It’s been several months given Alibaba’s blockbuster acquisition of Lazada, a heading e-commerce height in Southeast Asia.
When a news broke, pundits and critics debated possibly or not any side got a good deal, how it would impact rivals like MatahariMall, Tokopedia and Orami, and how a segment would be flooded with inexpensive Chinese products.
Elsewhere, startup founders and VCs high-fived any other as a pierce put a segment on a tellurian map and they hoped it would lead to some-more appropriation and exits in a future.
However, everybody has unsuccessful to go over extraneous observations. Alibaba’s merger of Lazada is many some-more than simply flourishing sell GMV, proof accurately given Jack Ma is Jack Ma and given he’s always been several stairs forward of a game.
Those celebrating a news, generally those in a sell space, might finish adult satirical their tongues.
Peter Thiel, PayPal and Why Distribution Matters
In his book ‘Zero to One’, Peter Thiel talks about how PayPal roughly didn’t tarry were it not for their propitious mangle stumbling onto what would turn their biggest placement channel, expansion engine, and contingent acquirer: eBay.
PayPal focused on targeting eBay’s Power Sellers — those obliged for a bulk of volume going by eBay — and afterwards amplified it by profitable for user pointer ups and invites to friends, effectively branch PayPal into a mainstream payments platform.
No consternation Peter Thiel has been such a romantic proponent of distribution, over usually building a good product.
“Poor placement — not product — is a series one means of failure. If we can get even a singular placement channel to work, we have good business. If we try for several yet don’t spike one, you’re finished,” Thiel writes.
eBay accelerated PayPal’s expansion interjection to a strech and quickness of exchange — high use kept a payments organisation thriving. Distribution is accurately what Alibaba needs Lazada for. But for what? Most unequivocally not inexpensive Chinese products.
Inside The Belly of The Beast
Around a same time that Peter Thiel’s PayPal was acquired by eBay, a latter organisation was attempting to squeeze marketplace share in China by an investment into — and contingent acquisition of — EachNet in 2002, during that time a heading Chinese C2C marketplace.
In response to this, Alibaba launched Taobao in May 2003 and eventually kick EachNet to turn China’s largest consumer-to-consumer e-commerce marketplace. In a timespan of 3-4 years, eBay’s C2C marketplace share plummeted from 72% to 8% and caused them to throw in a towel while Taobao’s share continued to climb, reaching over 80% by 2007.
Shortly after Taobao’s launch, Alibaba introduced Alipay, a third-party online remuneration platform, in 2004 to assistance promote exchange on Taobao. Today, Alipay is China’s largest third-party remuneration height with 70% marketplace share, boasting over 400 million users and generating over 80 million exchange per day (compared to PayPal’s 9 million).
Whereas PayPal was essentially a peer-to-peer (P2P) online payments height formed on email and related to credit cards, Alipay was connected to bank accounts and incorporated facilities tailored to a Chinese market, such as escrow services.
According to Jack Ma, Chinese culture, notwithstanding being one that traditionally values trust and integrity, lacked a complement that enforced it. As a result, Alipay’s escrow underline was a ideal resolution to a trust opening and shifted China’s e-commerce function divided from cash-on-delivery (COD) towards one that is saying 68% of transactions today.
With Taobao’s vast strech and placement — 423 million annual active buyers and over 90% of sum C2C ecommerce GMV in China — Alipay was means to concrete a position as a heading third-party remuneration method.
Leveraging a 400 million users and strech by Alibaba e-commerce platforms, Alipay has grown over being an Internet-based remuneration height into a finance and banking behemoth to a border of threatening a aged financial guard.
In 2011, Alipay spun off Alibaba to turn Ant Financial Services Group, covering all from online payments to microlending to banking and credit scores. Based on a recent appropriation round of $4.5 billion progressing this year, a organisation is now valued during $60 billion, creation it a second many profitable non-public tech organisation behind Uber.
With this new fight chest, Ant Financial looked to enhance into new markets and for a while had been perplexing to get a feet into Southeast Asia. The organisation set adult a Singapore entity as early as 2010 yet lacked a correct placement channel. Ant Financial’s propitious mangle seems to have arrived progressing this year.
Eyeing The Payments Opportunity in Southeast Asia
In many ways, Southeast Asia e-commerce is like China e-commerce yet 8 years younger. Back in 2008, cash-on-delivery (COD) was still a widespread remuneration routine in China creation adult over 70% of payments. Today, Southeast Asians rely heavily on COD when selling online, attributing to roughly 70% of transactions.
