Alibaba transforms ecommerce into entertainment as it repositions the company as an economy
Ecommerce giant Alibaba is undertaking aggressive expansion plans as it powers ahead on its globalisation strategy, but can it really become a global economy?
For some time, Alibaba has been telling people not to think of the ecommerce giant as a company anymore, last week it finally explained why revealing its ambitions to become one the world’s biggest economy.
The Alibaba economy is a huge ecosystem comprising of the company’s core commerce platforms (Tmall, Taobao, Ali Express and more), digital media and entertainment divisions (Youku, Alibaba Music, Weibo etc), local services, payment & financial services (Alipay), logistics, marketing services & data management and cloud computing.
Connecting the entire ecosystem is the company’s vast data technology, which Alibaba sees as the keys to the empire. Alibaba is currently trialing a number of new data tools to help marketers and brands to track and target users across its entire ecosystem and it moves to capitalise further on its assets.
Over the last couple of years Alibaba has focused on growing its Tmall Global store attracting international brands and businesses from around the world. With a huge number of big name brands on board it has now shifted its focus to foreign SMEs in the US, Australia and New Zealand in a bid to connect these business with Chinese consumers. Last month it launched Tmall World in a bid to attract the 100 million Chinese speaking consumers to the brand as it continues its bid to create a global shopping platform.
It is all part of the company’s mission to dominate the global ecommerce industry. It has already achieved this in China, where Tmall alone controls nearly 60% of the ecommerce market. Alibaba’s ecommerce platforms are now so powerful that brands without an ecommerce presence are increasingly using the platform as a branding channel, because of the power and exposure it offers companies.
In its most recent quarterly results, Alibaba reported a 60% increase in overall revenues to RMB 38.6bn ($5.6bn) driven by a 47% surge in ecommerce revenues of RMB 31.6bn ($4.6bn).
With Alibaba now attracting 507 million monthly active users, the company has turned its sights to offline retail, investing in Chinese mall operator Intime Retail, partnering with supermarket giant Bailian Group as it attempts to blur the lines between online and bricks-and-mortar commerce as part of its “new retail” strategy.
One of the keys to Alibaba’s commerce success has been the way the company has positioned ecommerce as an entertainment activity rather than a necessity.
“Alibaba have made ecommerce an entertainment sport, they have turned the act of purchasing into a sport,” says Kenneth Tan, chief digital officer of Mindshare China.
Tan says Alibaba’s strategy is best demonstrated by its 11.11 Singles Day shopping extravaganza. The annual festival has exploded from its humble beginnings as a discount shopping day, becoming a full blown entertainment event, complete with prime time TV gala programming and weeks of hype, deals and activity. Last year delivered another record-breaking event reporting sales of RMB 120.7 billion ($17.4 billion).
“Last year was the second time Alibaba created a gala event around Double 11. The first time they did it, it attracted a lot of noise and buzz. But last year they took the interactive element to a different level, with celebrities, streaming activity, mobile TV. There was a big push to get people to engage with the event. On TV it was four hours of activity where you could win money, win products, engage with the brands, and it was all happening live on p one of the top TV channels in China in a prime time slot. It was one night of pure entertainment,” says Tan.
A key element in Alibaba’s success is its mobile payment service Alipay. Part of Alibaba’s financial affiliate company Ant Financial, Alipay accounts for more than half (54%) of all online payments in China. Using Alipay consumers can not only but products online, they can also shop instore, pay bills, book plane tickets, movie tickets, etc. The mobile payment service has become so ubiquitous in China many people do not carry cash, or even wallets, opting instead to simply carry their mobile phone.
For Alibaba, it also provides another way to connect with consumers, collect data about how and what consumers spend money on, promote deals and specials and ultimately cross-sell products from their ecosystem.
“Alipay enables you to do loads of stuff, pay bills, buy products. Depending what you do with the app you can be in there anywhere from once to ten times per day, so that is a massive pipe for traffic coming in to any platform. Much like the supermarkets of old, they have plotted the routes so they know where you have the highest propensity to spend. Alipay will ping you with specials, they know what you buy, where you live, how much you are paying for your gas, they will give you offers within the payment platform that suit you to get you to buy,” says Tan.
