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.


China 2013: What to expect from its tech giants in the Year of the Snake

chinese flagJust finished an interesting piece on what to expect from Chinese tech firms in 2013 so thought I’d précis the key points below.

To be honest as with any year end predictions to an extent there’s always more-of-the-same than anything else, and to that point there’ll be greater international expansion on the mobile handset front by ZTE, Huawei, Lenovo, and potentially TCL-Alcatel.

Aside from the big names, Canalys analyst Nicole Peng told me there could also be attempts by feature phone vendors like Gionee and K-Touch to make it overseas, claiming that the technical and business support offered by chipset companies like Qualcomm and MediaTek is making it easier than ever to break into new smartphone markets.

But away from hardware, what about China’s growing raft of web companies?

It would be easy to write a story saying “the Chinese are coming, look out Facebook, Twitter et al!”, but the honest truth is that the likes of Tencent, Sina, Alibaba and others have become successful in China in part by copying their US rivals and in part thanks to local restrictions banning their rivals.

Where they have done well is in localising their platforms for the domestic user – something Alibaba and Baidu are doing now even for their mobile OS platforms – and innovating on top of what has gone before.

Aside from the odd service like Tencent’s WeChat which has managed to cross the Great Firewall to acceptance elsewhere, I’m sceptical that these firms will expand successfully in 2013, and to an extent, with less than half of the vast Chinese population online, there’s probably enough untapped growth left domestically to keep them busy for now.

Peng is slightly more optimistic, however.

“Many of the local mobile services/applications we have seen in China, such as Tencent Weixin, Sina Weibo provide great user experience and innovative features that we could not find from the international big name,” she told me.

“As long as they continue to innovate and own their IPs, I do not see Chinese internet companies having any major disadvantages in competing, as mobile services become device/OS agnostic in the future.”

Perhaps. But with local incumbents like Twitter, Facebook, Google et al, mature Western markets will certainly be too tough a nut to crack.

On top of this, Chinese tech firms will have to put up with increasingly hostile attitudes from various national governments.

National security concerns will continue to dog Huawei and ZTE on the telecoms infrastructure front, and there are signs that US regulators may soon begin the process of de-registering Chinese firms from US stock markets for failing to comply with domestic securities laws.

Oh, and there’s the small matter of a potential conflict over that bunch of barren rocks known as Diaoyu/Senkaku.

Plenty to look forward to, then, in 2013!


China’s just like us – riddled with cyber crime

Just finished a piece detailing, for possibly the first time, exactly what’s going on in the shady world of cyber crime in China.

Researchers at California uni have gone to exhaustive lengths to document the extent of the underground and the MO of its participants.

To be honest, a lot of it is pretty similar to the underground economy operating quite nicely thank you very much elsewhere in the world. Cyber hoods buy and sell their wares online, never meeting, in a highly efficient manner.

However, there are some distinctly Chinese elements to what the researchers found. The crims in the PRC are advertising and communicating with each other in many cases via a public web platform – Baidu PostBar – and Tencent’s hugely popular QQ service.

With just a bit of effort the researchers uncovered all of this by inputting some common criminal jargon – various terms are substituted for underground slang to escape detection.

The whole underground economy is said to cost China over 5bn yuan (£500m) a year and snared around a quarter of web users in 2011.

It’s pretty obvious the government is on it – or will be, once it realises that online will be one of its few remaining growth areas when the economy really starts to slow – but it doesn’t look like the police at the moment really have their focus on breaking such trades.

Every ‘crack down’ they make seems like a glorified PR exercise – the main victims seemingly porn peddlers, political dissidents and other trouble makers.

For the outside observer too, it will be interesting to see how fast things move. When the Chinese authorities want something actioned it is done pretty bloody quick – so it all depends on whether the will is there from the top.

In the meantime, it’s reassuring to see that the same cyber crime problems are felt throughout the world – but probably not reassuring if you’re a web business looking to tap the vast market that lies behind the Great Firewall.