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 Joe Tsai, executive vice chairman of Alibaba Group Holding Ltd, sees
an Alibaba future that stretches from banking to education, travel
to entertainment. Customers will buy mutual funds using Alibaba
mobile applications, safeguard homes with Alibaba insurance, and use
Alibaba virtual credit cards to order goods from U.S. websites that
will arrive on China's doorsteps in 10 days.
On March 16, Alibaba said it's planning an initial public offering
in the U.S. Analysts say it could be worth more than $16 billion.
That would surpass Facebook Inc's 2012 listing, valuing Alibaba at
over $140 billion.
"In five to 10 years we're still going to be an e-commerce business,
but the kind of things we sell on our platform will be a lot more
diverse than just physical products," said Tsai in an interview with
Reuters days before the IPO announcement.
"We're going to be selling digital content, there's going to be
services that will flow through our platforms," he said. "Our vision
is to become more a part of people's lives and fulfill all of their
needs."
Alibaba already accounts for about 80 percent of all online shopping
by individual consumers in China, which iResearch expects to reach
2.45 trillion yuan ($394 billion) this year.
If Alibaba has seemed unstoppable in its 15-year rise, an IPO that
could make it one of the world's most important technology companies
comes as the firm faces its most serious challenges so far.
Chief rival Tencent Holdings Ltd has the upper hand in mobile
services, now the most important battleground for Chinese Internet
companies. Alibaba's strategy of building a global e-commerce empire
with its own financial services is attracting close scrutiny from
China's regulators and resistance from the country's banks.
There's more riding on Tsai's ability to pull off the giant IPO than
just Alibaba's fortunes. Tsai found out himself, after Facebook's
debut flop, that a high-profile failure can turn investors sour on a
whole sector: In what he termed a "hairy" experience, an Alibaba
plan to raise $10 billion in private funding that coincided with
Facebook's listing nearly went awry as investors backed away from
Internet companies.
SHARP TACTICIAN
Tsai declined to discuss specifics of Alibaba's IPO or its finances,
but on March 12 he told Reuters Alibaba would "never" change its
partnership structure to list in Hong Kong.
Alibaba's revenue climbed 60 percent to $4.9 billion for the nine
months ended September, the latest period for which numbers have
been published, according to filings by 24 percent shareholder Yahoo
Inc. Net profit was $2.2 billion, a near eight-fold increase.
Tsai, a 50-year-old Taiwan-born Yale law school graduate, has
emerged as Alibaba's chief strategist and financial tactician. He
left Swedish investment firm Investor AB's Hong Kong office in 1999
to join what was then founder Jack Ma's startup — Alibaba.
Tsai served 14 years as Alibaba's chief financial officer, steering
investment strategy and handling negotiations with big-buck
investors like Yahoo and Japan's Softbank Corp, with its 37 percent
stake.
As Alibaba's executive vice chairman since early 2013, Tsai has
taken on the role of driving more than $3.8 billion of investments
in everything from digital mapping to online education.
The strategy, said Tsai, has a single focus: to boost Alibaba's core
e-commerce business, especially as consumers shop more on
smartphones. "We'll be sticking very close to our knitting, staying
very true to our core business, e-commerce," said Tsai.
INVENTING E-COMMERCE
That business is huge. Take China's "Singles' Day", the annual
November 11 commercial celebration for people who are single that
Alibaba has turned into the world's biggest online shopping day.
Last time, goods sold on Alibaba's platforms were worth over 35
billion yuan ($5.63 billion). By comparison, the last U.S. "Cyber
Monday" of year-end holiday sales online racked up $1.74 billion.
"Alibaba effectively created the way e-commerce works in China,"
said Duncan Clark, managing director at Beijing-based technology
advisor BDA. "It took a lot of guts and a lot of capital," said
Clark, hired as a consultant in Alibaba's early years, who
introduced Ma at a Stanford University lecture in 2011.
