What will Alibaba's IPO mean for the ecommerce marketplace?

18th Sep 2014

It’s not the first time ecommerce giant, Alibaba has flirted with the idea of flotation, but now its plans are firmly laid bare as it announces its IPO.

Valued at $160bn, it’s set to have beaten Facebook's IPO, leveling the playing field with American tech giants Amazon and eBay. But does its move make it a true competitor to our existing retail kingpins?

Method in the madness

Taking a slice of roughly 80% of the world’s largest ecommerce market, it owns a variety of profitable businesses including Alipay (similar to PayPal) and it is growing rapidly – of course it’s gaining attention.

Primarily its become successful in ecommerce for three reasons. Firstly, it was an early adopter of the marketplace. Second of all, it had the advantage of restrictions on business outside of China to give it breathing space to grow the business and finally it focused on shopping and helping others to sell; rather than trying to launch the ‘next big thing’. This is a concept that is common amongst the likes of Amazon and Google. For example, look at products like Google Glass, Kindle and driverless cars. It’s where these companies have plowed all their capital. Whilst they’ll see good return in the long run, the short term looks light on the ground as very little funding is left - which puts Alibaba in a strong position.

Another factor for the likes of Amazon and eBay to consider is that China is a very difficult market to trade within for foreign companies – this means Alibaba can take advantage of the US, but Amazon and eBay would not grow as fast in China.

Next steps for Alibaba… could it be threatening?

Part two of the plan for Alibaba will be enabling Western retailers to sell to Chinese consumers on domestic platform Tmall. Currently the marketplace goes head to head with Amazon and eBay in the US, offering 11main.com for US retailers to sell to US consumers and once the volume of retailers using this increases they will offer them the opportunity to sell internationally to the Chinese community.

Despite its profitability and margins however, Alibaba cannot compete on the same level as established Western retailers who have the advantage of over a decade of customer data to help them improve their service and experience. The likes of Amazon and eBay know their customers, what they want and when, and catering to the needs of these customers will be a taxing job for Alibaba. It will need to quickly adapt to the market, listen to its customers and learn what it’s doing right and where its business proposition is flawed. Western retailers have long been reacting to customer feedback in the form of reviews and are adept at dealing with and responding to them.

Small businesses set to thrive

For small ecommerce businesses market places like this appear to be a necessary evil to get off the groundIf you ask any small business that trades on Amazon or eBay you can guarantee that they’ll have something negative to say about the commission they’re being charged. The problem is they have no alternative option – there are no other platforms with large volumes of consumers for them to target. Alibaba will change this landscape and shake up the pools of consumers so that small businesses have a choice.  Alibaba’s profitable business model also presents a opportunity for reduced commission.

The new ecommerce landscape

So what does the IPO mean for the UK market overall? Though it’s a very small market in comparison to China and the US, it’s a jewel in the crown when it comes to European ecommerce. The UK has embraced market places since they landed on our shores from the US and now many retailers here are using them to enter new territories. The consumer feedback and reviews that market places offer helps retailers gain trust when trying to sell in a new country.

If Alibaba works in the US then it will work in the UK, and it’s set to make global commerce a two-way street. By allowing retailers from the east to sell to the west this two-way street will result in western online shoppers seeing more variety online, which can only put retailers on the front foot.

For Alibaba the main concern is speed – this is not a three horse race – the Japanese ecommerce giant Rakuten is already quietly positioning itself in the UK ready for European dominance, so it must act quickly.

Phillip Smith is UK country manager at Trusted Shops.


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