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The Rise of Alibaba and the Changing E-commerce Landscape: A Book Review of Alibaba’s World

Several months ago, I read Alibaba’s World: How a Remarkable Chinese Company is Changing the Face of Global Business, by Porter Erisman. It was a riveting, quick read that gave me a lot of insight into how Jack Ma pulled off the largest IPO ever and built the behemoth Alibaba Group, the Chinese e-commerce company larger than Amazon and eBay.

It’s hard to compare Alibaba to Amazon, or eBay, or PayPal, or AdWords – because it’s really all of these and more. For people from North America, or really anywhere outside of the Asia-Pacific region, it’s supremely hard to fathom the success and the reach of Alibaba.

Remember how Amazon essentially created their own holiday a couple years ago, called Prime Day? Yeah, they copied the idea from Alibaba, which capitalized on Chinese Singles’ Day several years back. Singles Day (November 11) brought in $9.3 billion in sales on Singles Day 2014, equivalent to about 7 percent of the country’s total-year sales. It was even bigger in 2015, $14.3 billion, and it’ll probably be even bigger in 2016.

Just How Big is Alibaba?

In terms of revenue, Alibaba is head and shoulders above the rest – check out this chart from Business Insider:

Alibaba garners almost 3X the amount that Amazon does in terms of spend every second. In the chart above, JD.com is another Chinese competitor, and Rakuten hails from Japan. Other (smaller) competitors not shown on the chart above include Zalando in Europe, Snapdeal and Flipkart in India, and Wuaki in Spain.

A lot of North Americans, including Westerners in developed countries where Amazon has a presence, forget that Amazon is actually pretty small in terms of overall revenue. Amazon is growing, of course, but it’s still dwarfed in the US by Walmart. According to Quartz, at $482 billion in revenue in 2015, Walmart was bigger than Amazon, Apple, and Microsoft put together. Further putting Amazon on the defensive, Walmart purchased Jet.com earlier in 2016 and will partner with Flipkart in India, two smart moves that poises them in a competitive position in the e-commerce space.

And Amazon has been edged out of one of the world largest e-commerce markets: China. China’s internet population is massive, and growing. Nearly 1.4 billion Chinese are active online, and over one-third of those who go online at least once a week are “continuously connected,” according to the Connected Consumer Study. The Chinese e-commerce market was worth an astounding $589 Billion USD in 2015, and it’s estimated to be worth $4.88 trillion USD in 2016, making it the world’s largest retail market. In comparison, the US e-commerce market was worth $341.7 billion in 2015.

What did Alibaba do to make them successful?

In China, Alibaba reigns supreme in a lot of e-commerce channels and platforms. Alibaba Group owns domestic business-to-consumer sites such as Tmall, and consumer-to-consumer sites like Taobao. Alibaba also is now the leading advertising platform in China, taking over the lead from Baidu (the dominant search engine in China). Over 25% of the country’s ad share is on Alibaba’s network. Various problems with Baidu’s reputation and tighter government controls in 2016 has slowed Baidu’s revenue growth, and so Alibaba has risen to the top. They are also the leader in mobile advertisements in China, estimated to be worth $26 Billion USD in 2016. They also have their own payments system, AliPay, which is widely used. As of April 2016, Alibaba is also looking to get into the sharing economy game: they pledged to invest more in Idle Fish, a digital flea market app where people can create online stores of items and customers can pay for the items, similar to how Craigslist works for neighborhood-level trading.

Let’s use some details from Erisman’s book to learn more about one of Alibaba’s most important sites, Taobao, which is the most similar to eBay. Erisman writes, “Taobao’s marketplace offers another important feature that sets it apart from many of its Western counterparts – shoppers are able to immediately click through to the seller and initiate a live chat. This is not surprising – the Chinese are accustomed to building a relationship with a seller before making a purchase, and in China’s shopping culture haggling and negotiation are standard. Whereas prices in an eBay auction start low and get bid up, prices on Taobao often start high and get haggled down. In fact, it’s hard to imagine e-commerce thriving in China without Taobao’s popular Wang Wang live chat feature.”

Furthermore, Erisman talks about another reason why Taobao beat eBay: “The most important of Taobao’s features are those that allow online buyers and sellers to establish trust. Like eBay, Taobao allows buyers to rate the services of sellers after a transaction. Taobao’s ratings system tends to be much more extensive, allowing buyers to rate their sellers on many more variables. This reflects China’s lack of credit infrastructure and has led to Taobao’s filling the void often filled in North America by private companies and nonprofit organizations such as the Better Business Bureau. In conjunction with AliPay, Taobao has become the best source of rating and credit information for small businesses in China.”

It’s important to note that Google, Amazon, and Walmart have not made successful bids in China. Google set up google.cn for a few years, but pulled out in 2010. Amazon uses amazon.co.jp, their Japanese site, which supports the Chinese yuan as well as the Japanese yen, to capitalize on Chinese customers who are willing to pay for Japanese goods. But eBay was a strong e-commerce player early on in China, until Jack Ma came along, that is.

