(The article was first published in Nov-Dec 2014 edition of Aurora.)
It says something about the power of a brand when it can inspire confidence in markets where it has little or no presence and get investors to place astronomical amounts of money in the largest initial public offering (IPO) in history. What makes this truly staggering is the fact that the above said investors are bidding to put their money not in the actual company but in a shell corporation registered on a little rock in the Caribbean Sea.
Sounds complicated? Well that is exactly what the Chinese e-commerce giant Alibaba managed to accomplish with its $25 billion IPO in New York on September 19, 2014. The company is now valued at $231 billion, which is more than the combined value of Amazon and eBay. And since the Government of China restricts foreign ownership, investors vied to bid for the privilege of owning shares, not in the Alibaba Group, but in a shell corporation (albeit with significant safeguards) registered in the Cayman Islands.
Considering the number of competitors in its category and the volatile history of dotcom busts, here is what Alibaba did differently to help it accomplish a successful version of Mao Zedong’s Great Leap Forward.
Alibaba’s business is based on promising fundamentals. The Chinese economy is buoyant with 1.36 billion consumers. Added to this the share of e-commerce transactions is over seven percent, which valued at $713 billion, makes it even higher than the US. Alibaba’s websites account for over 60% of end-user parcels delivered in China.
1. It’s all in the leadership
In the same way that Apple had Steve Jobs, the Alibaba Group has Jack Ma, a man from a humble background but with a grand vision. Ma effusively personifies the brand values of Alibaba. He is charismatic, energetic, accessible, flamboyant, a controversial upstart brimming with confidence; all the traits that Alibaba’s customers have come to associate with the company. An English teacher by profession, Ma turned tech entrepreneur when he had that stroke of genius in 1999 of bringing low-cost Chinese speaking manufacturers and their global buyers together in a business-to-business portal that would help them maximise opportunities. Since then, there has been no turning back and the Alibaba Group continues to be directed by Ma’s vision. Detractors say that Ma runs the company in a highly personalised style, to the point of even making personal investments and doling out loans to favourites from company money. In their view, without him Ali Baba will undergo a succession crisis. To be fair, Alibaba has gone some distance to allay these fears. Ma stepped down as CEO last year (he is still executive chairman) and among the safeguards in the new IPO are clauses that prevent Ma from doling out the company’s money; furthermore, any profit he personally makes arising from investment of corporate money must either go back to the shareholders or be invested in a social cause overseen by shareholder appointees.
2. Position the brand with a great backstory
Assertive branding is the cornerstone of what makes Alibaba stand out from other Chinese e-commerce brands. Ma never fails to remind everyone of the company’s humble beginnings from his Hangzhou apartment (certain board meetings and inspiration sessions still are scheduled on the premises, giving it an almost shrine-like status in corporate lore). Since its founding, Alibaba constantly emphasises its status as a challenger to the giants of e-commerce and a champion of the underdog. The company started with a vision of wiring small and medium Chinese manufacturers to the global business mainstream. Even today Ali Baba’s successful spin-off businesses, such as the Taobao Marketplace, TMall and Ali Express, constantly harp on about how they have made life simple for the little guy, the Chinese customer, the small manufacturer and the supply chain middlemen, linking them to global consumer mainstream – and to prosperity. There are entire villages in China called Taobao villages where the economy subsists on trading on Alibaba’s successful online marketplace, connecting buyers and sellers across China. At the launch of what was to be the most successful IPO in history, Ma told the story about how he was shown the door by numerous Silicon Valley venture capitalists and how he was branded Crazy Jack when he proposed a vision of a Chinese company challenging global giants like Amazon and eBay. While detractors have dubbed this as showmanship, it has built up an epic legend of the Alibaba brand and helped share values climb from $68 to 92.70 after the first day of trading.
Analysts says that while these purchases have given Alibaba access to new technology platforms as well as a measure of income diversity, they also comply with its overarching vision of becoming a global e-commerce giant and the point of choice for the world to access China’s e-commerce landscape.
3. The brand and its value proposition need to resonate globally
According to industry insiders, the branding success of Alibaba has come through consistent clarity in communication. They point to the fact that while other Chinese companies struggle to have their name pronounced correctly, Ma gave his company a name that had global relevance. Ma says he came up with the name after an impromptu focus group starting with a coffee waitress and 40 odd people on the street. This clarity has filtered through; Ma speaks to his audience in English and has gone beyond the ordinary to build his image (even donning a blond wig, nose ring and dark lipstick) of a people’s person. The company also invests in causes that strike a chord with a global audience, such as donating 0.3% of earnings to environmental protection initiatives.
4. Fundamentals make sense
Above all, Alibaba’s business is based on promising fundamentals. The Chinese economy is buoyant with 1.36 billion consumers. Added to this the share of e-commerce transactions is over seven percent, which valued at $713 billion, makes it even higher than the US. Alibaba’s websites account for over 60% of end-user parcels delivered in China. A number of the company’s websites are counted among the global top 20 most searched sites on the internet. Furthermore, Alibaba companies account for 80% of China’s online sales and its online payment system, Alipay, accounts for just over 50% of all online payments in China. It is fundamentals such as these that have global investors drooling in the financial capitals of the world.
5. Ideas don’t need to be original; just well executed
Many scoff at the lack of originality in Alibaba’s business model, claiming it is Amazon, Amazon Web Services, eBay and PayPal all rolled into one. That may be the case, but then not all tech giants represent original ideas. Companies like Facebook and Microsoft have shown that you do not need to be original; rather if you build on an existing idea and make it work, you can outshine the innovator. Alibaba has understood this logic, with one key difference that has held it in good stead; it never veers too far from its stated global vision “to bring people together in commercial connections.” As it cements its success story, Alibaba has invested in a number of successful spin-off businesses which are both homegrown such as Alipay, Aliyun, Comparative Shopping, Cloud E-Tao, Flash Sales and Juhuasuan as well as foreign partnered ones, such as Singapore Post, online retailers 11 Main, Fanatics and the gaming site Kabam. Analysts says that while these purchases have given Alibaba access to new technology platforms as well as a measure of income diversity, they also comply with its overarching vision of becoming a global e-commerce giant and the point of choice for the world to access China’s e-commerce landscape.
Tariq Ziad Khan is a US-based marketer and a former member of Aurora’s editorial team. firstname.lastname@example.org