On April 4, 1999, Jack Ma and his 17 teammates founded Alibaba.com in Ma’s Hangzhou apartment. Ma had come to the United States during the dot-com boom, and he noticed that Chinese businesses were conspicuously absent from the new e-commerce field of opportunity. After a brief prologue with a company called China Pages, Alibaba launched and began cornering the biggest corner in the world market.
If you’ve heard that Alibaba is like a Chinese version of Amazon, you’re starting in the right direction—but it goes broader and deeper than most people know. Like many titanic tech-age companies, Alibaba’s influence is profound and impossible to summarize in one tidy phrase… and yet, unlike many of its peers, Alibaba isn’t really a household name in America.
Alibaba’s retail business is split across three different stores: the original Alibaba.com for wholesale and B2B from Chinese manufacturers, Taobao for C2C (like eBay), and finally Tmall for B2C (like Amazon). Alibaba is principally a platform for connecting buyers and sellers, meaning its business is not limited to the items it can sell directly—and because Alibaba’s three stores cover the whole B2B2C2C spectrum, it has set up a pretty big and sweet middleman position (which it has aggressively defended against competitors like eBay).
But that’s just the part that actually resembles Amazon. As this Quartz piece breaks down, Alibaba dabbles in a dizzying number of other industries, with its own in-house equivalents of Uber, PayPal, Android, Dropbox, WhatsApp, Hulu, Spotify, and more—all of them dominating the world’s most populous country. No wonder Alibaba is one of the world’s ten biggest companies after 20 years.
Now, all of this is well and good and impressive. But still… how is Alibaba so huge, especially compared to Amazon, and especially when I’ve barely heard about it?
Three explanations for Alibaba’s meteoric rise:
1 – The sheer size of the Chinese market. China’s population is so obviously yuuuuuge that we forget how much yuger it is; America’s 300-million-or-so is a lot of people, but China roundly quadruples us with 1.4 billion. True, roughly half of Americans could be considered middle-class while China’s best estimate is one third—so an American is likelier than a Chinese person to have disposable income, and likely to have more of it—but there are simply wayyyyyyyy more customers over there.
2 – The “leapfrog effect” in Chinese retail. Americans have been shopping with glee since World War II and tons of big players have emerged—but the same cannot be said for China. America had a gradual transition from regional to national to modern multichannel markets, but China’s brick-and-mortar retail presence isn’t nearly as saturated because it was later and slower to develop. This means fewer big players competing in (what is now) a tech revolution for retail; thus, players like Alibaba can “leapfrog” this gap by taking Chinese retail consumers straight from thinly-spread regional stores to globally-unified online shopping.
3 – Tapping an eager consumer market. Another difference invisible to Americans: as a society, we’re already used to the idea that there are countless things you might want to buy if you just browsed around online. Again, this is a newer idea to the average Chinese person—which means that many of them are now being pulled by the familiar siren song of ordering (too many) things on Alibaba Prime. What counts as “spending money” is expanding; for every dollar the Chinese spend online, about 60 cents go to the same old purchases and the other 40 cents are totally new spending.
How meteoric is the rise of Alibaba? Their 2014 IPO was (until recently) the largest in history with a market cap of $231 billion—larger than Google, Facebook, and Twitter combined and, today, Alibaba’s market cap is roughly $500 billion.
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