Alibaba is also using Alipay to propel it into other markets, in the last 12 months it has launched into countries across Asia Pacific, Europe, Canada, South America and the United States. Alibaba’s Ant Financial has also invested in a host of financial platforms including South Korea’s Kakao Pay, Thai fintech firm Ascend Money, Indian mobile payment site Paytm and Philippines fintech Mynt. It is also close to buying US money transfer firm MoneyGram.
Of course, Alibaba’s ambitions do not end there.
Alibaba founder Jack Ma has said the long-term goal is to reach 2 billion customers worldwide by 2020. To help achieve this goal, Alibaba has been investing in and acquiring businesses in China and around the globe, among the very long list is South East Asian ecommerce giant Lazada, of which it recently increased its investment, Chinese microblogging app – and China’s Twitter – Weibo, as well as Chinese ride-hailing app – and Uber victor - Didi Chuxing.
It has fingers in many pies, including the entertainment industry with its own digital media and content business Alibaba Digital Media and Entertainment Group, which owns the streaming app Youku Tudou, and its film studio business Alibaba Pictures, which last year inked a high-profile streaming deal with Steven Spielberg’s Amblin Pictures.
Alibaba’s content and entertainment businesses are starting to drive growth for the company contributing a 234% increase to RMB 3.9bm ($571m) in Q1.
Speaking at Alibaba’s recent Investors Day, Yu Yongfu, chairman and CEO of the group’s Digital Media and Entertainment division, said, “To put it simply, our mission is to allow those who have fun shopping at Alibaba to truly live at Alibaba. So, in addition to shopping, we would like them to spend more time watching videos with us, getting information from us and listening to music with us, to come and game with us, among many other things.”
The mission for Alibaba is to keep people within its ecosystem and therefore continuing to contribute to its economy. A key element to this is the rise of social commerce.
“Alibaba want to be a social commerce business,” says Humphrey Ho, managing director of Hylink Digital, China’s largest independent agency. “They are dominant in payments and they know what people want. They have six years of hardcore ecommerce spending data, now they want to play in the world of social.”
“They have mastered ecommerce, it is transactional, you buy, you get. Social commerce is understanding what users want and servicing them in every stage with products, expanding the product line up and the logistics infrastructure to service that and they also have Alipay to ensure that making payments is fun.”
Christian Solomon, head of digital at MediaCom China agrees, “Alibaba has focused on ecommerce and they’ve gone from ecommerce to being a social ecommerce platform so that now they can do branding as well as sell product. This year they are making a big play to attract branding dollars and they are transforming their platforms into branding experiences as well as a purchasing experience through the use of KOLs, live streaming and the super brand day events each month.”
But, Major Lin, managing partner and chief digital officer at OMD China, believes the challenges for Alibaba remains quite simple.
“While Alibaba is now a big group, with so many different companies and businesses like the b2b platform, the b2c platform, data and cloud technology service, content and so many other things. Each business unit has its own mission and plan for development and is facing different challenges.
“Overall the Alibaba Group is still based on ecommerce and the key challenge for the company is still how to build their brand and how to try to dilute their platform from the vendors that sell the cheap or fake products. Most of the users globally still think Alibaba is just an ecommerce platform and the fake product is still an issue for the brand.”
To overcome this Alibaba has been investing heavily to remove counterfeit goods and unsavoury vendors from Taobao, in a bid to clean up its online marketplace and help boost the company’s reputation. Alibaba has rolled out a host of initiatives including the Big Data Anti-Counterfeit Alliance it formed with the likes of Louis Vuitton, Samsung and Mars, as well as calling on the Chinese government to introduce stricter laws and harsher penalties for counterfeiters. Although it is early days some analysts believe things may be improving but Alibaba still has some way to go to overcome this issue.
However, this will not stop the company from pushing ahead in a bid to reach its goals of becoming a powerful global economy.
“Alibaba is a very powerful platform, not just in China. In the future, it will be a global data platform that you can leverage all around the world. I think that is the big purpose of Alibaba,” says Lin.
This article is part of a series about the BAT (Baidu, Alibaba and Tencent) Chinese tech giants. Other articles in the series include: