I had an awesome 2 days behind the scenes with Alibaba at Singles’ Day 2018. I got to attend the gala, visit companies and talk with management – all in the midst of the world’s biggest spending frenzy.
Plus I got to meet some other “global influencers”, most of whom I had been reading for a long time. It was a really fun group (see below). Everyone was pretty driven and curious to the point of obsession. My sort of people.
I’m going to be writing a lot about Alibaba over the next couple of weeks – and about Singles’ Day in particular. Mainly because Singles’ Day is the advancing frontier of e-commerce. It’s where you see what is coming next. And not just in China. Everywhere.
Singles’ Day is when e-commerce jumps forward. It is when all the new e-commerce programs and ideas by merchants, brands, and Alibaba must be implemented. And they must be implemented well enough to handle the insane, concentrated demand of this 24-hour festival. It’s like a moonshot and a stress test at the same time.
(Jack Ma and Daniel Zhang minutes after the end of Singles’ Day 2018)
I wrote a quick article during the event (located here). My basic point was that despite all the craziness and turbulence of the event (and of the trade situation this year), Singles’ Day is ultimately about rising Chinese consumers and their increasing integration into the global economy. And as both increase, Chinese consumers are increasingly able to shake the world in real-time. Singles’ Day is a big manifestation of this phenomenon.
Ok. Now my top 5 take-aways from the day.
#5. GMV doesn’t really matter. It’s about users, participation and data.
This year GMV was $30.8B, up 27% from last year (which was up 39% from 2016).
Alibaba is not an online retailer. They don’t sell physical products themselves. They are a platform business that enables transactions and other activities between various user groups. It’s more like a city. What matters is how many people move into town and how active they are. Alibaba calls it an ecosystem and sometimes an economy. But GMV is really not what matters. Ultimately digital platforms (like Alibaba) live and die by the “strange economics of participation”.
- “Participation” by consumers can be the number of active users and how much they spend over say 5 years. It can be how many reviews they write. It can be how many videos they watch, how many coupons they redeem, how much of the gala they watched and played along with – and so on. It’s a lot more than just GMV.
- Participation by brands and merchant includes how many products they sell, for sure. But it is also how much marketing they do – and how that shapes their yearly strategy. It can be how many new customers they identified, how much data they gathered, how many new products they developed (based on the data), and so on. Note:Below you can see some of the new products launched this year. Spicy Snickers was my favorite.
And the quality of the participation also really matters. If it is just to sell some items, that is low quality. What you want is lots of users who are building their lives and businesses on the platform. You want them to invest their time and effort long-term.
Ultimately, I think of digital platforms as being built on three intangible assets: users, participation and data. Singles’ Day is a big jump forward in these core assets.
#4 Singles’ Day both moonshots and stress tests the development of the platform.
Founded in 1999, Alibaba wants to be a 102-year old company, which would mean it existed in three centuries. And the above point is consistent with this. If you are building for a hundred years, it’s not about the profits of one day. It’s about the growth in the ecosystem and its assets (users, participation and data) long-term.
However, Alibaba is also a “12-month company”. Because every Singles’ Day is a moonshot that creates a big hurdle that must be cleared. Every manager at Alibaba knows that in under 12 months they are going to face a tidal wave of demand.
- If you are automating warehouses in Wuxi, your system must be able to handle $30B of GMV in 24 hours. Note: over 1B of packages were delivered this year.
- If you building out payment processing, you have a similar challenge.
- If you are launching a new partnership with Starbucks, you (and Starbucks) must be ready for the coming wave of orders.
- And if you are opening restaurants with robot waiters (see below), you need to plan for volume.
Merchants and brands face the same moonshot challenge. For them it is not just about supplying the necessary products for one day, It is when they want to do new product launches.
- It is when they gather data that informs their China strategy (and sets them up for Chinese New Year).
- It builds their customer base.
- It drives their product innovation (maybe done with the TMall Innovation Center).
- It drives their adoption of new tools like magic mirror and robot waiters.
We saw a lot of these types of initiatives this year. Over 200,000 smart stores participated in the day. Starbucks launched deliveries in 11 cities. A total of +180,000 brands participated overall. And so on. As CEO Daniel Zhang said, the entire ecosystem was “all-in” for Singles’ Day.
