China E-commerce Landscape Altered by Alibaba Deal

The Chinese e-commerce giant’s recent acquisition in the microblogging service Weibo could forge a new model for social commerce in the country.

SHANGHAI — Chinese e-commerce giant Alibaba’s recent acquisition of a minority stake in microblogging service Weibo could forge a new model for social commerce in the country, the world’s second-largest online shopping market behind the U.S.

This story first appeared in the May 2, 2013 issue of WWD.  Subscribe Today.

Alibaba, which owns Taobao.com and Tmall.com, two of China’s largest e-commerce Web sites, said earlier this week that it is buying an 18 percent stake in Sina Corp.’s Weibo, considered China’s answer to Twitter, for $586 million in stock. Alibaba has the option to raise its stake to 30 percent.

Analysts point out that online shopping in China is a far more social experience than in the U.S., which could bode well for an Alibaba-Weibo alliance. Consumers share information about products on online forums and frequently interact with customer service representatives when making purchases. Many purchasing decisions are made based on word-of-mouth recommendations from users and key opinion leaders online.

Franklin Yao, chief executive officer of SmithStreet, a Shanghai-based consultancy, said what is missing from e-commerce in China is the ability for consumers to have an online shopping experience that feels like shopping in brick-and-mortar retail with friends. This deal could start to change that state of play, he explained.

Adding Weibo to Taobao creates an experience that is closer to the offline experience, Yao said. “A lot of the big topics on Weibo are about shopping. From a grand-strategy point of view, if you can integrate these sides together, then you can create this compelling experience for the user,” he said.

Sina Weibo has also become a key space in China’s virtual universe for brands to launch online marketing campaigns and communicate with consumers about new products and promotions.

Lac Tran, head of marketing and strategy for Web2Asia, an e-commerce solutions provider, said integrating Sina Weibo with Alibaba’s shopping platforms could create a multichannel experience for consumers, merging both offline and online shopping experiences whereby shoppers in brick-and-mortar stores can use the mobile Internet to access and share information on Sina Weibo about products, which would translate into purchases either online or in-store.

“They can close the loop between online and offline,” Tran said. “It will be really, really interesting. It is that offline-online integration that will be improved.”

The deal has garnered substantial attention because of the massive influence both sites already have with China’s more than 560 million internet users. Sina Weibo has more than 500 million users, 46 million of whom are active daily, while Taobao, Alibaba’s consumer-to-consumer online shopping platform, also has 500 million registered users, and Tmall.com, the business-to-consumer portal, is now home to 70,000 brands for sale via 50,000 merchants. Alibaba is rumored to be planning an IPO, but a spokeswoman said the company has not set a timeline for an offer.

According SmithStreet’s Yao, mobile e-commerce in China is “virtually nonexistent” yet many Chinese consumers use their smartphones to essentially window-shop during free time. “They will then go home and then make the purchase,” Yao said. “It is surprising to us how prevalent that action is. There could be something for potential platform integration between e-commerce and social networking.”

Alibaba and Weibo said the collaboration is expected to generate $380 million in advertising and social commerce services revenue for Weibo over the next three years. Similar to Twitter in the U.S., Sina has been struggling to find way to monetize its platform.

Analysts said presumably Alibaba would leverage Sina Weibo’s user base to advertise sales and promotions on its e-commerce sites. Last November, a promotional event on Tmall and Taobao generated more than $3 billion in sales within 24 hours.

“Perhaps running campaigns that integrate traditional advertising with a word-of-mouth campaign can be executed more easily,” said Torsten Stocker, head of consumer goods and retail at Monitor Deloitte in Hong Kong. “Maybe they can run more sophisticated campaigns.”

This is not Alibaba’s first foray into the world of social media. Last year the company beta-launched Fa Xian, a social shopping platform that enabled consumers to share product information and make purchases on Tmall and Taobao. The focus of that site has since shifted to offering product and shopping recommendations, with social networking features no longer prominent. Web2Asia’s Tran said Alibaba has “never done that well in the social area.”

Many observers said that the deal is a move to solidify both companies’ position in the social e-commerce space, which is still developing in China. And that the deal is a reaction to the growing popularity of WeChat, a free mobile messaging service owned by rival Internet giant Tencent Holdings, which also owns several e-commerce platforms, including 51buy.com and Paipai.com, which, according to McKinsey, is the third-largest online marketplace behind Taobao and Tmall.

Similar to Whatsapp, an mobile application popular in the West, WeChat allows users to chat and share media content via their mobile phones. It also has special features that enable users to find people nearby with similar interests.