Demographic dividends of network and the future of Alibaba
(Source: China Daily)
Alibaba is going to have its IPO in the United States shortly. Although it has been questioned due to issues such as Alipay event, being listed in the “notorious market” selling fake and pirated products, and the suspicious tenure partnership system, which all cut the valuation on Alibaba’s IPO. However, deducing from the market reaction, Alibaba’s IPO is certain to be a big earning.
There is no doubt that since the controversial Alibaba can gain such popularity, it must has its powerful competitiveness. It is known that the net profit made by Alibaba in the first half of this year was $2.3 billion. As a comparison, Tencent earned $1.8 billion of the same period, inferior to Alibaba. In accordance with the current estimated price of Alibaba $66-68, its PE ratio of 2015 is around 24 times, lower than the Tencent’s‘29 times’ of and naturally lower than the Facebook’s ‘35 times’.
How can Alibaba be so successful? Dating back to the very beginning of China’s internet era, 1995, since then, the internet industry has been experienced industrial stages from portals to SP services, games, e-commerce, search engine and social network. Sina, Sohu and Netease dominated the portal internet period. And for SP services which rely on telecom operators, they only survived when internet bubbles were inflating. During this period, the hot spots of the internet industry were about attracting audience and competing for web traffic. The main business was to provide services like news press, email boxes and online chat rooms. But as for how to make use of the traffic, nobody knew. Therefore, when winter came, most of the internet companies could not make it to survive.
After the portal era, there is awareness of that website traffic can be converted into profit and this is actually a feasible business mode. And therefore it unveiled the subsequent 10 years of internet startup boom. Online games, E-commerce, anti-virus software, stock software and the bidding rank on search engine were all means to make website traffic into real money. Traffic collection and traffic conversion, or PV (Page Visits) value became the primary business objectives of internet companies. This time, people understood that internet entries had become important. If you don’t have an entry, then you can only bid high price to buy traffic from others. This divergence resulted in the appearance of internet entries such as Baidu.com, and Alibaba, at that time, had also become one of the main powers to buy traffic. Certainly, Alibaba also endeavored to possess entries, such as purchasing companies like AMAP.
And the basic background of that period was the ever up climbing population on China’s PC terminals and on mobile internet terminals. According to the statistics by CNNIC, in the middle of 1997, the number of Chinese netizen was only 620,000; from 2000 to the end of 2013, the number climbed from 20 million to above 600 million, which equaled two times of the total population of the USA and at the same time, mobile phone net users had also surpassed 500 million. The big population determines the gigantic volume of China’s internet. Especially in the latest decade, which is a decade of highly increase of both Chinese economy as well as of the income of the Chinese people. The total population and total economic volume have decided that there was bound to have Chinese internet companies which match such volume. If it was not Alibaba, it was anyone else.
We could also see that besides Alibaba, there are also internet companies such as Tencent, which is established by borrowing foreign experience and integrating with local innovation. Even those companies, such as Baidu and Renren, which totally duplicate the American business mode, have found their foothold in Chinese market. The high speed increase and high value of such companies should be all thank to the constantly expanding Chinese internet. In case that they can capture and maintain their market share, catching up with the speed of market expansion and economic growing, the business will not be unsatisfying. Alibaba today is, in essence, a achievement of China’s economic growth.
As a segment of E-commerce, Alibaba had firstly focused on B2B, which aimed to introduce Chinese providers to the world. Although the idea was great, hindered by the development of China’s export, after the global financial crisis in 2008, this segment gradually waned, which led to the ceaseless depreciation of the B2B value ever since it was listed in Hong Kong Stock Exchange. The B2B business of Alibaba was delisted in 2012. Probing into the root of its declining, the answer directs at the general trend. What is really visionary is the Taobao business (and its derivative Tmall) and Alipay. The former, based on the tremendous domestic consumption market and dominated by C2C and B2C, captures half of the E-commerce market.
What is the future for Alibaba or for Chinese E-commerce? As aforesaid, the success of Alibaba relies on the increase of Chinese netizen and the growing of Chinese economy. As the demographic dividend of China’s internet touches its ceiling, the next leap of China’s internet industry is bound to departure from website traffic. If an internet company wants to retain its market status, it should evolve correspondingly. As we can see that the targeted client of China’s internet is still the undifferentiated mass. The products and services provided are still standardized. Although Alibaba, Jingdong, Vipshop (all E-commerce websites in China) are dedicated themselves in bettering users’ experience and attracting high-end customers, they are still unable to cope with the fast expansion of the middle class and their relevant upgraded consumption. It is more than safe to say that if there is another Alibaba appears in future China, it is possible that it just cater the demand of the upgrading consumption of the middle class.
Published in Southern Metropolis Daily | 2014-9-17
