In five years, e-commerce will account for 30% of total retail sales in China, Alibaba chairman and CEO Jack Ma said yesterday in a passionate speech that displayed his unwavering belief in the continuing development of the sector.
“Traditional businesses still think e-commerce is a business model. It is not, it is a lifestyle,” he told the audience at Credit Suisse’s Asian Investment Conference, adding that in 10 years nobody will talk about e-commerce as it will be a natural part of everyone’s lives, just like nobody is talking about electricity today.
The Alibaba Group, which includes Taobao, the popular consumer-to-consumer online shopping platform, and business-to-consumer sales platform Tmall.com, currently account for about 5% of total retail sales in China, said Ma, who called his 30% forecast “very conservative.”
According to Ma, e-commerce in the US is like a dessert – a supplement for traditional businesses. The infrastructure is so good in the US that it is difficult for a pure online company to grow to surpass the traditional businesses. But in China, because the infrastructure is so bad, e-commerce becomes the main course, he said.
However, he doesn’t see Alibaba, the company that he founded in 1999 as a platform for Chinese exporters to connect with international buyers, as an e-commerce company. It is a company that helps other companies to do e-commerce. However, he does acknowledge that Alibaba’s involvement does span the entire chain of online shopping – from the online platforms providing the goods and the search engines that help customers find them, to the payment system and the recording and provision of business data.
Recently it has also set up a joint venture to with a traditional retailer to help improve the logistics side of the business. In the past five years, Alibaba has worked with five private-sector logistics companies and the intention now isn’t to build its own business and compete with them, but to help these five companies to improve their services and become more efficient, Ma said. The aim is for all customers to receive what they buy online within 24 hours, irrespective of where in China they live.
“We are almost everywhere, not because we are greedy, but because we have to. If we are not, Chinese e-commerce will collapse,” he said.
One example, he noted, is Alipay, the online payment system. When Alibaba set this arm up nine years ago, Ma said people warned him from getting involved in the financial sector. However, he recognised that it was difficult for customers to pay for their purchases online and said he felt there was a risk that Chinese e-commerce would remain like a chat room, with a lot of people not being able to buy anything. So, he went ahead.
Today, Alipay has more than 800 million registered users and people use it not just for shopping, but to pay their electricity and water bills, and taxis – even a vegetable market that he recently visited had a sign saying “We accept Alipay”, Ma said.
During the question and answer session that followed the speech, Ma was asked to elaborate on the thinking behind the decision in August 2010 to transfer Alipay, previously 100% owned by Alibaba, to a company controlled by Ma himself. The move caught a lot of attention and became a huge issue since Yahoo, which then owned 40% of Alibaba claimed that the transfer had been carried out without its knowledge. The dispute between the two shareholder was eventually resolved, but many observers still feel that Yahoo got the short stick on this one as Ma retains full control of the lucrative company.
He didn’t really say anything new on the issue, but repeated earlier statements that Alipay had been separated from Alibaba in order to secure a licence to operate as an electronics payment platform following the introduction of new regulations in China that banned such companies from being owned by foreign investors.
“If we hadn’t done what the government said, we wouldn’t have got the license and without the license Alipay wouldn’t be able to operate,” he said. “I am the senior guy. I have to make tough decisions, but people will see the result of Alipay pretty soon and I hope our investors will understand how we solved the issue and why we did it.”
Despite his optimistic views about the growth of online shopping, Ma believes that the traditional business-to-consumer model faces huge challenges and says that in China it will not work to just put a traditional business online.
“In the future you will not make money by how many things to sell at any one time. You will make money by how many different things you sell,” he said.
Ever since the start of Alibaba, the company has been focusing on two key things, he said: changing and improving the sales channels for the businesses using its various platforms, and making sure consumers are comfortable about e-commerce in China. With the combined revenues for Tmall.com and Taobao reaching more than Rmb1 trillion ($159 billion) last year, it seems it has achieved the latter at least.
Ma’s appearance at the AIC comes just over a month before he is due to step down as CEO of Alibaba to focus his attention on the strategic development and growth of Alibaba’s many individual businesses and the group as a whole. He will retain the title of executive chairman, while the CEO job will be taken over by group veteran Jonathan Lu, who is currently chief data officer of Alibaba Group and president of mobile device operating system Aliyun Mobile OS. Lu’s appointment was announced earlier this month, but the official transition of power will happen on May 10.
Alibaba is also in the process of preparing for an initial public offer of the entire group, which is expected to happen either late this year or early in 2014. Alibaba hasn’t officially commented on the IPO plans and Ma only touched ever so briefly on the possibility of going public in his speech yesterday – saying that people will then see how profitable the business is and stop questioning whether you can really make money from e-commerce.
