Consumers are more likely to respond and interact with brands’ posts and ads on Friday than any other day of the week, according to ...
Editor in Chief
Many e-commerce publications, including this one, routinely refer to Amazon.com Inc. as the world’s leading online retailer. But Alibaba Group, which operates the dominant online marketplaces in China, Taobao and Tmall, says it’s the world leader when it comes to the value of merchandise sold via its e-commerce sites.
Sales on Alibaba’s marketplaces this year will reach 1 trillion RMB (US$158 billion), Jack Ma, the company’s founder, predicted Sunday at the conclusion of the company’s annual AliFest, which attracted 2,500 people, mostly smaller merchants that sell on Taobao, to a convention in the company’s home city of Hangzhou.
It’s a prediction the company’s chief strategy officer, Zeng Ming, had made the day before in a briefing with journalists. While acknowledging it’s difficult to make a firm comparison because of the way Amazon reports its financials, Zeng asserted that Alibaba will exceed Amazon and eBay—combined—this year in the value of merchandise sold on their online platforms, or gross merchandise value. He went on to explain that the company has bigger game in its sites, but we’ll get to that in a moment.
Alibaba’s claim has merit—if you accept that all the purchases consumers make on its main marketplace, Taobao, actually are completed. Western rivals suggest that Taobao’s GMV claim may be exaggerated because some consumers may place orders on Taobao but then change their minds and not pay for them. Many Chinese web shoppers pay in cash on delivery; if the shopper doesn’t pay, there’s no transaction. And Taobao would not necessarily know, as it collects no commissions on sales on its platform—it makes its money through advertising and various services its offers the 6.6 million small merchants that sell on Taobao.
But Alibaba’s claims are in line with official figures and the prevailing view of analysts that Taobao and Tmall account for more than half—some say as much as 80%—of China’s online purchases by consumers. Chinese online shoppers spent $124 billion in 2011, so Alibaba’s GMV could have been as high as $100 billion.
That would eclipse the value of goods sold on eBay’s worldwide sites, which totaled $60.3 billion in 2011. Could Alibaba surpass both eBay and Amazon combined this year? It’s not impossible.
Let’s do the math. Last year’s GMV growth for eBay was 11%, so let’s generously estimate eBay’s GMV this year at $70 billion.
Amazon is more complex because it reports net sales that combine what Amazon sells on its own behalf plus the commissions Amazon gets from the sales of other retailers on Amazon.com. Total net sales stood at $42 million in 2012. Some back-of-the-envelope arithmetic suggests Amazon’s GMV was probably in the range of $60-70 billion. Amazon’s sales increased 40% last year, so let’s apply that same percentage this year and project Amazon GMV of around $95 billion.
If we combine Amazon’s projected GMV of $95 billion and eBay’s of $70 billion we get $165 billion, not much more than the $158 billion that Zeng predicts for Alibaba in 2012. And the projections for Amazon and eBay likely are high given the global economic slowdown.
By the way, Alibaba has not disclosed its own GMV for 2011. Zeng says Alibaba surpassed 100 billion RMB in 2008, about $16 billion.
But Zeng emphasized in his meeting with reporters last weekend that, whatever the comparison in 2012, Alibaba is growing faster than its Western rivals and its edge in sales will steadily increase. In fact, the Chinese e-commerce company has set its sights on not just being the worldwide e-commerce champion, but the champion of all retailing, including offline. Zeng says Alibaba expects to reach 3 trillion RMB (US$475 billion) in GMV within five years. By then, he says, consumers may buy as much or more on Alibaba sites than they do from Wal-Mart Stores Inc., and that includes purchases at Wal-Mart’s bricks-and-mortar locations, as well as on its e-commerce sites. Wal-Mart’s global net sales in 2011 were $419 billion.
Alibaba expects that growth to come mostly from domestic sales; the company plans to focus on China for at least the next three years, Zeng said. (He said 5% of Taobao sales are from overseas, mainly from Chinese living abroad.)
As big as Taobao has grown since Alibaba launched it in 2003 (the company launched Tmall in 2008 as a platform for larger brands), there’s much room for growth in Chinese e-commerce, Zeng added. That’s because China’s retail industry was quite underdeveloped when the Internet took off in China in the last decade. China had not gone through the evolution that U.S. retail did from mass catalogers like Sears to department store chains, discounters and shopping malls, he said.
“In this sense China is leapfrogging in e-commerce,” Zeng told reporters at last weekend’s briefing, speaking in English, rather than evolving from supermarket to category killer to department store to shopping mall. All these things are evolving simultaneously in China. E-commerce can provide almost unlimited selection and extremely low price. And add to that convenience, because in most cities in China are jammed and shopping for most people is not fun, it’s torture. E-commerce adds additional convenience to that.”
China may leapfrog e-commerce in other countries in coming years in another way, Zeng explained. He outlined a vision of consumers designing their own products and retailers fulfilling these custom orders rapidly. That vision, he said, would require cutting the typical cycle time from retailer order to supplier shipment from 28 days to seven days, but he thinks it’s possible.
He gave as an example a Chinese furniture retailer, Order Your Life, that encourages consumers to design all the furniture in their home or apartment—and there are millions of newly well-off Chinese moving into new domiciles each year. The e-retailer then builds the sofas, chairs, tables and other items from scratch and delivers within 10 days.
Zeng called that consumer-to-business e-commerce, making the point that it is the consumer deciding what she wants, rather than the retailer deciding what to will sell and then marketing that merchandise to the consumer. Thus, he said what we now refer to as business-to-consumer e-commerce will be turned on its head.