“Don’t Get Surrounded” – China’s Strategy Against US Online Retail

Chess is the oldest and most popular strategy game in the west. It’s main object is gaining superiority through a decisive move against the opponent. The chess player looks for a decisive action that can lead to victory, in as few moves as possible.

Wei Qi game. Source

Wei Qi game. Source

Unlike their western counterparts, asian states have developed their military strategy around a different philosophy. Wei Qi, or the game of Go (as referred to in Japan) is the traditional game in China. Players use 180 pieces, each having the same value, to build fortifications and capture enemy positions. Unlike chess, the players don’t have a clear view of the competitor’s strategy, as the pieces are continually laid down. Matches are hardly seen as win or loose and the score can be overturned during the match, multiple times.

While chess players look for decisive actions, Wei Qi players use continuos movement to avoid being surrounded. The game, just like its western equivalent, is based on centuries of difficult wars. Due to China’s long and troubled history, its strategic approach has become less about direct confrontation and more about avoiding defeat and gaining relative advantage toward the opponent.

Western countries are playing the wrong game

Henry Kissinger expressed his view that Wei Qi is the path to understanding China’s strategy. In his book “On China” he starts describing Chinese policies through this ancient game. Although Kissinger’s metaphor is aimed at politics and military actions, it can just as well be applied to economics and for that matter, online retail.

When Ebay tried to access the Chinese market in 2004, Jack Ma, the founder of AliBaba Group, has sensed that this move may be detrimental to his own company, then providing internet marketing options to small and medium companies in China. He felt that although Ebay addressed the individual sellers, there was no clear distinction between individual businesses and small/medium companies in China.

Ebay had just laid the first stone on Jack Ma’s Wei Qi board. He decided he had to escape this potentially dangerous situation and launched Taobao, a company directly competing Ebay in China. The companies fought valiantly, with eBay trying to form partnerships against Alibaba and Taobao and investing $100 million in its Ebay EachNet operations.

While Ebay was buying all ad spaces it could find online, in a search for the decisive move, AliBaba bought TV and radio ad space, knowing the Chinese consumers were more influenced by  traditional media at the time. Ebay focused on increasing product listing numbers, while AliBaba focused on customer service. Piece by piece, AliBaba laid down all its advantages and finally pushed Ebay out of the Chinese market, in 2006.

Unfortunately, Ebay was not playing the right game in China. It’s strategy was flawed as it wasn’t able to find the check-mate move. Jack Ma made sure his strategy encircled and captured Ebay’s future earnings. But it was not enough. His game of Wei Qi was not just a timely thing. It was a prolonged campaign.

Chinese online retailers are far from stopping

This year AliBaba decided it will get listed in the United States. After it has managed to grow to handle almost 84% of China’s Ecommerce market, it has now decided to cross the Pacific and try an offensive move inside what is now the second biggest ecommerce market, the US.

AliBaba is not the only Chinese company reaching for the US online retail market. 58.com, a Chinese company dealing with classified ads and listed on the US market, has just received a $736 million investment from Tencent, another Chinese internet company.

Although both these companies are now tapping the capital market in the US, their long term intentions are probably more ambitious. Their presence in the US is a sure way to avoid encirclement. Whenever their position will become endangered, they will push farther.

While the Chinese – US economic dynamics are far more complicated and it cannot all be reduced to a game, one thing is for sure. The Yangtze crocodiles have crossed the Pacific and they are not there to play chess.

Omnichannel Payments – Battle Between Giants

What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.

Paypal bets big on POS integration

Paypal bets big on POS integration

Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:

  1. First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.
  2. Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.
  3. Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.
  4. Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.
  5. Let’s not forget Ali Baba Group, the organization that controls over 84% of the fastest growing and biggest ecommerce market: China. AliPay is the group’s payment system, fully featured with the Yue Bao savings account. And now the company is set to have its IPO in the US.

Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.

 

 

Top Three Most Influential Persons in Online Retail

Online retail is a fast moving sector and there are lots of outstanding business leaders out there. Among the best of the best, some really stand out. The way they’ve founded their companies and directed their investments have placed them in the higher echelon of influence in online retail.

Let’s have a look at them and their stories:

No.3 Jack Ma

Net Worth: $9.6 billion
Company: AliBaba Group

Jack Ma - founder of Alibaba.com

Jack Ma – founder of Alibaba.com

Jack Ma, a former English teacher in China, got his first taste of internet entrepreneurship in 1995, when he founded China Pages, a directory of Chinese businesses. He previously worked as a lecturer in English and International trade in the Hangzhou Dianzi University.

