Alibaba faces new crocodiles in the Yangtze

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“eBay is a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we will lose — but if we fight in the river, we win.”

These words were famously uttered by Alibaba founder Jack Ma about Taobao, the ecommerce giant’s online shopping platform, which was at war to displace its US rival in China. His colourful prediction was borne out when eBay closed down its China site, EachNet, in 2007.

eBay’s dramatic decline in China has since been enshrined as a business school case study on the peril of international companies failing to account for local tastes. When Taobao launched in 2003, EachNet held more than 70 per cent of the ecommerce market share. Five years later, Taobao had more than 80 per cent of the market share and was the undisputed king of the Yangtze River.

But Alibaba’s unassailable dominance in ecommerce appears to be slipping as Chinese regulators target its monopolistic practices and new “crocodiles” enter the market. Alibaba’s Taobao and upscale Tmall collectively accounted for 48 per cent of overall gross merchandise sales in the first half of 2021, down from 62 per cent a year earlier, according to research by Chinese market analysis firm Daxue Consulting.

Regulators have changed the rules of the game, making it harder for Alibaba to defend its monopolistic grip on ecommerce. Taobao, for example, is no longer allowed to kick merchants off the platform if they open a digital store with a rival platform. Alibaba’s size has garnered regulatory attention, but the company’s deeper concern is whether its traditional ecommerce model is losing market share to new entrants, namely live-streaming and short video sharing platforms Kuaishou and Douyin.

Kuaishou and ByteDance-owned Douyin, the Chinese version of TikTok, have leveraged their status as China’s leading short-video sharing platforms to expand into ecommerce. Both have turned shopping into a form of entertainment, promoting videos of influencers hawking products to consumers that stand alongside clips of silly animals and celebrity interviews. “They [Kuaishou and Douyin] are both deeply ingrained in the online lives of Chinese consumers in a way Taobao has never been,” says Jessy Zhang, ecommerce analyst at Daxue Consulting. “It is not as fun to spend time on Taobao.”

Alibaba is worried about missing new trends, says Duncan Clark, an investor and author of Alibaba: The House That Jack Ma Built, which recounts Alibaba’s victory over eBay in China.

Running online shops on sites such as Kuaishou and Douyin is cheaper than on Taobao and Tmall. Alibaba charges higher fees for advertising and takes a larger commission from its merchants than the newcomers. While ByteDance does not disclose detailed financial information, Kuaishou’s recent earnings report reveal the momentum behind this content-driven shopping model. Kuaishou’s gross merchandise value (GMV) — a metric to determine the health of an ecommerce company — grew 86 per cent to RMB175.8bn in the third quarter this year compared with the same period last year.

As Kuaishou and Douyin take market share from Alibaba, they are also hoovering up retailers’ marketing budgets. “Merchants aren’t as willing to do expensive marketing campaigns with Alibaba and are instead spending money to create short videos for Douyin and Kuaishou,” says Zhang.

Alibaba is no stranger to homegrown competition, notably from ecommerce rivals and Pinduoduo. But while has traditionally been stronger in electronics and home appliance sales and Pinduoduo connects farmers to consumers, Kuaishou and Douyin are using lifestyle influencers to fight Alibaba in its core business: fashion and beauty. Taobao and Tmall collect the highest commissions from merchants and clock the biggest GMV figures in clothing and make-up categories.

Alibaba’s stock has taken a beating following disappointing third-quarter financial results, falling 18.5 per cent this month. But for now, it remains the ruler of the Yangtze. There are certain limitations to Kuaishou and Douyin’s growth in ecommerce. If their platforms become dominated by videos of influencers promoting products, it risks denting the engagement levels of videos from their advertisers, still both companies’ main source of revenue.

Furthermore, Alibaba could find that its enduring advantage, much like bricks-and-mortar retailers before, is the years it spent building a more reliable platform for merchants to develop a relationship with shoppers.

As one Tianjin-based shopper in her 30s put it, “I’m not a fan of the live-streaming shopping model. I still regularly use Taobao and, their products and customer service are better. It’s a matter of habit, really.”

The Internet of (Four) Things

1. Jack Dorsey leaves Twitter
Jack Dorsey, the co-founder of Twitter, stepped down as chief executive on Monday, as the social network appointed Parag Agrawal as his successor. Investors responded positively and shares in the company jumped 10 per cent in pre-market trading. The outgoing CEO faced investor criticism for being distracted with other projects, including running payments company Square.

2. Simpsons censored in Hong Kong
Walt Disney’s streaming service has been accused of censorship after it dropped an episode of The Simpsons that refers to the 1989 Tiananmen Square massacre when the platform launched in Hong Kong this month.

3. Phone and video are top choice for misbehaving financiers
Finance workers are 10 times as likely to share inside information and make inappropriate comments during phone calls and video chats than over text-based platforms. Behavox, a New York-headquartered company, analysed data from 20 financial services firms through the pandemic looking for problematic conversation. Their research revealed instances of insider trading and discriminatory behaviour.

4. Fake chip detectives
A surge in counterfeit semiconductors entering the tight Japanese market has spawned a cottage industry of chip detectives. As the global chip shortage limits supplies, assemblers of industrial and consumer electronics are forced to procure previously unsold stocks of semiconductors. These chips are often acquired without buyers going through proper channels, pushing up demand for professionals that can tell whether chips have been forged.

Week ahead

Tuesday: Salesforce, the customer management software company, and Hewlett Packard Enterprise will release third-quarter earnings. Singapore tech unicorn Grab faces a crucial step in its journey towards a US listing as proposed Spac merger partner seeks approval at an emergency general meeting of shareholders.

Wednesday: Cloud Computing data warehouse company Snowflake and cyber security firm CrowdStrike will both report earnings. Slush, the Helsinki entrepreneur two-day conference kicks off.

Thursday: Team collaboration website Asana will report earnings.

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