By Mohd. Tariq Junaid
Surging to new heights, Jack Ma has once again amazed businessmen around the world by forecasting a tremendous sales growth for Alibaba. This has left the world in awe and the shareholders of his company thumping with joy. The secret behind Alibabas success lies in its ability to identify markets with growth potential and evolve and adapt to the changing market needs.
Alibaba’s affluence on the rise
Last week, Alibaba Group Holding Ltd.s market value surged by 42 billion USD after the company forecasted a sales growth that topped every analysts estimate. The company announced that its annual revenue in the fiscal year 2018 could grow as much as 49%. Jack Ma, who heads the e-commerce giant, witnessed an overnight surge of almost 2.8 billion USD in his fortune. Following the announcement, the companys U.S. shares rose almost 13 percent to 142.34 USD, highest since September 2014 and a record high.
With the rest of the world still fretting over the deceleration of the Chinese economy, Chinas largest e-tailer has been sustaining a near-unbroken run of 40 percent growth. The Company’s investments outside its e-commerce business have been paying off well. A shining example of this is One97 Communications, owner of Paytm, in which Alibaba and affiliate Ant Financial are the largest shareholders with a combined stake of 40%.
What Alibaba is doing right
Although the internet was launched around 1974, it came permanently to China only around 1994. With the internet revolution sweeping the world, Jack Ma soon realised that he has to get on it before the hype faded. In early 1995, he came across the internet during a job assignment in U.S. He discovered that there was practically no information about China on the Internet. He identified this deficiency as a potential business opportunity.
After his return, he borrowed 2,000 USD and started an internet company called China Pages which provided the online listing of companies and their services. It competed with a company called China Telecom. A year later into business, the general manager of China Telecom offered to invest 185,000 USD in China Pages as a joint-venture and Ma took the deal. Unfortunately, the deal went bad and Ma quit the company in 1998. Later, he went to lead an IT company established by the China International Electronic Commerce Center. In 1999, he quit his job to pursue his entrepreneurial dreams and started a China-based B2B (Business to Business) marketplace website and called it Alibaba. Within a few years of its inception, Alibaba became a household name in China and attracted attention from around the world.
A strategy for expansion
One of the smartest moves by Alibaba was to expand and diversify its market in the early stages of its development. Today, Alibaba has 10 companies and few affiliate entities under its wing making it one of the biggest market leaders. Adapting to the changing market needs, it has been spending billions of dollars on new businesses, venturing deeper into new areas from cloud computing services to streaming music and video. The sudden surge in diversification has also been attributed to rival Tencents increasing dominance over online social media and entertainment.
One of the most promising ventures of Alibaba has been Alibaba Cloud. Launched in the year 2009, the computing services now account for about 5 percent of overall sales of the company. Although the market is dominated by tech giants like Amazon (Amazon Web Services), Microsoft (Azure), Google (Google Cloud) and IBM (IBM Cloud); Alibaba aims to foray into this growing market considering the huge growth potential.
The challenge posed by Tencent
For years now, Tencent has been Alibabas main nemesis. Tencent has been leading the social media sector in China with its popular chatting app WeChat. Alibaba tried to enter the market, hoping to re-create the WeChat magic, with a similar chatting app named Laiwang, but it was too late and the app failed to make a mark.
Alibaba has been smart enough to restrict intruders in its niche business areas. Tencent has been trying to target Chinas rapidly growing mobile payment market ruled by Alibabas Alipay. In response to the same, Alibaba blocked merchants using rival WeChat app from selling goods on its sites. The ban limited Tencents ability to draw users to its own payment system – WeChat Pay, which it had introduced in 2013.
While Alibaba has outperformed expectations of the market, it is careful not to let the pressure build on the thriving ventures of the company. Most of those new businesses are years away from contributing to the bottom line. Alibaba will continue to sacrifice a small slice of profitability to help bankroll its forays, said Chief Financial Officer Maggie Wu, during the Companys annual investor day conference on held on June 8.
Featured image credits - Visual Hunt