After founding and running China pages he briefly worked for the Chinese Ministry of Foreign Trade and Economic Cooperation, between 1998 and 1999. In 1999 he founded Alibaba, a B2B marketplace connecting Chinese manufacturers to the world.

Alibaba’s spectacular growth pushed Ma and his associates to add new companies to the group. AliBaba Group now owns Alibaba.com, Taobao Marketplace, Tmall, eTao, Alibaba Cloud Computing, Juhuasuan, 1688.com, AliExpress.com and Alipay.

The company is now only outmatched by Walmart in terms of revenue. Recent developments and an increase in online retail spending have made the Chinese market the largest online retail market in the world. The big winner: Alibaba Group. Through its subsidiaries, the AliBaba Group now handles $248 billion in transactions, 84% of the total online retail market in China.

But Jack Ma is not to be stopped. He is preparing one of the largest IPO’s in American history, after failing to reach an agreement with the Hong Kong exchange. His ambition is fueled by a sense of mission to run his company as an army conquering the world:

“I had always wished that I was born in a period of war. I could have been a general, I thought about what I could have achieved in war.” – Jack Ma, AliBaba Group

All signs point to Jack Ma building the hyper company he dreamed of. He is an effective leader, running the monopoly on online retail, in the world’s future largest economy.

No.2 Larry Ellison

Net Worth: $51.7 billion
Company: Oracle, NetSuite, Salesforce, etc.

Larry Ellison

Larry Ellison

You wouldn’t think of the fifth wealthiest man in the world as one of the most influential persons in online retail. But he is. Through it’s flagship company and different personal investments, he is in control when it comes to online retail infrastructure and software.

For once, Larry Ellison is Oracle and Oracle means, first and foremost, databases. Ellison started his career working for the Ampex Corporation in 1970, on a relational database for the CIA. His designs were based on a paper written by Edgar F. Codd, called “A Relational Model of Data for Large Shared Data Banks”. The same design was implemented by IBM, but the company didn’t have time to solidify its dominance on the market. Challengers soon began to emerge.

Database deployement - Oracle leads the pack

Database deployment – Oracle leads the pack

One of those challengers was Larry Ellison’s Software Development Laboratories (SDL), founded with two partners and later renamed Oracle, based on the database Ellison developed when he was working for the CIA database.

After a long struggle against the largest competitor, IBM (which would push its DB2 and SQL/DS products) and other challengers (Informix, Sybase, Microsoft) – Oracle eventually took lead in the database war. In 2010 the European Union approved Oracle’s acquisition of Sun Microsystems. One of the most important assets Oracle got was the wide-spread, popular MySQL database.

So for one - Oracle now dominates the database market, the underlying infrastructure of connected systems and retailers worldwide.

And that’s just the begging – Oracle is currently on a purchase streak, aiming to build a strong multichannel retail presence. It is second only to Adobe Systems, with its customers registering over $200 billion in revenue in 2013.

It’s presence is split between Social marketing, ecommerce platform software, site search, customer service, personalized content and transportation management.

To give you a glimpse on how serious Oracle is about its investments in multichannel retail – they paid $1.5 billion in 2011 for Right Now Technologies, a company providing customer service software and services to the likes of Overstock.com.

Larry Ellison is also one of the major shareholders in Netsuite and Salesforce, two companies shaping the global B2B and B2C commerce future.

1. Jeff Bezos

Net Worth: $30.1 billion
Company: Amazon

Jeff Bezos

Jeff Bezos

Jeff Bezos is the one man we all picture when we think about ecommerce. He is a Princeton graduate with a degree in Computer Science. After graduating from college he pursued a career in investment banking in Wall Street, which he left to found Amazon, after noticing the fast growth in Internet usage.

He set up his company in the proverbial garage with few employees and in 1995 launched the beta version for 300 friends. Days after the launch the book selling eshop managed to ship books across US and 45 foreign countries. Yearly sales in the first year reached $510 000, much more than Bezos envisioned. The company grew and grew, survived the dot com and went on to register $74.5 billion in 2013 revenue.

By expanding the initial book selling operations into CD’s, videos and later clothing, toys, electronics, home & garden, jewelry and even art, Amazon essentially became the “everything store”. Amazon is now the biggest online retailer and a disrupting force in retail.

Everything from the ecommerce revolution to online payments, shipping and marketing has been heavily influenced by Amazon and guided by Jeff Bezos, both a star-gazing visionary and a focused micromanager.

kindle dx

The Kindle DX

In 2007 Amazon launched the Kindle which soon became a revolutionary device that changed the way we think of books and digital content. In 2013 the company hinted at the idea of using aerial drones to enable faster shipping and in 2014 it announced that it’s now testing its 7 and 8 generation aerial vehicles.

