Internet & E-Commerce

China's total e-commerce Yuan volume grew 54.5% in 2007, with 1.31 million websites as of June 2007, growing 66.4% YOY. Many more of China's small and medium enterprises (SMEs) desire to have their own websites with e-commerce capability, but few have the capability. What may be in the offing is Alibaba (HKSE: 1688).

Alibaba began in B2B listing and trading. The English website www.alibaba.com focuses on providing listings of Chinese-made products to international buyers. International buyers benefit by viewing a rich array of product offerings; Chinese companies gain worldwide visibility. The Chinese version website www.china.alibaba.com focuses on B2B within China.

Alibaba has also expanded into C2C trading with its www.taobao.com platform. The company offers other, such as online payment processing, online advertising exchange, and online SME business management software.

What is particularly interesting is Alibaba's commitment to China's SMEs. The company's core strategy, it appears, is to enable SMEs to have same extensive Internet and software infrastructure capabilities as that of their resource-rich, much larger brethren. Some fundamental elements are already in place.

At a macro level, e-commerce, though still early, is flourishing in China. Big Internet players are providing needed online communities, payment processing, instant messaging, and platforms to facilitate C2C commerce. (Perhaps what are still missing are good logistics solutions.)

For Alibaba, the company has both unique advantages and existing assets that can be leveraged (or strategically put in place for SME B2B).

• Alibaba has already established a worldwide audience for Chinese companies.
• The company already has business management software, delivered online and specifically targeted to SMEs through www.alisoft.com.
• It has gained authorization from ICANN in November 2007 as an international domain name registration provider.
• It has payment processing and IM in place already.
• The company has existing value-added services, such as custom research and introductions, to facilitate B2B transactions.

So the next logical step is to offer SMEs not only to be able to list and advertise their products, but to also have their own domain and website; in effect, to have their own hosted web presence and identity through Alibaba's services. SMEs will have the powerful infrastructure and visibility benefits of Alibaba.

Alibaba wins because SMEs will be more likely to use the suite of Alibaba's offerings. This would be a smart move by Alibaba, because it is essentially expanding the earning potential of SMEs, which in turn, SMEs will then use more of Alibaba's services. And, given Alibaba's SME strength among the big Internet players, Alibaba presents a compelling and unique solution set that competitors would find difficult to emulate.

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