This article was published on May 7, 2014

This is why Alibaba is not interested in expanding its business to the US right now

This is why Alibaba is not interested in expanding its business to the US right now
Jon Russell
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Jon Russell

Jon Russell was Asia Editor for The Next Web from 2011 to 2014. Originally from the UK, he lives in Bangkok, Thailand. You can find him on T Jon Russell was Asia Editor for The Next Web from 2011 to 2014. Originally from the UK, he lives in Bangkok, Thailand. You can find him on Twitter, Angel List, LinkedIn.

Chinese e-commerce giant Alibaba’s long-awaited IPO is finally in progress after it submitted its prospectus on Tuesday, although the world is still no wiser about how much it will raise and which New York exchange it will list on.

Much of the reportage prior to yesterday had focused on whether Silicon Valley was giving Alibaba its full attention (apparently not) and which investors would reap the benefits of a potential $15 billion listing: a number, including Yahoo and SoftBank. With many talking up the event, some in the US may perhaps be puzzled that Alibaba hasn’t explicitly announced plans to expand its empire into the US.

No interest in the US

The answer is likely to be a simple one, and not just because China’s population is over four times higher than that of the US.

Alibaba has no need to look to the West for new business at this point. More pertinently, any plan to enter the US e-commerce market would require significant amounts of cash and, at this late point, success is far from guaranteed since the online retail market there is mature and Alibaba has no presence. Rakuten, for example, is still to establish itself outside of Japan despite having bought and rebranded major Western shopping sites and for large sums.

While its estimated $150 billion-plus valuation may suggest it is a mature business already, Alibaba believes there is plenty more growth to be found in China as it aims to reach more of the country’s estimated 500 million Internet users.

Company revenue increased 75 percent between 2011 and 2012 and, based on just nine months of last year, Alibaba’s 2013 revenue grew further still. In its prospectus, the firm touts the increase in consumerism and mobile internet access, it has a subsidiary that is building logistics into more rural parts of China to further its reach beyond its 231 million buyers and eight million retailers, and plans to expand its services and categories, among other factors.


Owning the e-commerce network

What many in the US are only just familiarizing themselves with is Alibaba’s incredible reach. Yes, it is primarily an e-commerce company, but it has its fingers in almost every internet pie in China.

Indeed, a crucial part to its success is that the 15-year-old company is so embedded in internet commerce in China. It owns pretty much every piece of the network that sellers and buyers use — wholesale platforms, marketplaces, malls, payment platforms and social networks — some parts of which are shown in this graph from the company’s image-laden prospectus.


Alibaba doesn’t just own the e-commerce ecosystem, it is also expanding out in a bid to own the Chinese internet experience as a whole.

Investments in maps (Autonavi), content (Youku Tudou), social media (Weibo), and on-demand services (such as taxi app Kuaide), alongside pushes into other verticals — logistics, offline retail, bankingmobile operating systems, smart TVs, micro-loans and more — are about owning the entire puzzle, not just the major pieces.

If you compare that to the US, it is clear that Alibaba has no hope of digging into a position that can match what it has in China. Or, at least, investment spent on trying to enter and exist in the competitive US market could be put to better use broadening its position in China.

(This excellent Quartz graphic demonstrates areas where Alibaba has a business or investment, although it is not necessarily the leading player in each space.)


Small bets in the US for now

That said, the company does appear to be making small bets in the US market. A move that might also bolster its reputation in Silicon Valley and help it learn, as other Asian giants like Samsung, Baidu and Tencent are doing.

It invested in ride-sharing company Lyft’s most recent funding round, pumped $210 million into chat app Tango and is financing a number of small-scale e-commerce startups in the US. In the case of the former two deals, Alibaba already has a share of a Chinese taxi firm and its own messaging app, which suggests that they are gambles on how these companies might develop, rather than acquisitions that slot straight into its main business.

It seems likely that we can expect the company to continue to place bets in the US market with more acquisitions — good news for startup founders — but the chances of doing more than just promoting its services in the US (as a window to Chinese shoppers) are unlikely.

The company prospectus mentions cross-border commerce as the sole internationally-focused objective that the Alibaba is focusing on — it has been building out Taobao in Southeast Asia for some time. Given that it faces a growing domestic threat in the form of Tencent’s and its WeChat app, which has become China’s de facto social product and is being packed with e-commerce and other features, it makes sense that Alibaba is focusing on its home turf… for now at least.

Headline image via Aaron Tam/AFP/Getty Images

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