Asia’s tech companies still have a reputation in the West for being copycats. But Alibaba’s massive IPO is proof that consumer tech innovations from Asia can no longer be ignored.
Alibaba finally filed for its highly anticipated initial public offering this afternoon. The IPO is widely expected to surpass the $16.4 billion raised in 2012 by Facebook. The public offering means several big Silicon Valley players will be rolling in dough, most notably Yahoo, which owns a 24% stake in Alibaba.
Media coverage of the IPO, however, has been relatively quiet. That may be because Alibaba is still best known abroad for its unglamorous flagship product, Alibaba.com, a business-to-business wholesale site.
Over the last 18 months, however, perceptions of Asian consumer tech companies have begun to shift.
Alibaba’s tech peers in Asia, including Tencent, Xiaomi, and Baidu still face challenges as they build an international user base, but the IPO of the world’s largest e-commerce company is a positive sign.
First, let’s take a look at several of Alibaba’s own innovations before moving onto other Asian tech companies.
Founded in 1999, Alibaba Group’s success stems in large part from its executive chairman Jack Ma, who combines a wide-ranging vision with pragmatism. In 2007, he told Tan Yinglan, a Kauffmann fellow, that Alibaba Group’s success was because, “We had no money, we had no technology, and we had no plan. Every dollar, we used very carefully.”
Alibaba Group’s early success in e-commerce was due to several factors. Instead of just focusing on one vertical, Alibaba Group immediately went with a business model that promoted a flagship site (B2B wholesale site Alibaba.com) while also focusing on other properties that combined features from Amazon, eBay, and Rakuten to appeal to the taste of Chinese consumers, Tan wrote.
One critical reason for the company’s rapid growth is that the e-commerce platforms of Alibaba Group, including C2C platform Taobao.com, have allowed small-to-medium sized businesses to flourish.
“By helping [small business] people make money, we [Alibaba] are making money,” Ma told Tan.
Alibaba is also busy creating a massive logistics network that will reach all of China, including the so-called third-tier cities in its western provinces. That is a savvy move because many e-commerce companies tend to hone in on large cities, like Beijing and China, in the east. Though there is a wide income gap between China’s inner provinces and its coastal cities, Alibaba is making a longterm bet that will ensure its continued position as the country’s largest e-commerce player.
Alibaba’s Innovations In Finance
But Alibaba Group isn’t just an e-commerce company anymore. Along with other Chinese Internet companies like Baidu, which is known mainly for its search products, Alibaba Group is also becoming a pioneer in China’s finance industry, which is subject to stringent and slow-to-adapt regulations from the government.
Alipay, An Alibaba Group affiliate, makes it easy for consumers to purchase goods online, while Alipay’s microfinance site Yu’e Bao (“leftover treasure” in Chinese), which launched in June 2013, lets users to invest tiny amounts of money — as little as one yuan (about 17 cents) — into a money market fund.
By the end of last year, Yu’e Bao had become the biggest single public fund in China, with 43.03 million users from more than 31 provinces who had made deposits of 185.3 billion yuan (about $30.4 billion).
According to iResearch China, public data shows that “medium-sized and small enterprises account for 98% of Chinese enterprises, create 85% jobs, develop 75% new products, invent 65% patents, fuel 60% GDP and pay 50% taxes in China.”
“The emerging and fast growth of Alibaba Financial will speed up the competition between financial trade organizations and therefore motivate the innovation and development of the traditional financial system,” said the report.
The decision by Alibaba Group and several of its competitors to move into the financial sector appear to be a big enough threat to state-owned banks that the government recently blocked new online payment services by Alibaba Group and Tencent. In March, the People’s Bank of China asked that mobile payments made by scanning a barcode be halted, citing security concerns.
The Chinese government also interfered with the plans of Alibaba and Tencent to launch their own virtual payment cards, which would have let customer buy e-commerce goods on credit. Despite that hiccup, Alibaba’s financial initiatives are a sign that the company will continue to innovate in a wide range of areas, and some of their initiatives may eventually influence companies outside of China.
Now let’s take a look at other Asian companies that are having a worldwide impact on consumer tech.
Back in January 2013, M.G. Siegler wrote that Samsung is the “fifth horseman” of tech, striding alongside Amazon, Apple, Facebook, and Google as “companies that pretty much everyone agrees will shape the foreseeable future of the tech sector.”
At that point, many U.S. consumers were still dubious that Samsung, which started in 1938 as a local produce trading company before becoming known for making sturdy but boring household appliances, was going to be a major mobile player throughout the world. But now Samsung is the world’s largest smartphone maker by market share (though it’s important to note that the company’s mobile sales are slowing and its margins are tight thanks to heavy spending on marketing).
