If data are the new oil, Jack Ma, former English teacher turned China’s richest man, is the new John D Rockefeller.
Like Rockefeller’s Standard Oil, Mr Ma’s Alibaba is a lucrative and rapidly growing business. Earlier this month, it forecast annual revenues would increase 45 to 49 per cent, besting analysts’ consensus estimates by 10 percentage points and adding $42.25bn to its value — almost an entire Barclays bank — the following day.
“Alibaba is evolving into a big data conglomerate,” enthused Jessie Guo, analyst at Jefferies, and one of the many who attended the group’s two-day investor conference in Hangzhou this month.
Revenue guidance and discussions at the event “indicate we are at the beginning of data-driven monetisation”, added Chi Tsang, head of internet research at HSBC.
Alibaba’s vertically and horizontally integrated services span shopping, movies, finance and logistics, all collecting information on people’s spending, location and viewing. Once refined, the data are fed back to merchants, who in turn can better target their goods and sell more over Alibaba’s ecommerce platforms.
This creates what Bhavtosh Vajpayee, analyst at Bernstein Research, calls a “potent marketing platform” that demonstrates the link between ads and purchases and in turn has “allowed Alibaba to corner the largest share of digital ad spend in China”.
There is proof of this virtuous circle too. The longer consumers shop on ecommerce platforms Taobao and Tmall (and the longer the data trail they leave), the more they shop. The average customer placed 38 orders in their first year on the site; four years later, the tally was 123.
Alibaba has also taken its data engine to new levels. It was buying physical stores well before Amazon set its sights on Whole Foods and is collating data on people’s habits in both the online and physical world, enabling more relevant store layout and more efficient management of inventory.
It is also targeting far more products than its US peers, Jeff Zhang, Alibaba’s chief technology officer, told investors, citing the example of ads placed by ecommerce group Amazon on social media platform Facebook.
“On Facebook, you see Amazon advertising and the advertising you see is different for everybody, but there is only 100,000 products listed so they are selecting one from 100,000 products to recommend to you,” he said. “So we have a billion products; one relevant product in a billion to recommend to you requires a higher level of technology.”
At the other end, data are routed back to merchants and, in turn, manufacturers, to tell them what items are in demand. Alibaba uses predictive data ahead of its mammoth annual Singles Day shopping frenzy to let merchants know where they should be warehousing goods the day before.
“Now ecommerce giants can see exactly what to manufacture,” says Scott Likens, who heads PwC’s analytics and emerging technologies business in Hong Kong. “You have manufacturing on demand because you have data on consumers.”
Beyond shopping, there is “ cloud”, a part of Alibaba that is growing rapidly, even if it is yet to break even. Cloud, says Richard Hatherall, Hong Kong-based partner at Bain & Co consultancy, is “the business equivalent of everyone being on Facebook”.
Cloud providers, he says, have a view on a company’s credit worthiness, because they have them as customers paying them every month for cloud services, as well as the apps they use.
But — as Standard Oil discovered — no company, no matter how large, can run unchecked.
Alibaba’s competitors, mainly peers Baidu and Tencent, which together make up China’s BAT tech trinity, are building similarly massive databanks. Tencent’s WeChat social media platform has almost 940m subscribers, while Baidu collates information from owning the country’s leading search engine.
In the core ecommerce business, Alibaba competes head to head with JD.com, which runs a more asset-heavy model similar to Amazon’s, owning logistics and warehouses.
Staying ahead in China often means using subsidies to buy market share. Bernstein’s Mr Vajpayee notes a generous offering of promotional coupons in recent weeks — which coincides with JD.com’s big shopping festival — totalling some Rmb5bn-Rmb6bn ($732m-$879m). Those subsidies, he says, explain why Bernstein is raising its revenue estimates but keeping its earnings outlook unchanged.
In the $5.5tn mobile payments market, Tencent is narrowing the gap with Alipay, run by Alibaba’s financial services affiliate Ant Financial. Tencent is also rapidly building up its cloud business, an area where Alibaba is currently streets ahead.
For Duncan Clark, chairman of Beijing-based consultancy BDA and author of Alibaba — the house that Jack Ma built, Tencent’s WeChat exposes a key weakness for Alibaba as its own efforts to make Alipay more social were “a bit of a disaster”.
That service, called Circles, launched in late November and ended up being used as a somewhat dubious dating site. Alibaba was forced to remove the offending group conversations and block fresh ones with a similar orientation from being set up.
The concern, he says, is that while Alipay can dominate in retail, where Alibaba’s core strength lies, it is running neck and neck with Tencent in services such as paying for ride-hailing and food delivery.
He forecasts an evenly split market of 46 per cent apiece in travel, telecom services, utilities and money market funds and a leading 50-55 per cent market share for Tencent in games, in 2023.
“How disciplined are they? If Alibaba feels threatened will they accept that or will they keep splurging?” asks Mr Clark. “In a way a duopoly works for government, but can it keep working for investors?”
Mark Mahoney, internet analyst at RBC Capital Markets, points to the US example: Facebook has grown its top line by 50 per cent-plus for 16 straight quarters; Google at 20 per cent for 29 straight quarters; and Amazon 20 per cent plus for 40 straight quarters. Alibaba for its part has grown between 28 and 60 per cent in each of the 11 quarters it has been listed.
“The long-term winners by now are probably decided,” he says. “As they get bigger and [amass] more and more cash, it gets harder and harder to disrupt them.”
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