But beyond his influence in online retail and retail at large, Bezos is a special human being. A libertarian, he invested in projects most of us would consider unreal and unattainable. He was one of the first investors in Google, financed a clock that would run 10 000 years and a company that’s working on lowering space flight costs, to allow humanity to explore the great unknown.

This short list, headed by Jeff Bezos, is prone to change. The world around can change as well, partly due to these people’s and efforts. To get a deeper glimpse on how they did it and what motivates them, have a look at Jeff Bezos’ Princeton graduation address, “What matters more than your talents”:

China Passes US in Terms of Online Retail. Europe Lags Behind with 12% Growth Rate

China’s Ministry of Commerce released data showing huge growth in terms of Online Retail. Chinese consumers spent $296.57 billion online in 2013, 13% more than their American counterparts ($262.51 billion in 2013). That means China is now the biggest market for online retail.

China showed a 41.2% growth YoY and is now the largest online retail market

Chinese online retail market showed a 41.2% growth rate from 2012, a result of a) an increase in online spending and b) an increase in the total number of internet users. The number of internet users in China grew 8.5% to a total of 618 million users at the end of 2013. As a result, China showed an increase of 52.4 million in online consumers.

Chinese B2C ecommerce expected to grow even faster in 2014.

Chinese B2C ecommerce expected to grow even faster in 2014. Source.

Although China surpassed the US in total online spending, one must not ignore the fact that the US still spends almost twice as much online than China. The total number of internet users in US, according to Internet World Stats is 277 million, 54% less than internet users in China.

As such, American users spend 945$ per year online, whereas Chinese users spend 478$ per year. Moreover, online retail in China is more or less a monopoly ran by the Ali Baba group, a company preparing for an american IPO. With  $248 billion in transactions handled in 2013 through its many subsidiaries, Ali Baba accounts for 84% of all Chinese online retail. That is NOT a balanced market.

Although the numbers amount in favor of Chinese online retail (large growth rates, increased number of consumers and a lot of room to grow) Ali Baba’s dominance does not paint a pretty picture. Whereas US online retail is a competitive and balanced market, the Chinese behemoth has clay legs. Sure – it had a astonishing growth and there certainly is a market there, but can the Chinese leaders take on mature, innovative markets? My bet is on NO. The centralized, planned uber-organization can work pretty well in China but in the competitive world of global markets it might run into trouble.

Europe lags behind and is expected to reach $318 billion in 2018

Europe shows a healthy, double-digit growth rate in terms of online retail, yet still lags behind the US and China. Forester shows that Europe will grow with a CAGR of 12% until 2018, when the market is expected to reach €233.9 billion ($318 billion).

This is neither good nor bad. Europe is still making peace with it’s new-found unity. The European Union still has to battle inequality between countries, has had a rough time battling recession and has just recently considered online retail as a viable alternative to classic retail.

Northern Europe is more mature in terms of online retail development, thus shows smaller growth. Southern and Eastern Europe has increasingly adopted online retail as means to reach its uncovered consumers and shows larger growth rates.

Make no mistake, however. Europe is a large market. It has 518 million internet users and there is still room to grow. There are more money to spend and surely Europeans will get moving soon. Just as soon as they get over this recession thingie.

 

AliBaba decides to take its IPO to the US. Is it taking on Amazon and Ebay? Not just yet.

In terms of global Ecommerce, this was a very interesting day. The Chinese wonder, Alibaba Group Holding, has decided to take its IPO to the States. The company, founded by ex-english teacher Jack Ma in 1999, is now on track to extend its influence outside China.

Jack Ma - founder of Alibaba.com

Jack Ma – founder of Alibaba.com

The company started as a way to connect Chinese manufacturers to the western buyers. It than evolved a B2C and C2C approach, an online payment solution (AliPay) and even an investment fund, Yu’e Bao.

The company’s growth has been mostly fueled by its B2B division, one very important gateway to China’s manufacturers, and its connection to Yahoo. The american company, although not in its best year, was lucky (wise?) to invest in AliBaba, when it was just starting. Although the group has been buying back Yahoo’s stocks, it is still largely (24%) owned by Yahoo.

Given AliBaba’s growth, Yahoo’s stocks have been bumped up. Some analysts suggest that 21$ out of Yahoo’s 37$ stock price come from AliBaba. The future looks great for both Yahoo’s stocks and AliBaba. In the IPO the Chinese company is expected to raise $15 billion, at a valuation north of $140 billion.

