alibaba comes out of a market setup that’s far more hands-off than in the West, which creates significant challenges. Because there are no anti-competitive laws in China to speak of, there’s nothing that’s prevented Alibaba from becoming a proverbial hydra, directly or indirectly controlling dozens of smaller companies that all end up linked into their system.
At this point savvy tech observers might ask how that’s different from how Facebook or Google behave and, well, it’s mostly a question of scope. There’s really nothing limiting Alibaba’s ability to corner markets in China, or to leverage the sort of vertically-integrated organizations made illegal under western anti-trust laws.
Similarly, there’s nothing stopping them from leveraging the conflicts of interest such setups can cause, to their own advantage, making it easy for them to “trap” consumers in mazes of services that are ALL different heads of Alibaba.
Those links to China also give Alibaba advantages in supply lines and distribution, as well as having direct access to many of the cheapest products on Earth. Alibaba offers – in complete fairness – prices that are often astoundingly low, especially on bulk purchases. (But we’ll get back to this point in a moment.)
Now, it’s easy to say “But they’d be competing in America and have to follow American law!” However, politics are a factor here that really can’t be ignored. Given the overall strength of Chinese-American economic relations, and the aggregate buckets of money we’re both making from each other, I’d say the chances of the US government making an issue over Alibaba are slim, unless their hypothetical future abuses became outrageous.
If Alibaba moved to America, it’s almost inevitable that their Chinese roots would end up giving them distinct marketplace advantages, especially in the low end of the price scales.
Could This Whole Alibaba Thing Be Overblown?
Despite what’s above, there are still a number of mostly-unrelated reasons that we don’t need to go Chicken Little, at least not yet. Here’s a summary of the big ones:
1 – If they’re interested in America, they’re being very quiet about it.
According to reporters that have read the filings, Alibaba is displaying no real interest in US expansion. Their discussion of their business plans, market, and future growth are all entirely based around China and further consolidating their operations there. Their stance basically boils down to, “There are still so many Chinese left for us to serve, we don’t need America.”
Besides the implied “yet” in such sentiments, it’s a reasonable attitude for a company to hold. After all, trying to go up against Amazon and eBay as an outsider would not be an easy task, regardless of deep roots in China.
2 – Cheap is cheap.
Getting back to those prices, there’s simply no quality guarantee from Alibaba -besides mediation services- and at this point, there are few people in the world who misunderstand what they’re buying when the lowest bidder is a Chinese shop. Quality controls from a lot of Alibaba distributors are often terrible.
The reasons for this are many and complex, and largely culturally-based – broadly speaking, Asian countries have a higher tolerance for low-quality products than is typical in western states. And too many US customers reporting poor experiences with the Alibaba contractors would quickly hurt their expansion prospects.
3 – What’s in a name?
A lot of analyses focus on Alibaba’s past performance and assume it will translate directly to America, but cultural barriers put it on shaky footing from the very start. Whether it’s fair or not, a Chinese company with an Arabic name is going to automatically have two strikes against it in the eyes of many US buyers.
4 – That labyrinthine structure is still a problem.
Finally, just arguing against myself for a moment, the question of Alibaba “getting away” with behavior that’s unethical in the US isn’t entirely settled. The range of services they offer would put them under the jurisdiction of a lot of different governmental agencies. It makes them a huge target, and being favored by the Chinese government isn’t an iron-clad guarantee of protection.
But they would still have considerable protections.
The effect of their structure on westerners’ perceptions of them is another open question. All one has to do is look at some of the more panicked analyses, calling them a “threat to Amazon, eBay, WalMart, and everyone else.” The prospect of them arriving on American shores, bringing Chinese business practices with them, is creating a revulsion in some that’s usually reserved for large spiders.
That’s not going to vanish any time soon, and it’s going to create a big barrier to acceptance.
It’s “Wait And See” Time With Alibaba
Basically, it would be wrong to say Alibaba isn’t a threat at all. However, it’s still a far-off one, despite their recent bid for an American IPO. Just for starters, they’d have to be flat-out lying in their filings and business plans, which would certainly be an inconvenient way to launch new localized services.
They should be on your radar, but until or unless they make definitive moves into the actual American marketplace itself, they appear to be focused on growing in China for the foreseeable future – at least, that’s our take, for now. What’s your opinion? Almost every business needs to sell online these days – should we be worried about Alibaba’s plans?