Samsung’s mobile success stems in part from its willingness to offer consumers a wide range of pricing and hardware options instead of just focusing on a few flagship models.
Strong sales of the super-sized Galaxy Note validated the trend for phablets. Phablets (a portmanteau of “phone” and “tablet”) were expected to hit 120 million units shipped by 2018, a marked increase from the estimated 20 million phablets shipped in 2013. Samsung’s first Galaxy Note, which launched in late 2011, sold 2 million units in the first four months, while its most recent version of the device, the Galaxy Note 3, sold 5 million units in one week.
Though Apple has yet to put out a phablet, rumors suggest that the next two iPhone model will be considerably larger). Other companies that currently sell phablets include LG, Nokia, and HTC.
If Samsung is eventually toppled from the Android throne, it will be most likely by another Asia-based competitor. In China, for example, Xiaomi’s flagship Mi 2S was the most popular phone sold in the first half of 2012, followed by Samsung’s Galaxy 4.
This is extraordinary because at that time, Xiaomi was still seen as a Chinese hardware upstart led by a Steve Jobs wannabe–or at least that’s the way it was painted in much of the Western media. In fact, Xiaomi is actually led by Lei Jun, one of China’s most influential and successful tech entrepreneurs.
When Xiaomi hired former vice president of product management Hugo Barra away from Google, however, its pedigree became indisputable.
The firm combines innovative marketing techniques, including selling phones directly from microblogging platform Sina Weibo (similar to a recent collaboration between Amazon and Twitter), which has 400 million members, and an approach to developing its Android skin that takes into account feedback from its most dedicated users.
This is a savvy move because mobile adoption in Southeast Asia is especially high and many countries there are multilingual, giving Xiaomi a chance to see how its branding works in different languages (for example, it recently trimmed its domain name to just Mi.com, making it easier to pronounce for non-Chinese speakers).
Tencent is currently one of Asia’s biggest Internet companies by market value. Though it is best known abroad as the maker of messaging app WeChat, it has been referred to as a role model by Evan Spiegel, the founder of Snapchat.
Spiegel said that last year’s Disrupt SF that he in particular admires Tencent’s monetization strategies and experiments with WeChat’s feed.
Tencent, however, sees itself as more than just an Internet services provider. At the recent GMIC Beijing conference, Tencent’s chief operating officer Mark Ren described it as a “connected company” that brings together people, services, and products. Ren added that Tencent plans to begin collaborating with more companies to provide online-to-offline services.
WeChat brings us to messaging apps, which first gained mass popularity in Asia as a SMS substitute, but have become much more. For example, WeChat is now a popular gaming platform, too.
As TechCrunch’s Kim-mai Cutler and Josh Constine wrote in February, the record-setting $19 billion Facebook paid for WhatsApp (a U.S.-based company) was a signal that tech trends in the rest of the world matters (or should matter) a great deal to Silicon Valley companies. WhatsApp currently dominates in countries like India, Brazil, and Mexico.
One of the reasons Facebook probably acquired WhatsApp, Cutler and Constine wrote, is that it was impossible for the social networking giant to buy Asian competitors like WeChat. In fact, Credit Suisse analysts said that if WhatsApp is worth $19 billion, than WeChat is valued at $60 billion or more.
While these messaging apps may be relatively obscure in the America, they have set many new trends for in-app revenue, including stickers, which many U.S.-based apps, including Facebook Messenger, have copied.
Another Chinese Internet company that is set to make waves abroad is Baidu, which is often referred to as the “Google of China” because it is the country’s top search engine.
But Baidu’s reach stretches far beyond search. Its innovation center, based in Beijing and Silicon Valley, is developing new ways to use big data and artificial intelligence.
According to a profile by Wired, Baidu’s R&D center, called The Institute of Deep Learning (IDL), in Cupertino is “exploring computer systems that can learn in much the same way people do.”
Like Google and Apple, two companies that may eventually find themselves competing directly with Baidu in the near-future, areas the company is focusing on at IDL includes deep learning algorithms and speech- and image-recognition.
IDL “could be a way for Baidu to attract top talent and let creative engineers explore all sorts of blue-sky innovations–stuff akin to Google Glass and other projects gestated at Google’s secretive X Lab,” wrote Daniela Hernandez in Wired.
To be sure, Asian tech companies are still fighting a reputation that pegs them as OEMs at best and copycats at worst. But Asian companies need to take initiative to change that perception, Ma told Tan.
“Innovators learn by discussing in forums, through engaging in conversations, and seeing new things,” he said. “As a leader, having foresight and staying broad-minded is critical. Travel and see New York and Tokyo. If you are perpetually in one city (like Hangzhou), how do you converse with your large clients?”