To wean business off a high dependency on COD, many well-funded startups and determined conglomerates have been perplexing to solve a payments bottleneck, including Omise (Thailand), Doku (Indonesia), LINE Pay (Thailand), and True Money (Thailand).
Despite a PR and media hype, these homegrown solutions have nonetheless to change consumers divided from COD given a lot of these drastic efforts have been “technology for technology’s sake” — building a faster automobile when what is unequivocally lacking are some-more roads
The Product Challenge
- Platforms like Omise and 2C2P are fundamentally remuneration gateways and don’t offer a viable resolution for a vast C2C and P2P space that Google and Temasek brace during ‘several billion dollars’. These remuneration gateways still essentially routine credit cards and, with credit label invasion opposite rising SEA station during single digits only, doesn’t unequivocally residence a core of a issue. In addition, these solutions do not offer a repair for a trust emanate mostly opposition C2C and P2P exchange — namely escrow.
- 2C2P and Omise also face removing ‘pushed out’ as they don’t possess any ties to a finish consumer. Meaning if a cheaper and improved choice was to benefaction itself, there is zero interlude a businessman from swapping them out. Taobao got users to pointer adult to Alipay, creation it many easier to remonstrate non-Taobao e-commerce platforms to adopt Alipay as well.
- Rabbit LINE Pay, formerly LINE Pay, never prisoner many marketplace share notwithstanding a organisation with LINE, a renouned messaging height reaching 33 million users in Thailand. LINE Pay’s reduction is that it usually supports credit cards, stumbling nonetheless again into one of a elemental remuneration obstacles in Southeast Asia – miss of credit label penetration.
The Distribution Challenge
- Although good attempts during providing shoppers with a second remuneration method, fintech startups like Digio and Deep Pocket are building mobile wallets before elucidate their chicken-and-egg problem.
- It is formidable for mobile wallets to turn widespread when recognition is low and users don’t have a clever (often financial) inducement to adopt it. User merger afterwards becomes an costly play yet an fundamental placement channel.
The (Lack of a) Use Case Challenge
- One of Thailand’s heading mobile wallets, Ascend’s True Money, connects with vital banks in Thailand and has placement entrance to companies in a CP firm portfolio, including over 19 million mobile subscribers.
- Yet, True Money is reported to have as small as 100,000 active monthly users out of 6 million purebred users as of 2014. True Money’s stream use cases are singular to mobile phone tip up, online diversion top-up, and check and over-the-counter payment, typically during CP-owned 7-11 stores.
Ecommerce is a some-more apparent and healthy use box and therefore True Money is also used as a remuneration gateway on Ascend’s ecommerce properties WeMall and WeLoveShopping. However, with usually 26% of Lazada’s traffic, Ascend still has a prolonged approach to go before holding a page out of Peter Thiel’s playbook and branch a ecommerce properties into a fruitful tact belligerent for a remuneration solutions.
The Lazada Acquisition: A Trojan Horse Strategy?
Alibaba’s incursion into Southeast Asia has never unequivocally been about flourishing sell GMV. In a prolonged run, it’s not so many about violence Lazada’s approach rivals or drumming into new expansion markets outward of China; it’s about securing entrance to a vast finish user bottom in a marketplace whose miss of commerce infrastructure is eerily identical to early days China. Jack Ma’s endgame is to deliver and monetize his other products and services, starting with Alipay.
Adopting Alipay would be pivotal for a region’s e-commerce expansion and that of Lazada in particular. Widespread adoption of a available remuneration height that bridges a trust opening between buyers and sellers will lead to some-more exchange altogether as witnessed in China, now a world’s biggest e-commerce marketplace in terms of GMV and penetration.
Alibaba’s (ironic) 20% interest in Ascend Money, a primogenitor organisation of True Money, entrance usually a few months after a Lazada deal, shows Jack Ma’s master devise for Southeast Asia gradually entrance to fruition.
But it’s many some-more than usually Alipay and facilitating marketplace payments. As highlighted earlier, Ant Financial, Alipay’s primogenitor company, operates an whole digital financial ecosystem in China consisting of yet not singular to: Yu’e Bao, a biggest mutual account in China in terms of investors with $108 billion in assets; Zhaocai Bao, a P2P lending height with $32 billion in exchange in a initial year; and Sesame Credit, a credit-scoring complement formed on — you’ve guessed it — ecommerce data.
