Alibaba’s IPO: time to splash some cash on the cloud

moneyAlibaba finally announced plans to list on the stock market on Sunday after months of speculation and protracted discussions with the Hong Kong stock exchange.

A lot of the column inches devoted to this piece of news have focused on the firm’s decision to chose the US, rather than Hong Kong to IPO, and while it will be a blow to the SAR, there really wasn’t much it could do.

The bottom line is that Alibaba wanted to continue electing the majority of its board even after going public and the HKSE has a very strict one-shareholder-one-vote rule, which it could not break. End of story.

Of course, its decision to go Stateside doesn’t hurt Alibaba’s attempts to globalise its brands and attract more big name investors from the US. It will certainly be pretty happy with the way things turned out.

However, it would be wrong to interpret the move as an attempt to internationalise, even given the following statement from the firm:

This [IPO] will make us a more global company and enhance the company’s transparency, as well as allow the company to continue to pursue our long-term vision and ideals.

As numerous industry analysts have told me this week, the IPO is all about raising funds (as much as $15bn if rumours are to be believed) to grow its business in China.

Yes, it’s still China that dominates Alibaba’s thinking and it’s easy to see why. In terms of e-commerce the likes of Amazon and eBay will make it very difficult to compete outside the Middle Kingdom, while inside there is still a huge amount of growth going on.

China is poised to become the world’s biggest market for online commerce by 2015-16. “Growth will double in the next five years so the market is definitely big enough for two or three major providers,” Gartner analyst Jane Zhang told me.

This is just as well, as arch rival Tencent is breathing down its neck with its recent JD.com deal and could present a significant challenge to Ali in the future, Zhang added.

Not that Alibaba has taken its eye off the ball with mobile, investing in Sina, AutoNavi and extending Taobao to the mobile sphere, but its Laiwang messaging service has been a bit of a stinker and really pales in comparison to WeChat’s success.

A lot of the IPO money, Zhang told me, will go on growing its cloud and hybrid infrastructure, as Alibaba takes a leaf out of Amazon’s book and goes into business of providing IT infrastructure as a service in earnest.

Frost & Sullivan analyst Marc Einstein echoed these thoughts.

“Alibaba has some global ambitions but obviously competition is too severe in the US and emerging markets would be more likely targets,” he told me. “Therefore I think that they will continue to diversify into new businesses and mirror companies like Google and Amazon rather than trying to compete head on.”

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Baidu’s $2 BILLION gamble on mobile apps

baidu logoChinese search giant Baidu has just agreed to pay $1.9 billion (£1.3bn) to acquire mobile app store provider 91 Wireless Websoft in the biggest internet M&A deal ever in the People’s Republic.

Commentators have already been arguing over whether nearly $2bn for effectively two mobile app stores is a good deal for China’s biggest search company.

As with all acquisitions, only time will tell, although it’s certainly a statement of intent for the firm and one it needed to make with the likes of Alibaba and Tencent all making big mobile internet plays.

Beijing-based Forrester analyst Wang Xiaofeng said in comments sent to me that it was a smart move for Baidu to “assure its competitiveness in the age of the mobile internet”.

“Alibaba is working on its m-commerce strategy through its investment in Sina Weibo and an [offline to online] strategy through the acquisition of Autonavi; Tencent is digging out monetisation possibilities from its killer product WeChat, including eBusiness and mobile payment,” she explained.

“91 Wireless’ strength in mobile applications will be a great complement to Baidu’s current business.”

As to exactly what Baidu is buying, well the main bit of 91’s business is two app stores – 91 Assistant and HiMarket – which apparently lead the domestic market with over 10 billion downloads.

This will give Baidu a great distribution channel for its own apps, and to be honest the deal shows a good degree of self-awareness from the web giant – it knows more users in China find info on the mobile net via apps than mobile web-based search engines.

Whether it proves to be a great piece of business or a stunningly ill-judged waste of money remains to be seen but I’d lean towards the former.

Baidu certainly couldn’t sit back and let its rivals gain the initiative in the brave new world of mobile and if this acquisition doesn’t work out it could well be because it left it too late before pouncing.