Is AliBaba ready to take on Amazon and Ebay?

The answer is … probably not. This might not be its target. As mentioned in an announcement on the corporate blog, AliBaba initially intended to be listed on the Hong Kong exchange. Its management structure, however, would not have the same influence in the case of a Hong Kong listing. Senior management, owners of 10% of the company are not willing to bend to Hong Kong’s rules and have thus decided to switch markets.

“We wish to thank those in Hong Kong who have supported Alibaba Group.  We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.” – Source

Even though the company says it wants a global approach and a more transparent communication to the market, its senior executives still want the full control.

AliBaba needs two things right now: cash and popularity. It needs cash to keep up with its historic growth, as China’s economic growth is slowing down. It is still based in China, its main assets are Chinese manufacturers and it is China where AliBaba controls 80% of ecommerce. But Jack Ma was wise enough to share its company’s growth with Yahoo, which was a bless in terms of global reach and brand awareness. The company now needs to go a little further. The global media has its eyes on the New York stock exchange and AliBaba needs to show it is more than just another Chinese company.

It doesn’t matter that the company is already listing a tenfold increase in B2B transactions or the fact that the Chinese ecommerce market will reach$655 billion by 2020 . The spotlight is somewhere else. And AliBaba needs to be there.

The P2P (Peer to Peer) Banking Revolution. Can The Big Online Retailers Take on Banks?

Banks are one of those things people take for granted, whether they understand them or not . Their systems and inner workings are unknown to most of their customers. Their influence has, to some extent,  shaped the modern world. Strength, rigidity and, until recently, stability have been the common attributes for banks.

Change rarely, if ever, happens in the banking sector. When it does, it’s usually for the worse. Recently, however, something seems to have been shaking its very foundation: the evolution of electronic markets and peer to peer cooperation.

Commerce has been liberalized by the likes of eBay, Amazon and AliBaba. These companies are responsible for shortening the supply chain from manufacturer to the end consumers. As recent developments show, the banking sector is next. Who knows, maybe the companies that changed retail will also be those able to change banking.

Lending for the People: Top Peer to Peer Banks

Although just recently launched, some new companies have been taking the banking world by storm. These companies match lenders and borrowers, through a common marketplace platform, usually using auctions.

225px-Zopo-logoZopa, UK’s leading P2P lending company, offers a 5% return to lenders and charges 5,6% on personal loans. Apparently it works great as overall acceptance has been steadily rising. In the past 6 months alone the company has lend 100 million pounds, 25% of the total lend since it was founded in 2005.

Among the things responsible for a growth in P2P lending acceptance was the fact that traditional banks’ risk aversion that slowed lending to a halt. Savers have also been ignored by banks so they had no other choice but to turn to new methods of growing their savings. “UK savers seem to have been forgotten by the banking establishment, so it is not surprising more people are giving Zopa a try”, says Giles Andrews, CEO of Zopa.

isepankur-logoIt’s not just the UK or the western world that seems to have an appetite for P2P lending. IsePankur, an Estonian based P2P banking startup, has just added lending options to investors outside Estonia. The company was accepted quickly as an reliable financial player and now it lends money to 60 000 people. Although it tackled the  acceptance issue, it still has to deal with higher risks than UK-based Zopa. It manages this issue with the help of a high return on investments (aprox. 22%) that seems to be enough for everyone willing to lend against a default rate of 3%.

Source: Wiseclerk

Source: Wiseclerk

lending-club-logoGoogle itself is pretty interested in the P2P area as it purchased a share of Lending Club, valuating it at $1.55 billion. The company, based in San Francisco, is boastful about providing loans in 43 states and earning its investors more than $300 mil so far.

Lending Club was founded in 2007, 2 years after Zopa, by Renaud Laplanche and it has lend more than $2 billions in 2013.

lending club

Usual destinations for loans contracted on Lending Club

Deposits are also being disrupted. AliBabab.com shows a growth rate of 1211%

AliBaba.com, China’s main digital company, the biggest online retailer in the world has joined the banking digital revolution. It has recently launched the Yu’e Bao (“Remnant treasure”) fund , that allows its customers to capitalize on AliPay’s growth by depositing money in this fund.

Customers will use money parked in their accounts. Their funds can thus increase with the company’s development. Although it is taking on some of the largest and richest banks in the world, it shows an outlandish growth rate. “Yu’E Bao fund reached 4.24 billion yuan (USD 693 million) in Q2 2013, growing by 1211.33% in Q3″ it is reported.