A lot negative things have been written about Google and its problems in China recently, so it was with interest I saw a very up-beat profile of Alibaba’s Jack Ma in the Economist this week.
As anyone who has met Ma will know, he is positively buzzing with energy, and this is part of what drives the company’s culture and performance. The Economist reports that he has “rock-star” status among China’s netizens, but for those who are new to the Alibaba phenomenon, the paper notes that Alibaba is …:
• The world’s largest online B2B marketplace
• Asia’s most popular online auction site
• 12th most popular website in the world
Not bad going for a small outfit from Hangzhou (near Shanghai). Especially when he says that he “knew nothing about technology…didn’t have a plan and…and didn’t have any money”. Alibaba is also one of very few Chinese companies (and even fewer private ones) that is an innovating world-beater. The Economist quotes Bob Peck of Bear Stearns:
“Jack is not just a Chinese visionary, but a global one. Western companies are taking pages from the Alibaba book.”
While other big international sites focused on using the web to cut procurement costs for big corporates, Alibaba focused on services for small and medium sized companies, of the sort emerging on its doorstep. It has also been successful at pitching the services to local tastes. Taobao, its auction site, has “community” characteristics, and allows for easy relationship-building and development of trust, factors that are important to its 20 million Chinese users, “70% of which are under 30”.
Online payment is a real challenge in China where there are lots of bank cards, but very few credit cards. Alibaba’s innovation in introducing “AliPay” was to have users set up cash escrow accounts (something Ebay is reported to have copied in China – and which is getting a close look from banking regulators).
All this good stuff has meant more users. Between 2003-2005 market share movements are reported as follows, and really say it all:
• Taobao up from 8% to 59%
• Ebay down from 79% to 36%
While Google continues to suffer at the hands of its more successful local rival, Baidu, Alibaba took over Yahoo! China’s operations last year (in a UD$1 billion deal that gave Yahoo 40% of Alibaba), and is positioned to benefit from growth in the local paid search market.
But Alibaba has been chasing market share rather than profits. It will be interesting to see how Ma tackles that challenge, as China’s estimated 30 million online buyers are not thought to be keen on paying fees. I am sure his investors will be watching…and hoping for more of his intuitive magic.
While Alibaba rakes in the praise, Google, has been taking a beating, according to articles by Fons Tuinstra on CBiz (“Google’s China problem – the WTO-column”) and China Herald. China Herald reports on two surveys that suggest the company has “lost about one third of its market” in China, and “that Google has been wiped away in its key markets in Shanghai, Beijing and Guangzhou”.
Tuinstra suggests that part of the Google problems is that head office was too far removed from the reality of the marketplace and its culture. Then problems followed with official censorship of the site, and the company’s attempts to offer a localized (i.e. self-censored ) version. But Google is not alone:
“Earlier other US-based internet companies like Ebay and Yahoo dramatically underperformed in China. In those cases increased domestic competition was one reason. Another was that the American management just did not want to get they had to play in China a fully different ballgame. “
It is a useful reminder that successful concepts and companies cannot rely on cutting and pasting their historic competitive advantages into the China market. They (and their top management) need to take time to understand the local market (and it’s sometimes sensitive side), engage with it as a partner, and be prepared to change plans rapidly, as and when needs dictate (e.g. when the business plan written in Boston does not translate well in Beijing). Of course, having a magic Ma at the helm is not be possible for everyone…but investing in and developing good local leaders is a step in the right direction.
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