Singles’ Day creates pressure on everything – and every year it creates a moonshot for the development of the platform and the brands participation in it.
However, Singles’ Day is also a stress test for a very big, complicated system. When you know you have $30B of orders passing through the platform in 24 hours, you have to build in a lot of excess capacity. You are going to discover what doesn’t work. And that’s really a good idea. Imagine if banks and government treasuries had similar performance tests every year.
#3 Singles’ Day was a big milestone for SE Asia.
Alibaba’s biggest strategic gap has been adding non-Chinese consumers to its platform. Much of its internationalization, thus far, has focused on serving Chinese tourists abroad (especially in payment) and adding foreign merchants to its platform (thereby connecting them with Chinese consumers).
But the company doesn’t really have a natural path for capturing consumers in other markets. It isn’t obvious how to do that. And they don’t have really big advantages when jumping into a new geography on the consumer side.
But their internationalization efforts on the consumer just hit a big milestone in SE Asia. They acquired Lazada and have been slowly building the infrastructure to support e-commerce in this region (logistics, payment, etc.). With Lazada participating in Singles’ Day for the first time, they have now successfully expanded to 6 SE Asian countries. That’s pretty amazing.
Plus, I think it is pretty funny to see these foreign countries celebrating what was, until recently, an obscure Chinese holiday.
#2 New retail is starting to look like a competitive fortress – made up of nationwide logistics plus on-demand delivery and other local services.
E-commerce is a spectacular business in terms of economics. From the margins to the working capital to the return on capital, it’s just amazing in its ability to generate returns on capital and to grow. It’s not as good as casinos and cigarettes but it’s close.
However, the competitive barriers aren’t awesome. The network effect of an online marketplace is not that hard to match and we do see new e-commerce sites jump in regularly. We don’t see that with Wechat or Facebook.
However, new retail looks like it is changing this. Alibaba has been building a national footprint of physical retailers that serves a couple of purposes.
- One purpose is to create a national footprint for logistics And you really need the logistics network to be national. You need the whole country. And as building this is very difficult (hello JD), Alibaba has been doing major acquisitions (Sun Art, RT-Mart) to build this.
- Another purpose is to enable local services and on-demand delivery. These retail sites are frequently within 2-3 km of people’s homes. So they can provide local services (Starbucks drinks, food preparation, massages, beauty treatments, etc.). And they also enable rapid delivery (for Hema it’s under 30 minutes). And you definitely see Alibaba pushing hard into local services, especially delivery. They are making major moves with ele.me and Koubei, in particular (bad for Meituan). CEO Daniel Zhang has referred to on-demand delivery as the infrastructure of new retail.
So new retail is resulting in a combination of physical assets (nationwide logistics plus localized services) that is going to be very hard to replicate. Especially as it goes more international. This is starting to look like a big barrier to entry.
#1 New retail is bigger than everyone thinks. And people already think it’s big.
Singles’ Day 2018 was a big leap forward for a lot of the initiatives within new retail. The supermarkets, convenience stores, Starbucks partnership, furniture stores, hotels and other initiatives are creating lots of interesting new use cases and business models.
New retail is also a move into services. And not just delivery. It expands e-commerce from products to products and services – and creates a much broader B2C marketplace. This opens up a whole new set of potential business activities. Watch for a flurry of new services in the next year.
Ok. That’s my take. I’ll be working on more Alibaba articles but these are my basic thoughts on Singles’ Day. Thanks for reading. And a special thanks to Jennifer Kuperman, Erica Matthews, Roger Zhang and Liyan Chen at Alibaba for all their support.
Plus cheers to my fellow attendees. You’re awesome. If you’re not following the below people, you really should. Cheers, jeff
- Daniel Zipser, Danielle Bailey, Zoe Leavitt, Lauren Hallanan, Frank Lavin, Michelle Grant, Rebecca Fannin, Jon Bird, Deborah Weinswig, Duncan Clark, Hendrik Laubscher, Man Chung Cheung, Jason Ding, Tom Goodwin, David Roth,
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