7 Questions for Alibaba on Singles’ Day (pt 1 of 2)

Singles’ Day 2019 is almost here. Gonna be awesome.

I’m currently packing up to head to Hangzhou. This will be my third year with the Alibaba “global influencers” group, which is just a great time behind the scenes with management. And it’s a nice reminder that I am no longer the obscure professor / failed writer that I used to be.

Singles’ Day is a strange thing when you think about it.

It’s both a holiday and big sales event. There is tons of marketing by companies, purchasing by consumers and performances by entertainers. But all of this only exists on smartphones. It’s all virtual. In practice, it is hundreds of millions of Chinese staring at their smartphone screens throughout their day – receiving promotion offers, buying stuff, and watching videos (like Taylor Swift at the gala). It’s the world’s first festival / holiday that exists on the small screens we carry around in our pockets. It’s weird.

And it’s increasingly global.

  • Yes, Chinese consumers dominate the festival. But of the +200,000 brands/merchants participating, probably 70,000 will be outside of China.
  • And, for the second time, Lazada, the largest e-commerce platform in SE Asia (by web visits) will also participate. So we will also have millions of Thai, Indonesian, Malaysian and other SE Asian consumers celebrating this virtual event that started out as an obscure Chinese holiday about being single.

The more I think about Singles’ Day, the more odd it seems to me. Awesome. But a symbol of our increasingly unusual digital lives.

That said, I making a list of questions I am trying to answer as I pack for Hangzhou. Here are my top seven.

Question 1: Where is the fastest advancing frontier in e-commerce?

Singles’ Day is when all the new e-commerce programs and ideas by merchants, brands, and Alibaba must really be implemented. They must be implemented well enough to the handle insane, concentrated activity of this 24-hour spending surge. It’s like a moonshot program or a prize fight, a big public test of all your training and preparation.

That means Singles’ Day is also when the frontier of e-commerce (and the digitization of retail) really jumps forward. It’s where you see things becoming fully implemented. And where you see what is coming next in e-commerce. Not just in China. Everywhere.

Last year, we saw a big jump forward in the integration of Lazada into the Alibaba platform – and in the development of e-commerce in SE Asia. Another jump forward was in the integration of entertainment and e-commerce (““See Now, Buy Now”).

This year I’m looking for new geographies of consumers (not merchants) to join the platform. I’m looking for new use cases in new retail. And I’m looking for infrastructure initiatives in logistics and delivery. And I’m mostly looking for which frontier is advancing the fastest.

Question 2: How much is Singles’ Day increasing the users, participation and data of the platform?

Last year, the GMV (gross merchandise volume) for Singles’ Day was $30B, up 27% from the prior year. And that was up 39% from 2016. GMV is a fun number to follow and it gets a lot of attention. But it’s not one I care much about.

Because Alibaba is not a retailer. They aren’t selling merchandise. They are a platform business that enables transactions and other interactions between multiple user groups (merchants / brands, consumers, content creators, local service providers, banks / financial institutions, etc.). They are an orchestrator of a retail ecosystem that is much, much larger than their company. And they do this by providing a common location, proper governance and various supporting tools and services. Per Nobel Laureate Ronald Coase, they are in the business of lowering transaction costs – and therefore connecting previously unconnected parts of a greater ecosystem. GMV doesn’t really capture any of that very well.

With Taobao and TMall, Alibaba created digital versions of a marketplace and a shopping center. But they have gone way beyond this now. They have added entertainment, local services, payment services and new retail. They are now like a digital version of Orlando, Florida (home of Disney World). They are an ultimate B2C marketplace that increasingly offers everything a consumer wants.

In this digital version of Orlando, the numbers that really matter are how many users (merchants, consumers) have moved to Central Florida – and what is their level of activity (purchasing, investment, innovation, entrepreneurship, etc.).  Singles’ day is a bit like a big moving day. It’s the day when you see a quantum increase in the users, participation and data of the platform. And you can think about the lifetime value of these users.

So the objective of Singles’ Day is not a one-day spike in sales. It is a permanent increase in tthe users and their participation on the platform. What you want is lots of users focusing their lives, time, spending, creativity, innovation, investment and businesses on the platform.

Ultimately, digital platforms are built on three intangible, long-term assets: users, participation and data. Singles’ Day is a big jump in these assets.

Question 3: How many consumers will join in SE Asia? Is there a tipping point? Same questions for fourth and fifth-tier Chinese cities.

Alibaba’s biggest strategic difficulty has been adding non-Chinese consumers to their platform. Their internationalization efforts have mostly focused on serving Chinese tourists abroad (especially in payment) and on adding foreign merchants and brands (thereby connecting them with Chinese consumers). They have natural advantages in these activities.

But the company has had no obvious path for capturing consumers in geographies like India and Europe. They have been doing some M&A, such as the purchase of Lazada (which was expected) and the investment in Indian Paytm (which was lucky). But this has mostly been opportunistic.

The two geographies where they could show significant consumer growth are in SE Asia and 4th and 5th tier Chinese cities. And I want to see fast these are growing this year. I’m also curious if there is a tipping point at which consumers in these geographies really take off. As the enabling infrastructure of e-commerce (logistics, payment, regulations, etc.) is developed, is there a point where the usage has a big acceleration?

Question 4: What products and services is Alibaba going to bundle next? And are there any new loyalty, membership or other customer capture programs?

Alibaba just announced their Q3 numbers, the first under Daniel Zhang post-Jack Ma. And they were pretty amazing. Up 40% in quarterly revenue, year over year. And Daniel also released a statement that I thought was a very clear and succinct summary of Alibaba (located here). The phrase that really caught my attention was his description of Alibaba’s business as a combination of physical products, digital media and local services. And Alibaba is clearly beginning to bundle these. That, to quote NYU Professor Scott Galloway, is a gangster move.

Bundling has real economic and competitive power. I’m going to go into the economics of bundling in my Asia Tech Class (subscribe here, with a free 30-day trial!). But the basic idea is that by combining multiple products / services under a single price, you actually increase total spending and create a product that is powerful against competing solo products. And as Alibaba is combining physical products with digital media and local services, they are creating bundles that most other e-commerce companies can’t offer. It’s a powerful move. Bundling is one of the reasons cable companies became so strong.

I am also watching for initiatives in their membership and loyalty programs. These can lock-in consumers, create switching costs and improve cash flow predictability. Amazon Prime and Costco have been doing this successfully for a long time.

Right now, it looks to me like Alibaba is increasingly experimenting with both bundling and membership programs. They are combining entertainment and e-commerce (“See Now, Buy Now”. And they launched their 88 VIP Membership program in 2018. I’m looking for their next moves in these areas.

Ok. That’s it for part 1. This is continued in Part 2.

Cheers, jeff

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