The debrief

In her blog post “Rise of Alibaba”, my friend Mathilde Ho relates Alibaba’s tremendous success in China’s e-commerce market with its diversified revenue streams. She argues that for Alibaba to successfully enter international markets such as the United States, the company needs to target a niche market because its business generality is not sustainable in the long-term.

My thoughts and opinions

In relation to McKinsey & Co’s traditional funnel metaphor, it is clear that e-commerce is increasing the speed of the consumer decision journey faster than ever. Although bringing up a solid argument on Alibaba’s vulnerability in entering new markets, my view is different than Grace’s.

To give some perspective, Alibaba’s digital marketplace business model has proved successful in China. With 80 percent of all online transaction going through one of its platforms each year, Alibaba is bringing economic improvements to the poorest rural Chinese by giving them the opportunity to create a “store” online. Evidently, Alibaba’s business model is also working for the middle and high-income class; hence, in my eyes, establishing a niche marketing strategy for its global expansion will not guarantee long-term profitable growth.

The key issue with Alibaba’s expanding out of China is a lack of innovation in comparison to tech giants such as Facebook and Twitter. My view is simple: the majority customers in developed countries will expect not only low prices, but also genuine, high quality products. Given Alibaba’s major counterfeit issue, the current business model is unlikely to work in the US. It is true that there will be Americans who will purchase imitated products from Alibaba as long as they are cheap. Yet, I think it is a fair assumption to say that many Americans—generally with more experience in online shopping—are not willing to pay less with the risk of receiving counterfeit products.

This is not an issue with Alibaba’s business growth – I think this is an issue of entering a market where the pace of innovation is faster than that of the company’s. Ultimately, the pace of innovation in the US (or any country, for this matter) cannot be isolated, only disrupted. And the faster Alibaba realizes the opportunity to meet a need that neither Facebook nor eBay has met, the better its chances to enter and dominate.

Stop imitating, start innovating.