When the thin man in the silver-coloured windbreaker walks on to the stage, a roar goes through the crowd. Then he starts singing: “Friends, we have walked together all our lives, but those days are over,” and the audience goes crazy.
But this is not a pop concert. The 40,000 in the Yellow Dragon Stadium in Hangzhou on Friday night were Alibaba Group employees and their family, and the man on stage was Jack Ma, saying farewell to the business he founded that has now grown into one of the world’s largest ecommerce companies.
At 48, Mr Ma has handed the job of chief executive to Jonathan Lu, his trusted lieutenant and 13-year Alibaba veteran, and gone into semi-retirement as executive chairman.
The change at the top comes as the group is preparing what could become one of the largest-ever internet initial public offerings. A listing in the US, expected at the end of this year or in early 2014, would allow Alibaba to buy back up to half of Yahoo’s 24 per cent stake in itself and raise $60bn or more from public investors.
Mr Lu inherits a formidable business. Alibaba operates the world’s largest online marketplace for trade between companies. It has also built an unrivalled online retail platform in China. Taobao.com, the group’s eBay-like consumer-to-consumer website, accounts for 90 per cent of China’s online retail transaction value in this segment. TMall, its business-to-consumer platform, accounts for half of online business-to-consumer sales in China by transaction value, according to McKinsey.
“The market share concentration and power they have is unique – you don’t have that in any other market in the world,” says Zia Daniell Wigder, an ecommerce analyst at Forrester Research in New York.
That market power was reflected in Alibaba’s most recent results. Revenues rose by 80 per cent year on year to $1.84bn in the final quarter of 2012 and net profit surged by 156 per cent to $650m, according to a Yahoo filing last week.
But the big question is where Alibaba can go from here.
Other players are challenging its dominant position in its home market. They include 360buy, which accounted for almost a fifth of China’s online retail transaction value in 2012 according to iResearch, and Suning, an electronics retailer with a massive bricks-and-mortar presence that is now aggressively expanding online and branching out into other products.
Although Alibaba dismisses the idea that it is under threat, it is looking far ahead to defend its turf. The company has launched its own mobile operating system to build a closer relationship with consumers, as they start shopping increasingly on mobile devices.
Taking a page out of Amazon’s playbook, Alibaba is also rapidly expanding its cloud computing business. By the end of this year, the company expects half of the bandwidth used for its cloud operations to be serving outside customers, according to Wang Jian, head of the unit. “Eventually, our target is to have 5 per cent of all computing power in China by the number of servers shipped,” he says.
Alibaba is also on the acquisition path. On Friday, it agreed to acquire a 28 per cent stake in Autonavi, the company behind China’s most successful mobile map app. Through the investment, Alibaba hopes to expand its mobile commerce capabilities, for example to be able to show the physical location of vendors on Juhuasuan, its Groupon-like daily deals site, or Taobao, the consumer-to-consumer platform.
Only 10 days earlier, Alibaba agreed to buy an 18 per cent stake in Sina Weibo, China’s largest Twitter equivalent. The tie-up will allow Alibaba to make the ads that are a major source of its revenue much more targeted.
Alibaba executives say a few more deals like this are to come, as the company continues to build an ecosystem around ecommerce. “We are acquiring the capabilities to provide and crunch the data needed for that,” says Mr Wang. “The traditional economy was centred on industry, powered by electricity. In the new economy, we will provide the equivalent to electricity.”
But what unsettles outsiders more is the question whether Alibaba will take its ecommerce machine global. In 2004, just a year after its establishment, Taobao had already surpassed eBay in China – a development that eventually ruined the US company’s retail business in that market.
“The question is whether [Alibaba] will be able to replicate their success outside China,” says Ms Wigder.
The industry is alight with speculation that Alibaba could launch an attack on global rivals such as eBay and Amazon, by helping Chinese sellers ship fast, and cheaply, to developed markets. Industry executives and analysts say Alibaba is considering investment in “offshore” warehouses outside of Europe and the US to make this happen.
John Spelich, Alibaba spokesman, says he has not heard of such plans.
But Wang Tingting, an analyst at iResearch, says the company “will definitely make that move eventually”. Shi Tao, a vice-president at Alibaba’s rival 360buy, which recently started an international business, says that keeping products in bulk in “offshore” warehouses and shipping them into developed markets piecemeal can lower costs, since lower import duties apply to shipments under €20 apiece.
No matter if Alibaba eventually moves in this direction, the company has started globalisation plans. Last year, it set up a dedicated team to explore taking Taobao global. “At the moment, we focus on Hong Kong, Taiwan, Singapore and Malaysia,” says Daphne Lee, head of Taobao International. She says the company is taking things step by step and is now trying to forge logistics and payment partnerships.
The demand is clearly there – 280,000 users from Singapore alone registered on Taobao last year, although demand can often present surprises. Consumers from tropical Singapore “are buying down jackets – they need them for overseas trips and can barely find them at home”, says Ms Lee.