March 18, 2014, 5:03 PM

Alibaba’s founder talks about its IPO and competition

Jack Ma dismisses the importance of Alibaba going public in the U.S. instead of Hong Kong, and talk about his company’s growing rivalry with Chinese Internet powerhouse Tencent.

Lead Photo

Jack Ma, founder and chairman, Alibaba

It was just a five-sentence statement on its web site, but the news that China’s dominant e-commerce company, Alibaba Group Holding Ltd., planned to go public on a U.S. stock exchange made news all across the world. In his first public appearance since Alibaba released news of its IPO on Sunday, founder and chairman Jack Ma today touched on the news, and spent more time talking about the company emerging as a central rival, Tencent Holdings Ltd.

Ma spoke at the Alibaba Technology Forum, a conference for students at Beijing University, one of the country’s most prestigious schools. Ma, a popular figure in China as a self-made man who speaks up for entrepreneurs and backs social causes such as environmental protection, downplayed Alibaba’s decision to offer its share in the U.S. rather than Hong Kong, which the company had considered for its IPO.

The location for IPO is not important for Alibaba, and changing the society via the money the company will raise through the IPO is his real fun.  “Alibaba is not just a for-profit organization,” he says. Analysts expect Alibaba’s IPO to be among the largest for Internet companies, with the company likely to be value at between $100 billion and $150 billion. Facebook Inc., by comparison, has a market value of $176 billion.

One of the ways Alibaba has positioned itself as the friend of China’s emerging middle class, and not its government-connected elite, is through a money market account it launched last June that pays far higher interest rates than China’s big banks.  Yu’e Bao pays between 6% and 7% in interest, compared with the standard 0.35% annual interest rates offered by conventional bank and checking accounts in China. As of mid-January the fund had swelled to more than 250 billion yuan ($41 billion), up 35% compared to with 185 billion yuan ($30.6 billion) as of Dec. 31, according to Alibaba. 

Because Alibaba is challenging the Chinese banking and payment system so forcefully, the company is often under strict scrutiny from the government. “One of our financial products, Yu’e Bao, has been investigated about 30 times by the banking authority in seven months,” Ma says. “But as an entrepreneur, you have to keep optimistic.”  Alibaba’s recent introduction of a credit card also was blocked by government regulators.

Ma also addressed the growing competition with Tencent Group, which just this month forged an alliance with China’s leading online retailer,JD.com, No. 1 in Internet Retailer’s newly released China 500. (Alibaba is not a retailer itself, but the two big online marketplaces it operates, Taobao and Tmall, account for about 80% of online retail sales in China, according to the China 500.) Ma admits that Alibaba’s mobile social service Laiwang introduced in October 2013 lags far behind Tencent’s more established Wechat, which lets friends communicate with each other on their mobile devices. But he believes the competition is just beginning.  “In the era of mobile commerce, all companies start at the same place, and we need three to five years to see who is the final winner,” Ma said.  

Wechat has become the most popular mobile messaging applications in China; Tencent says it has more than 300 million active monthly users.  It is similar to WhatsApp, which had 400 million active users at the end of 2013, and which Facebook acquired this year for $19 billion.  Laiwang has attracted more than 10 million users, Alibaba says.

Ma says he “feels jealous” about Wechat’s development. “Tencent had more revenue than Alibaba before,” he said. “After many years of development, we finally exceeded them in revenue, but now they have Wechat.  Our goal is to challenge the Chinese traditional banking system and Tencent plans to challenge the Chinese telecom system. Now they start to challenge us.” That challenge has included letting merchants offer products through WeChat that consumers can pay for using Tencent’s online payment system, TenPay, which competes with Alibaba’s AliPay payment system. 

The battle for the loyalty of China’s mobile consumers of late has turned to mobile apps for calling taxis. Alibaba has launched Kuaidi and Tencent the similar Didi. Both let users not only call cabs but bid for their services by stating how much they will tip for a ride. To win people to use their apps, both Alibaba and Tencent have been offering to pay taxi fares for consumers who download and use their apps. Analysts estimated the two companies have paid more than $3 billion to subsidize their apps.

“Even my mom scolded me because she can’t find a taxi easily these days,” Ma said, because the subsidies lead app users to promise high tips. “We communicate with Tencent and both agree to keep the competition at a healthy level and not hurt consumers,” he added. 

Following his speech, Ma took questions, and one student asked what he would do if another company drove Alibaba out of business.

 “Alibaba is not a perfect enterprise, so it has to face the crisis from everywhere,” Ma replied. “But at least Alibaba will not be easily defeated in the next several years.”

 

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