And the biggest IPO in history… is an e-commerce company

Alibaba, the Chinese e-commerce company, has just had the largest IPO in history and is already one of the largest companies in the world. What does this mean for traditional commerce?

When we talk about Alibaba most people think of the forty thieves. However, if anyone was still making that kind of joke on the New York Stock Exchange, they just changed their minds with the biggest IPO in US history. At the end of the day last Friday, the Chinese company named Alibaba was valued at 231 billion dollars (higher than the valuation of Amazon and eBay combined and other companies like Disney).

Alibaba was founded in 1999 by Jack Ma, an English teacher who started the company in his apartment and who, at 50, is since last Friday the richest man in China and number 34 worldwide. The company combines the businesses of some of the biggest e-commerce giants within its platform for the Chinese market, including Amazon (Tmall), eBay (Taobao), Paypal (Alipay) and GroupOn (Juhuasuan). This is Alibaba, a company that accounts for 80% of e-commerce transactions in China and more than half of the country’s parcel shipments.

Unlike US giant Amazon, the company has been making a profit in recent years and last year reported results of $3.8 billion on $8.5 billion in sales. The $21 billion that has come into the company with this IPO will be focused in part on international expansion. This is a point that many investors are betting on as, as many comment, it is easier for a Chinese company to expand outside of China than for an international company to grow in the Chinese market.

Alibaba’s story stands in stark contrast to the tales of companies like Circuit City, Barnes and Nobles, Blockbuster and Borders, which were retail giants laughing at e-commerce 15 years ago. To this list can quickly be added other chain stores that imagined themselves untouchable a few years ago like Best Buy or Radio Shack that have been trying new online strategies for years without much success. Walmart, the global retail giant, is a case of a traditional retailer taking the online market very seriously and, although not yet at the level of an Amazon, is trying to catch up.

However, as in all stories there is no ‘beauty without a catch’, several critics argue that Jack Ma’s business model is not sustainable and can be easily replicated by other companies. Others point to the history of low investment returns from other Chinese companies’ IPOs or even that their corporate structures are not fully transparent. However, on its first day on the stock market with almost 40% growth, investors did not seem too worried.

More than whether Alibaba is a good investment or not, it is important to understand the shift in power from traditional retail to online. We have entered a phase where the biggest retailers in the world are starting to be online companies and most traditional retailers are trying to move part of their operation online (multichannel) or risk dying. If in Europe the cases are not yet so many it is a matter of time for the same to happen.  

As Sam Walton, founder of Walmart, said when asked if anyone could make another company as big as Walmart: ‘Of course they could. Somewhere, right now, there is someone with great ideas and the ability to implement them to completion. It will be done over and over again.’ In this case it seems to be this Mr. Jack Ma.

David Bernardo
David Bernardo
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