Alibaba faces challenges in US e-commerce bid

Chinese e-commerce giant will soon launch its first U.S. online shopping platform, 11 Main, and it's looking to stand out by offering "interesting products" from "hand-picked shop owners". But will it pick the right ones and succeed in driving traffic?
Written by Eileen Yu, Senior Contributing Editor

Alibaba has made its first serious bid for the U.S. e-commerce market, but finding success outside its Chinese homeground will depend on its relationships with merchants and ability to drive site traffic. 

The Chinese e-commerce giant is prepping the launch of a U.S. e-commerce site through its subsidiaries Vendio and Auctiva, both which it acquired in 2010. Called 11 Main, the site is touted as an online shopping destination offering "interesting, quality products" from "hand-picked shop owners" in nine key categories including technology, fashion, entertainment, and sporting goods.

It promises merchants that provide great customer service, a clean user interface, and "fast, reasonably-priced shopping, originating within the U.S.", according to the website. Selling on the 11 Main platform is strictly "invite-only" and it is currently asking for interested merchants to request for an invite.  

The Chinese e-commerce giant has been making various acquisitions and investments in the U.S. market where, apart from Vendio and Auctiva, it also dished out US$206 million in October last year for a stake in local retail site, ShopRunner. It is prepping for a much-anticipated IPO this year, estimated to raise US$75 billion.

Alibaba is the largest e-commerce operator in China, where it owns e-commerce sites Taobao and Tmall, and has been ramping up efforts to expand its offerings beyond its domestic market. Apart from its U.S. plans, the company last August launched Taobao Marketplace in Singapore to serve as its hub for Southeast Asia, where it has over 280,000 registered users in Singapore and another 210,000 in Malaysia.

Worldwide, Taobao Marketplace has over 500 million registered users and is the largest consumer-to-consumer e-commerce platform in China. 

Despite its success in its homeground, Alibaba faces two key challenges tackling the U.S. market, neither of which has to do with potential contempt for its Chinese heritage. Rather, it's about volume and product selection. 

Kelland Willis, online retail analyst at Forrester Research, noted that 11 Main interface and design seem very localized and added that the average U.S. user is unlikely to know it's backed by a Chinese company.

"Their biggest barrier is really going to be about driving traffic to the site as well as gaining momentum and building relationships with small merchants," Willis explained, noting that securing a few big brands with deep advertising dollars could help drive eyeballs to the site. She doubted, however, from the current messaging on the site that it will be looking to sell major global brands like Ralph Lauren or Calvin Klein. "If you think about the merchants they're targeting, they're small-time merchants with small consumer base. I'll be curious to see what kind of brands they'll pick. It's about product selection." 

She noted that Alibaba had excelled particularly in China's consumer-to-consumer (C2C) e-commerce market, making its business model similar to Facebook's because it depended on the ability to drive site traffic. This would encourage more businesses and brands to sell their wares on the Alibaba platform. "If they lose site traffic, then their business won't succeed," she said.

The Forrester analyst said Alibaba will need to figure out a way to drive eyeballs to 11 Main, putting in loads of upfront investment especially on customer acquisition. 

How Alibaba stands out from its U.S. rivals

According to Willis, the Chinese e-commerce giant offers functions that U.S. players do not, such as an online chat feature on Taobao and Tmall that enables customers to speak with any of the site's merchants. She expects this to be replicated on 11 Main, alongside integration with social media tools to follow and engage with individual merchants online. "Through Alibaba, merchants also have opportunity to sell online and mobile channels," she added. 

I would also note that the company's free data analytics tools would be a boon, especially for smaller merchants, if it decides to extend this offer to its U.S. site. Taobao Marketplace in November announced it would provide its data analytics tools for free to small vendors so they can better tout their wares to online shoppers, offering discounts to the right audience.

The move is expected to help drive Taobao's target of building a base of 1 million small vendors, contributing 1 million yuan (US$164,000) in annual sales by end-2014. "Our target is to allow more small but high quality vendors to grow on our platform," Zhang Yu, president of Taobao.com, said.

Unlike its U.S. rivals, Willis noted, Alibaba doesn't own any inventory so its relationship with their merchants will be critical to its success. She also pointed to Farfetch.com as a more direct competitor to the Chinese player, compared to Amazon or Barnes, because the former also doesn't own any inventory and plays the role of an aggregator for merchants selling high-end and luxury goods--just like 11 Main looks to be. 

According to Gartner's principal analyst Praveen Sengar, Alibaba already dominates both C2C and B2C (business-to-consumer) e-commerce markets in China, and now needs to grow internationally to help global brands sell into the Chinese market as well as Chinese merchants targeting the U.S. market. 

Sengar said: "The U.S. market is maturing and e-commerce is evolving rapidly to digital commerce, enabling interaction of businesses, people, and things via digitalization technologies that results in a transaction of value to the customer. It will be interesting to see if Alibaba can gain critical volume to achieve scale efficiencies as well as transform to digital commerce and offer localized experience to compete in U.S. market successfully."

And about that mega IPO...

So why is it targeting the U.S. market, and not Asia, which would make a more logical first step toward achieving its globalization plan? The answer may lie in its highly anticipated IPO (Initial Public offering). 

It offers the company a great opportunity to drive global brand awareness in the lead up to its public offering, Willis suggested. "They want to be a global brand and you can't be one without a strong presence in the U.S." she said. "I think having a presence in U.S. will give them more traction and coverage, and this will help drive their IPO price." 

Alibaba is expected to raise up to US$75 billion from the IPO, surpassing that of Facebook's 2012 offering

So will U.S. online shoppers take to a Chinese e-commerce site? I guess only time, and eyeballs, will tell...and maybe the possibility of buying a lunar rover on the site.

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