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 spoken by Alibaba founder Jack Ma about Taobao, the e-commerce giant’s online shopping platform, which was at war to move its American rival to China. His colorful prediction was confirmed when eBay shut down its Chinese site, EachNet, in 2007.

EBay’s dramatic decline in China has since been enshrined as a business school case study of the danger of international companies ignoring local tastes. When Taobao was launched in 2003, EachNet held more than 70 percent of the e-commerce market share. Five years later, Taobao held over 80 percent of the market share and was the undisputed king of the Yangtze River.

But Alibaba’s unassailable dominance in e-commerce appears to be eroding as Chinese regulators target its monopoly practices and new “crocodiles” enter the market. Alibaba’s Taobao and high-end Tmall collectively accounted for 48% of overall gross merchandise sales in the first half of 2021, up from 62% a year earlier, according to a study by Chinese market analysis firm Daxue Consulting.

Regulators have changed the rules of the game, making it harder for Alibaba to defend its monopoly hold on e-commerce. Taobao, for example, is no longer allowed to kick merchants from the platform if they open a digital store with a rival platform. Alibaba’s size has caught regulatory attention, but the company’s biggest concern is whether its traditional e-commerce model is losing market share to new entrants, namely broadcast platforms. live and sharing short Kuaishou and Douyin videos.

Douyin, the Chinese version of TikTok, owned by Kuaishou and ByteDance, has leveraged its status as the leading short video sharing platform in China to expand into e-commerce. The two have turned shopping into a form of entertainment, promoting influencer videos selling products to consumers alongside silly animal clips and celebrity interviews. “They [Kuaishou and Douyin] are both deeply rooted in the online lives of Chinese consumers like Taobao never has been, ”says Jessy Zhang, e-commerce analyst at Daxue Consulting. “It’s not as much fun spending time on Taobao.”

Alibaba worries about missing new trends, says Duncan Clark, investor and author of Alibaba: The house that Jack Ma built, which chronicles Alibaba’s victory over eBay in China.

Running online stores on sites such as Kuaishou and Douyin is cheaper than on Taobao and Tmall. Alibaba charges higher advertising fees and takes more commission from its merchants than newcomers. Although ByteDance does not disclose detailed financial information, Kuaishou’s recent earnings report reveals the momentum behind this content-driven buying model. Kuaishou’s gross value of goods (GMV) – a measure to determine the health of an e-commerce business – rose 86% to 175.8 billion RMB in the third quarter of this year from the same period last year.

While Kuaishou and Douyin are taking market share from Alibaba, they are also cornering the marketing budgets of retailers. “The traders are not as willing to do expensive marketing campaigns with Alibaba and instead spend the money to create short videos for Douyin and Kuaishou,” says Zhang.

Alibaba is no stranger to local competition, including e-commerce competitors JD.com and Pinduoduo. But while JD.com is traditionally stronger in electronics and appliance sales, and Pinduoduo connects farmers with consumers, Kuaishou and Douyin are using lifestyle influencers to fight Alibaba in its core business: fashion. and beauty. Taobao and Tmall earn the highest commissions from merchants and have the highest GMV numbers in the clothing and makeup categories.

Alibaba’s stock took a hit after disappointing third-quarter financial results, down 18.5% this month. But for now, he remains the ruler of the Yangtze. There are certain limits to the growth of Kuaishou and Douyin in e-commerce. If their platforms become dominated by influencer videos promoting products, it risks reducing the engagement levels of their advertisers’ videos, who remain the main source of revenue for both companies.

Additionally, Alibaba might find that its lasting advantage, much like traditional retailers, is the years it has spent building a more reliable platform for merchants to develop a relationship with buyers.

As a 30-year-old Tianjin-based customer said, “I’m not a fan of the direct-to-home shopping model. I still use Taobao and JD.com regularly, their products and customer service are better. It’s a matter of habit, really.

The Internet of (four) things

1. Jack Dorsey is leaving Twitter
Jack Dorsey, the co-founder of Twitter, stepped down as chief executive on Monday, as the social network named Parag Agrawal as its successor. Investors responded positively, and the company’s shares jumped 10 percent in pre-market trading. The outgoing CEO has been criticized by investors for being distracted by other projects, including the management of payment firm Square.

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

3. Phone and video are the first choice of misbehaving financiers
Financial agents are 10 times more likely to share inside information and make inappropriate comments in phone calls and video chats than on text-based platforms. Behavox, a New York-based company, analyzed data from 20 financial services companies throughout the pandemic looking for a problematic conversation. Their research revealed cases of insider trading and discriminatory behavior.

4. Detectives of false chips
An increase in counterfeit semiconductors entering the small Japanese market has spawned a cottage industry of chip detectives. As the global chip shortage limits supplies, industrial and consumer electronics assemblers are forced to source previously unsold stocks of semiconductors. These chips are often acquired without buyers going through the correct channels, increasing the demand for professionals who can tell if the chips have been tampered with.

Coming week

Tuesday: Salesforce, the customer management software company, and Hewlett Packard Enterprise will release third quarter results. Singapore’s tech unicorn Grab faces a crucial milestone on its path to listing in the United States as Spac’s proposed merger partner seeks approval at an emergency general meeting of shareholders.

Wednesday: Cloud computing data warehouse company Snowflake and cybersecurity company CrowdStrike will both publish their results. Slush, the two-day Helsinki entrepreneurship conference kicks off.

Thursday: The Asana Team Collaboration website will post the earnings.

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