Alibaba faces new threat: an evolving Chinese buyer

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For over 15 years, Alibaba has been the unassailable champion of e-commerce in China. The company founded by Jack Ma has grown into one of the world’s largest and most valuable companies, using tough tactics to beef up the challengers.

As the e-commerce industry in China has matured, consumers have started to embrace new ways of shopping that favor navigation and interaction over targeted product searches. This trend has left Alibaba catching up in some areas, and competitors have used the shift to gain a foothold in the world’s largest online retail market.

Alibaba remains the main online shopping platform, but its share of China’s e-commerce retail market fell to 51% in 2021, from 78% in 2015, according to research firm eMarketer.

Making inroads against Alibaba has been rival to Tencent Holdings Ltd.

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, which integrates online stores into its ubiquitous WeChat social messaging app; Pinduoduo Inc., a six-year-old e-commerce app that injected game elements into shopping and lured bargain hunters in with low-cost products; and Douyin, TikTok’s sister app in China, which sells products via short videos and live broadcasts using its algorithms.

Alibaba has responded by investing more in areas such as content creation, live streaming and discounted products. In May, chief executive Daniel Zhang cited increased competition as one of the biggest hurdles for the business over the past year and said any profit exceeding last year’s would be reinvested in improvement. of its e-commerce activities.

“When we were talking about market-based core, it was Taobao and Tmall,” Zhang said in August, referring to the company’s flagship purchasing platforms. “But now we’re working hard to create all of these different businesses, each with their own unique and compelling value proposition. When asked about its initiatives to fight competition, Alibaba referred to its previous press releases and tax returns.

Alibaba’s revenue is still lower than that of other Chinese e-commerce players, and its huge size continues to give it major advantages. Alibaba’s size, however, has placed the company in the crosshairs of regulators, who have lashed out at Chinese tech giants.

WeChat has grown into an ecommerce force, with over a billion users who can browse and purchase products without leaving the app.


Photo:

Gilles Sabrie / Bloomberg News

Earlier this year, Beijing’s main market regulator discovered that Alibaba had abused its market position to prevent its merchants from selling on competing platforms. The company was fined a record $ 2.8 billion in April. At the time, Alibaba said it had accepted the sanction and promised to comply with it.

Still, analysts said the growing pressure on Chinese tech companies to play fairly could limit how quickly and aggressively Alibaba can respond to new threats.

Alibaba’s new rivals face their own trials. Pinduoduo is unprofitable and has relied on grants for part of its growth. The majority of Douyin’s sales last year were made through platforms run by competitors such as Alibaba or JD.com Inc. Pinduoduo and ByteDance Ltd., which operates Douyin, declined to comment.

WeChat is under regulatory pressure to open up its huge social media and messaging ecosystem, its biggest advantage in terms of traffic control, to other e-commerce players. Tencent declined to comment.

One consumer trend that worked against Alibaba was the shift from research to navigation. While many Chinese consumers still go directly to Alibaba’s Taobao or Tmall to research products, others have been drawn into shopping as they interact digitally or consume content online.

Xinru, a 31-year-old accountant in Guangzhou, uses live streaming platforms to purchase products including food and electronics, a habit that has replaced her need for traditional e-commerce apps.

Ms. Le said she walked around Douyin for over an hour each day, while queuing for meals in the canteen, commuting, or lying on the sofa after putting her child to bed. The platform saves her time with its well-tailored recommendations, she said.

Douyin, who sells products via short videos and live broadcasts using his algorithms, has made inroads against Alibaba.


Photo:

Mark Schiefelbein / Associated press

“The quality is now no different from merchants on traditional e-commerce sites,” she said. “The platform that can offer consumers more interesting products or persuade them to buy in a more interesting way or to offer lower prices wins. “

Douyin created a standalone ecommerce team last year and has since started banning links to external sellers, encouraging more brands to sell on his app and use his own payment platform to complete transactions.

Xiong Wanting, a 25-year-old merchant from Suizhou, central China, was selling succulents on Taobao before leaving the ship for Douyin a year ago. Ms. Xiong said that she liked the opportunity to show her products on video, when it was difficult for her to have enough followers on Taobao to successfully live stream.

“As long as I have the capacity and the supply of goods, I can open a store and broadcast live,” Ms. Xiong said.

In January, the Taobao Live app was revamped to allow sellers to share short lifestyle and product videos. The app has also adopted other popular features from competitors, including improving its algorithms to provide more personalized recommendations and creating interactive circles for influencers and ordinary buyers to connect, employees said. Ali Baba.

“The power of Alibaba will be diluted in the future.”


– Mike Ling, a trader with a drinkable yoghurt business

WeChat has also grown into an ecommerce force, with its over 1 billion users who can browse and purchase products without leaving the app. WeChat said the value of total merchandise sales through its mini-programs, which work as lightweight apps built into its platform, more than doubled in 2020 from $ 123.5 billion in 2019.

Beijing-based trader Mike Ling said he opened a yogurt drink business a few years ago on Alibaba’s Taobao and JD.com. But last year, the majority of her customers came through her mini-program on WeChat. As a result, Mr. Ling said, he has reduced his ad spending on traditional e-commerce platforms in favor of his WeChat store.

“Alibaba’s power will be diluted in the future,” he said. “There are so many merchants selling products on WeChat right now. “

Meanwhile, the battleground for new customers has shifted to less developed cities, where Pinduoduo has grown thanks to its aggressive pricing. Last year, the company surpassed Alibaba in terms of annual active users, although its buyers tend to spend significantly less on each purchase.

Alibaba initially responded by focusing on an existing group buying app, but underestimated how price sensitive Pinduoduo customers were, Alibaba employees said.

Alibaba then focused in 2020 on another app, Taobao Deals, which has partnered with factories to develop new products at low prices. For example, he created an electric toothbrush priced at less than 10 yuan, the equivalent of about $ 1.50, according to Alibaba vice president Wang Hai. The product took about a month to develop and sold 100,000 units in the first few days.

“The industry’s most important growth point is the opportunity for consumers in lower-level cities,” Wang said.

For the 12 months ended in June, Taobao Deals had more than 190 million annual active users. Mr. Wang was promoted to Alibaba Partner this year.

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