Not to overstate the obvious, but the Alibaba IPO is going to be huge.
The $155 billion public offering would make Alibaba one of the largest in U.S. history, but it has repercussions that extend far beyond its impact on the U.S. Stock Market.
Investors like GGV Capital and DCM, which have commitments in both the U.S. and China, see the Alibaba shift as a wake up call for U.S. technology companies. “The Alibaba IPO represents a tectonic shift in the new world order,” says DCM Capital’s David Chao. “We have two companies from China that are now worth more than $100 billion.”
Alibaba’s growth, and dominance of the Chinese market mean that while today its focus has been primarily the Chinese market, the company’s soon-to-be $60 billion war chest all but assures that tomorrow will see the company tackle rest of the world.
The numbers for e-commerce in China are staggering. The starting gun of the online Christmas shopping season last year, December 1st, 2013’s Cyber Monday, saw shoppers spend nearly $1.8 billion online. The Chinese equivalent, “Singles Day” on 11/11/11 saw buyers dish out $5.75 billion.
“For VCs who have already been investing in China we’ve known this all the time. For those who went to China and stepped back, I think they need to recognize that there are some markets that have significant tech sectors that are bigger there than they are here,” says Chao.
These investors expect to see the wave of Chinese companies coming to the U.S. to expand their global footprint and pick up technology begin to increase.
“For the first time since the Yongle Emperor, Chinese entrepreneurs realize they can go out and make a difference,” says GGV Capital’s Managing Partner Hans Tung.
In fact, the top Chinese companies are already here. Alibaba has invested in Kabam and Lyft, according to CrunchBase, as part of a broader $5.3 billion investment program. Meanwhile, Tencent has been pouring money into the U.S. out of its roughly $760 million investment fund.
“Many of these top Chinese companies are coming to the valley and investing,” says Chao. “With $60 billion and a $155 billion market capitalization, you can do a lot of damage.”
As these companies make moves in the U.S. some investors said they’re looking for primarily one thing — the secret sauce of innovation. While Tencent, Alibaba, Baidu (and mobile upstarts like Xiaomi) have successfully built multi-billion dollar technology businesses, there’s a sense that there may be one more thing that these companies need to do before they can succeed in the U.S. market.
“If you think about it, Baidu had basically followed Google — Alibaba they followed Amazon and eBay in their business model. Now with smartphone penetration in China, which has hit critical mass, they’re in the $200 billion club and [Alibaba] has to innovate,” says one investor. “Rightly or wrongly, they view Silicon Valley as the hotbed of what’s next.”
Even that perspective might be changing. Baidu is developing a wearable device that significantly parts ways with Google’s user interface through Glass. OnePlus, despite its missteps, has created a remarkable smartphone at a ridiculously low price point.
If disruption is predicated on lower cost products with more limited features supplanting higher-priced, better quality products by creating new, broader demand and eventually moving up-market (as tomorrow’s Disrupt speaker Clayton Christensen seems to think,) Silicon Valley should prepare for a sea-change, because the tide of Chinese disruptors is coming in.
Photo via Flickr user Dennis Jarvis