E-Commerce in China: Time to start paying attention

On the 6th of May I took the stage in the Sheraton Brussels Airport to give the attendees of the e-commerce in China seminar organised by the BCECC a taste of the current state of online shopping in China. In my presentation I spoke about how Alibaba dominated the e-commerce market in China with 80% market share and how it was having a fierce power struggle with Tencent. One day later news broke that Alibaba had announced an IPO. Once again my presentation was outdated. That’s how fast things go in China.

But the data in my Powerpoint slides wasn’t the only thing that had changed in a day. Whereas you would be hard-pressed to find any mention of Chinese internet companies on regular days, now all of a sudden the media was abuzz with items about Alibaba. Most of these articles focussed on how big the IPO would be and that it might well obscure Facebook’s record-breaking IPO off two years ago. Other media were speculating that Alibaba could be a treat to domestic webshops in the west.

This attitude is a good example of how most people treat the internet market in China: it’s all happening in a country far, far away and it has little to do with their daily business. Even people that work in e-commerce or online marketing can rarely get enthusiastic about what’s going on in the Middle Kingdom. Until all of a sudden an enormous treat raises its head and threatens to swallow them up. And then, as expected, they react with a mixture of awe and worry.

Until now I have written about 50 columns about China, most of which cover internet innovation (35 of these can be downloaded in a free Dutch e-book at chinatalk.nl). In most of these columns I have tried to convince readers that they should keep an eye on China. Not so much because it is a potential threat, but because they are way ahead of us in the areas of e-commerce, mobile commerce, social media and O2O (offline-to-online sales, or the other way around). China’s Great Firewall has made success for western social media like Twitter and Facebook impossible in China. This in turn has given way to many copycat platforms within the country. While competition between social networks was relatively limited in the west, within China these copycats had to engage in heavy competition to win and maintain users. And the only way they could do this was by innovating. It’s because of this reason that many of the social networks like Sina Weibo and WeChat have become superior to the platforms that they were originally copying.

Another highly interesting characteristic of the online world in China is the dominance of smartphones. In China, nowadays more people surf the internet on their phone than on a desktop or laptop. The penetration of smartphones and mobile internet continues to grow with the release of cheaper, high-quality models by new players like Xiaomi. Combine this with improving coverage of 3G and Wi-Fi hotspots and whole new demographic groups like migrant workers and people in 3rd tier cities (or even the countryside) are now able to afford and connect to the internet. Taking into consideration the poor logistics in the country, where many products are simply not sold in stores outside 1st and 2nd tier cities and this newly gained connection to the internet comes with an unlimited access to products sold on Alibaba platforms like Taobao and Tmall.

And when I say e-commerce we’re not just talking about shopping in online stores of Alibaba and second-in-place Jingdong (with less than 10% market share dwarfed by the aforementioned giant). It’s also about mobile payment with apps like Alipay Wallet and WeChat Payment. You can now use your mobile phone to pay at vending machines, in taxis, buy movie tickets, go Dutch and split the bill after a dinner with friends and buy goods in shops or from billboards by scanning a QR code.

Alibaba’s biggest competitor, Tencent, has several highly popular products, among which the chat-app-on-steroids WeChat. In May the company revealed that WeChat has 395 monthly active users and you can rest assured that most of the remaining 100+ million smartphone users in China also have the app installed. Since 2013 WeChat has started incorporating many options for mobile payment and mobile shopping within the app. Since Chinese consumers spend a lot of time using WeChat it’s these new in-app m-commerce functionalities that are posing a serious threat to Alibaba. A shift from microblogging to WeChat has even been one of the big reasons for the serious decline in usage of the once so popular Sina Weibo microblog.

In recent months Tencent and Alibaba have been buying stakes in all kinds of internet firms from online video (think YouTube) to mapping (think Google Maps) to online travel agencies. One of the most interesting partnerships is the one between Tencent and Jingdong, in which Tencent handed over its relatively small e-commerce platforms to Jingdong while Jingdong will soon be allowed to offer goods within the WeChat platform.

As such, I don’t think western e-commerce companies need to worry much about Alibaba. With less than 50% internet penetration there is still an enormous domestic market potential and all resources will be allocated to battling the threatening local competition by Tencent. This does not mean however that western e-com folks and online marketers should sink back into their former oblivion. There’s so much we can learn from watching what’s going on in China at the moment. Simply because we might be watching our own future in which we pay everything by phone. Or instead of installing 50 different apps on our smartphones we might just be using one all-inclusive mobile ecosystem like WeChat, which – as I said in my lecture – any person that is seriously about understanding the Chinese should have on their phone. It’s high time to start paying attention.