Alibaba today has over 25,000 employees. Its Taobao marketplace
allows individuals and small businesses to sell directly to
customers. Instead of collecting a fee on sales, like eBay Inc, it
charges vendors to advertise.
Alibaba's other big business, Tmall.com, is more like Amazon Inc. It
provides an online storefront for brand-name companies like
sportswear maker Nike Inc and clothing retailer Gap Inc, earning
revenue from sales commissions and set-up fees.
Connecting these businesses is Alipay, an online payment platform
comparable to eBay's PayPal that allows consumers to skirt
traditional bank payment systems. Alipay, part of Alibaba Small and
Micro Financial Services Group and not part of any proposed listed
company, controls almost half of China's online payment market.
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At home Alibaba is investing in financial services, housed within
Alibaba Small and Micro Financial Services Group. It is buying a
controlling stake in a local fund management firm, and laying the
groundwork for a private bank.
"We want to provide financial services to our customer base because
we see that as an extension of what we do," said Tsai.
Underpinning Alipay's financial services ambition is the trove of
personal and corporate credit data it collects from customers. "We
hope that we can make changes to the financial system in China,"
said Tsai. "As you know, the financial system in China is a little
bit antiquated."
"WECHAT DOMINANT"
Successful as it has been, Alibaba faces its first serious
challenges to future growth.
As more than 80 percent of China's Internet users go online using
mobile devices, rival Tencent, China's biggest Internet company by
revenue, dominates smartphone usage through its WeChat app. On
WeChat, users can update social network profiles, play games, book a
taxi, shop and, as with Alipay, invest in a wealth management
product.
"WeChat has won China," said Ben Thompson, who writes about
technology at stratechery.com in Taipei. "It's going to be the
dominant application."
Tsai disagrees. "They have never been successful in e-commerce," he
said. "A chat app? We don't think that's important at all. If people
want to shop, they will use the (Alibaba) Taobao app."
Alibaba's independent financial services arm also faces a battle.
The company's foothold in banking and fund management has irked
China's big state-owned banks and attracted increased scrutiny and
regulation from watchdogs.
"There are a lot of vested interests that have been disrupted, and a
lot of large banks are not happy," said Tsai.
Banks are worried about the wide popularity of online wealth
management products, which Alipay pioneered only last year. In nine
months, its Yu'e Bao platform is now home to China's biggest money
market fund by offering interest rates almost double the amount
China's traditional banks are allowed to offer on one-year deposits.
China's biggest state banks have responded by cutting how much their
customers can spend on online payment services, while the country's
central bank is discussing draft regulations to tighten restrictions
on Internet banking.
WINNING HABIT
Tsai is used to making things work.
Two years ago, his skills were tested when Alibaba needed to raise
about $10 billion in private funding to buy back shares from Yahoo
and delist Alibaba.com, a business-to-business e-commerce unit then
traded in Hong Kong, as the first step on the path to Alibaba's IPO.
However, the fundraising coincided with the troubled Facebook IPO,
when shares slumped on their debut.
"We had planned on going on the road to start to raise capital (for
a bank syndicated loan) for the transaction, and then the Facebook
IPO happened," said Tsai. "Literally overnight, because of the
Facebook experience, most of the institutional investors were turned
off by Internet companies."
Alibaba eventually raised the capital from lenders — just two days
before the deadline. "That was pretty hairy," Tsai said.
Now, Tsai is joining other Chinese Internet companies in listing in
the U.S. E-commerce rival JD.com plans a $1.5 billion IPO, while
Weibo Corp, 18 percent-owned by Alibaba, is seeking a $500 million
listing.
Though important, the IPO won't distract Alibaba from its core
mission, Tsai said.
"When you look at Alibaba you really should think of us as one of
the largest technology companies in the world. And technology
companies innovate."
($1 = 6.2180 Chinese yuan)
(Reporting by Paul Carsten in Hong Kong and Matthew Miller in
Beijing; additional reporting by Anne-Marie Roantree in Hong Kong;
editing by Kenneth Maxwell)
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