The planned initial public offering of the world’s biggest e-commerce site—China’s Alibaba—will do more than mint a horde of new millionaires. It will draw attention to other Chinese e-commerce sites, many with homegrown technology, that are itching to gain the eye of American investors.
The next biggest Chinese e-commerce IPO is likely to be that of JD, a fierce competitor to Alibaba that is targeting smartphone users especially, and may be building a kind of Amazon-Facebook hybrid through which you can, among other things, buy directly from contacts. Both give buyers the option of using an online escrow system where you don’t pay until the product is delivered from a courier who has your cell phone number.
Alibaba’s Tmall controls 51 percent of Chinese e-commerce, while JD—formerly called 360Buy—has 17 percent, according to figures from iResearch from the last quarter of 2013. However, while most of Alibaba’s ecommerce is done on desktops, JD may have a mobile advantage in a country that now has 500 million smartphone users (see “China’s Internet Paradox”).
In Alibaba’s Tmall, other companies ranging from Nike to Procter & Gamble sell directly to Chinese shoppers. Alibaba also operates Taobao, where Chinese companies sell products. Combined daily sales on Taobao and Tmall can top an astounding $7.5 billion.
JD is creating a strategic mobile wedge, though. Another Chinese Internet behemoth, Tencent—a leader in mobile social networking and gaming—recently bought a 15 percent stake in JD. Tencent brings with it a popular communications platform called WeChat and a competing online-payments platform called Tenpay that is popular on smartphones. If these were integrated with JD’s offerings, it would provide a way to connect with many new customers.
“JD and Wechat payment could work together and boost its mobile ecommerce offering—and this could pose a threat to Alibaba’s Tmall business,” says Edith Yeung, vice president of international business development at Dolphin, an Android mobile browser popular in the U.S. that is getting a toehold in China. “You can say Tencent is like Facebook, and Wechat is the Whatsapp of China. The difference between Wechat and Whatsapp is that Wechat hooks up the mobile payment—and that is a big, big deal,” she adds. In addition, Wechat adds gaming, cloud storage and Facebook’s newsfeed to its messaging app—and has more than 355 million active users, she added.
JD also stocks its own goods and has a highly sophisticated delivery system, in contrast to Alibaba, which facilitates direct sales by others and contracts out the delivery. (Alibaba’s digital payment affiliate, Alipay, handles the transactions and is also a mobile payment system that handled more than a half billion dollars last year.) “JD is known as number one in China in terms of product authenticity and delivery; they have seven very fast regional fulfillment centers across China,” says Yeung.
Many of the Internet companies in China defy the common claim that they are clones of leading United States companies such as Google, Twitter, Facebook, and Amazon. “Because of the hyper-competitive local environment, they are actually innovating beyond what has proven successful in [Silicon] Valley,” says Aaron Du, founder of Meijicard, a Chinese merchant reward startup. “There are a lot of feature innovations that are fundamentally unique to the Chinese Internet, and we will likely see more of that over the next decade. A few years from now, it would not be surprising to see the new Facebook Whatsapp looking a lot like Wechat today.”
WeChat has helped popularize QR codes, those strange-looking square bar-code tags that are marginally used in the United States, in China. Point your camera at a QR code on a product, tap the screen and you are connected to a store where you can buy it. WeChat also allows “chatting” with voice instead of text, making each SMS like a walkie-talkie.
Some innovations are shaped by cultural differences. On Chinese New Year, when it is traditional to give money in a red envelope, a digital red message bearing a few yuan could be passed around to friends through WeChat.
One thing is clear: Chinese companies want to go public on U.S. exchanges, and plenty of private equity and hedge fund investors are involved and want that to happen, too.
“There are many successful niche e-commerce sites in China, but the most important takeaway is that the size of the Chinese e-commerce market is unimaginably big for most people in the U.S.” says Bowei Gai, founder of World Startup Report and a former startup cofounder himself. “We will see many niche billion dollar e-commerce companies in the near future.”
Yeung added: “In general, Chinese have this American dream—they want to go public in the United States. It’s not as cool if you go public in China.”
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