And financial is usually scratching a surface. Jack Ma, in his 2015 minute to shareholders, hints during many some-more to come:
“Alibaba group’s plan is to build a infrastructure of commerce for a future. Ecommerce is usually a initial step. […] Around half of Alibaba Group’s workforce and a dependent companies, including Ant Financial and Cainiao, are operative on critical areas of a ecosystem, including logistics, Internet finance, vast data, cloud computing, mobile Internet, promotion and a supposed double H industries — Health and Happiness (the vast data-based medical and digital party businesses that will take 10 years to turn data-driven).”
Hence it shouldn’t be retailers like MatahariMall or Central that should be disturbed about increasing competition; instead, banks, insurers, hospitals and everybody else should start scheming for some donkey whoopin’
For a preview of what could be entrance adult in Southeast Asia one usually needs to demeanour during what happened to Uber recently in China.
Learnings From China or How Alibaba’s Trojan Horse Strategy Killed Uber China
“Uber didn’t remove in China in 2016. They mislaid in 2014 when they got in, and found out 2 years later.” — Wang Di, Quora User
Alibaba, partnering adult with long-time frenemy Tencent, adopted a identical plan in China to take out Uber.
Outsiders mostly indicate to a classical text “why-foreign-Internet-companies-fail-in-China” excuses like lack of localization (culture/language barrier), lack of connections/guanxi, government protection, and miss of IP law enforcement. Although these do request to a certain degree, nothing of them get to a core of given Uber unsuccessful in China.
Uber unsuccessful given it suspicion it was competing opposite Didi in a intelligent travel space. Little did they know that Didi’s infancy shareholders, Alibaba and Tencent, were personification according to an wholly opposite set of rules.
For Alibaba (and Tencent), Didi wasn’t usually a ride-hailing app; Didi’s vital and dark purpose was to offer as a scalable user merger channel for Alipay Wallet, Alipay’s mobile version, as good as Tencent’s WeChat Wallet, according to this shining Quora answer:
Around 2012, WeChat’s super success helped many Chinese IT companies change their concentration to a mobile app market. Meanwhile, yet with occasional suspensions, a supervision started enlivening mobile remuneration development. All was set for Tencent and Alibaba to launch their mobile remuneration app to be a sepulchral vast thing. All solely for a Chinese user habits.
The Chinese were not informed with mobile remuneration during that time. In fact, no vast organisation of people in a universe were significantly improved than a Chinese either. Moreover, a Chinese were mostly utterly discreet when profitable online, and a lot of them are not accurately fans of newness gadgets.
But how they adore discounts or kickbacks! A dollar saved is a dollar earned.
The cab-calling apps Didi and Kuaidi became ideal for user trade introductions.
Users could daub Didi to call a cab and compensate 30 yuan in cash, yet if they paid a cabbie by Tencent Wallet (redirected from Didi), they would usually have to compensate 10. Were users peaceful to save 20 yuan—3 or 4 US dollars—by regulating an already built-in underline in another app? Just a few taps here and there? Hell yeah.
And afterwards they were hooked-up with WeChat Wallet. Which was what Tencent unequivocally wanted.
With Didi as a pivotal placement channel for Alipay Wallet, Alibaba was means to acquire some-more users into a ecosystem of services including Taobao, Tmall, Ant Finance and many more, heading to monetization opposite opposite products. Uber usually had transportation.
Tencent and Alibaba have been throwing inconceivable amounts of income to compensate for all a unimaginable kickbacks. Unthinkable for a cab-calling app, yet totally reasonable if we wish to symbol your domain in a biggest marketplace in a universe that is many modernized in mobile payment.
What The Future Holds for Southeast Asia
With Southeast Asia being hailed as a next vast and untapped ecommerce market in a world, we are saying many players subsidizing their approach into expansion by discounts and coupons. Not surprisingly, critics mostly demeanour during this as a competition to a bottom for everyone.
Not wholly true. As a Uber China instance has shown us, this will usually be a box for companies that destroy to demeanour during a bigger design and are incompetent to monetize by a diversified set of products or services, possibly now or in a future.
With all this in mind, one could disagree that Alibaba got a flattering good understanding with Lazada, generally given a long-term opportunities in SEA over sell ecommerce. A discerning demeanour during Alibaba’s batch confirms this—Alibaba’s share cost jumped after a April 12 merger proclamation and has increasing by 35% ever given (as of Oct 3, 2016).
Alibaba’s merger is widely considered a feat for a expansion of ecommerce in SEA yet how many of us here are prepared to face a fact that whatever prize we hauled in might not be a glossy unicorn yet maybe something else?