The Story of Alibaba’s World

Porter Erisman’s book delves more in-depth about the size of Alibaba and its various platforms, but at its heart, Alibaba’s World is the story of how an English teacher named Jack Ma, a young Chinese fellow from the Zhejiang province, started an internet e-commerce site that beat out eBay and become the dominant e-commerce company in China. Erisman was the head of PR for Alibaba from nearly the very beginning of the company’s history, and so he had a unique perspective as one of the first few Westerners who was involved in the company.

There were several aspects to the story of Alibaba’s World that helped me to understand better how Chinese e-commerce customers think and what companies can do to appeal to them. One pivotal moment in the Alibaba vs eBay saga was that eBay made the decision to apply its Western UX design principles, which had worked well in Germany, to its Chinese site.  Erisman writes about how eBay “eliminated localized features and functions that Chinese Internet users enjoyed and forced them to use the same platform that had been popular in the US and Germany.”

Erisman continued, “Chinese users preferred Alibaba’s Taobao platform over eBay, because it had an interface that Chinese users were used to – cute icons, flashing animations, and had a chat feature that connected customers with sellers. In the West, bidding starts low and ends high, but Chinese users preferred to haggle with sellers, who would start their bids high and end low. … We recognized that having a great site that fit the China market was more important than any PR or marketing strategy.”

eBay’s logic may have been, as Erisman pointed out, “Most likely, eBay executives figured that because the platform had thrived in more industrialized markets, its technology and functionality must be superior to a platform from a developing country.”

In response, Erisman says, “The response from Eachnet users was instant disaster for eBay. Customers flocked to Taobao, saying that eBay’s new cold minimalist interface lacked Taobao’s more intangible human feeling, with its cute icons and flashing animations.”

From this story, you can tell how localization — in terms of site design, UX, and holistic business strategy — can be of tantamount importance.

East vs West Web Designs

I want to show an example of how UX design localization can be very important for a brand. Here is an example of Lush’s Japanese site, which has bright colors, a lot going on, and it’s almost completely localized into Japanese. Also notice the chat box in the bottom right:

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Now compare that to the Lush USA site. There’s a lot more white space here, fewer tiles, and the chat box is only a small button on the right sidebar.JWv4GcN.jpg

 

They’ve taken the effort to adjust layout according to how they want to express their brand to each market, rather than just replacing tiles in the same CMS layout with localized tiles.

A really extreme example of this is http://lingscars.com/ Check it out – I especially like the chicken and cat animations. It’s kinda like a Japanese pachinko parlor.

Lings Cars

The key to success internationally is localizing your online presence. Design, UX, site architecture — all of these things play increasingly important roles in SEO. Just take a look at this article by iPullRank to find out how Googlebot crawls and interprets CSS, JavaScript, location and color and size of elements, etc. By localizing your design, you’re also reducing duplicate content and you’re potentially improving your site engagement metrics (and by corollary, your clickstream data). You should also work with your content team to make sure there will be room for trans-creation of content, as well as with a UX design team to make sure localized content can be showcased appropriately.

If you didn’t know, I offer international SEO consulting – check out my services here.

The Battle Continues in New Territory

In 2016 and beyond, the battle amongst e-commerce giants continues in China, but even more so in India. Amazon, Alibaba, and homegrown e-commerce companies such as Flipkart are battling it out in the next largest and fastest growing internet population in the world, India. Amazon is pouring $2 billion in infrastructure in India. Google has also been pouring vast amounts of resources into developing the internet user base in India, through tactics such as translating Google Assistant into Hindi, setting up Google wi-fi stations, including 12 Indian languages in its Google Translate tool, and developing YouTube Go for Indian users.

India has been behind the curve in coming online, but now the Indian internet population is set to double by 2020 vs 2015, according to a report by Nasscom and Akamai. It’s set to reach 730 million users in 5 years, especially since internet infrastructure is expanding to rural areas. Many of those internet users do not speak English, but use rural Indian languages such as Hindi and Bengali, which leave an important gap for websites to fill in terms of localization.

And the Indian market is estimated to be worth $220 billion by 2025, according to estimates by Merrill Lynch. That’s not a number to scoff at. Today, only a small fraction of Indian internet users are online buyers, but that trend is sure to change as Indians become more comfortable purchasing online, and as e-commerce companies continue to overcome hurdles to make it easy and trustworthy for Indians to purchase online.

Not to be left out, as of September 2016, Alibaba is committed to partnerships throughout the Indian B2B commerce market, such as with DHL. Alibaba also announced that it is putting in $680 million to buy a 20% share of the Indian mobile payment startup Paytm, which has 100 million users and is planning to expand. Alibaba also backs Snapdeal, an e-commerce site in India.

So Alibaba grew exponentially in China, and now it faces stiff competition in India, where e-commerce competitors have learned the lesson of eBay and are putting up a much stronger fight. The winner is consumers, who benefit from improved internet infrastructure, payment systems, and better global communications.

I highly recommend purchasing Alibaba’s World to learn more about the beginnings of Alibaba’s story.

Interested in other marketing-related books that I recommend? Check out this blog post Best Internet Marketing Books for Entrepreneurs.

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