The good news: China’s mobile commerce industry is growing at a tremendous pace – meaning there’s an opportunity for you to profit as an investor.
The bad news: The one company crushing mobile commerce also dominates the country’s $177 billion e-commerce industry. Unfortunately, that’s the one company you can’t invest in because it’s private. Of course, I’m talking about China’s dominant e-tailer, Alibaba.
Nonetheless, you’d better keep your eye on this company. Not only may Alibaba IPO soon, but it’s also shutting Amazon.com, Inc. (NASDAQ:AMZN) and E Commerce China Dangdang Inc (ADR) (NYSE:DANG) — an e-tailer of small-ticket and media items — out of China. Here’s what you need to know about China’s competitive e-commerce landscape.
The numbers: How badly is Alibaba crushing the competition?
You may know already that Alibaba is gigantic. It so dominates the overall e-commerce industry that you might think it’s a monopoly.
Currently, the company commands 40% of the $177 billion industry. While you may think Amazon.com, Inc. (NASDAQ:AMZN) would be able to translate its U.S. experience to success in China, it hasn’t happened. After years of working in the country, Amazon owns just 2.2% of the market. More surprisingly, E Commerce China Dangdang Inc (ADR) (NYSE:DANG) — the so-called “Amazon of China” with geographic, informational advantages — hasn’t even been able to mimic Amazon’s business model successfully to compete with Alibaba. It has only 1.6% of the e-commerce market share.
The picture gets even worse for Amazon.com, Inc. (NASDAQ:AMZN) and E Commerce China Dangdang Inc (ADR) (NYSE:DANG) when you look only at the mobile commerce industry.
| Company | Total E-Commerce Market Share | Mobile Commerce Market Share |
|---|---|---|
| Alibaba | 39.9% | 75.1% |
| Amazon | 2.2% | 0.4% |
| Dangdang | 1.6% | 1% |
Sources: We Are Social and Tech in Asia.
Amazon.com, Inc. (NASDAQ:AMZN)and E Commerce China Dangdang Inc (ADR) (NYSE:DANG) seem like they’re barely holding on. If you’ve invested in either, you should be scared.
How much money are we talking about exactly here? Last year, the mobile commerce industry was worth $7.8 billion. But by 2015, research firm iResearch estimates that number will grow to $41.4 billion. That’s growth of 530% over three years! And if Alibaba continues to reign, it may be lights out for Amazon.com, Inc. (NASDAQ:AMZN) and E Commerce China Dangdang Inc (ADR) (NYSE:DANG) in China.
Do Amazon, Dangdang, and others have a chance in China?
Now, you may think that Amazon.com, Inc. (NASDAQ:AMZN) and E Commerce China Dangdang Inc (ADR) (NYSE:DANG) have time to grow their market share — the mobile commerce industry is still young, right? Well, you’d be dead wrong.
Right now, more Chinese have access to the Internet through mobile than they do on desktop: Internet penetration on desktop is 44% versus 82% on mobile. Looking deeper into the numbers, 59% of China’s smartphone users have already used their devices to shop online.
So what are the takeaways here? Mobile is already here.
Because Alibaba already has such a head start in mobile commerce, it seems like it will remain in a dominant position. Alibaba’s market share will probably decrease as other e-tailers launch and build up their mobile stores. But, if the (relative) desktop market share numbers at all hold for mobile, then you can still say that Alibaba is crushing the competition.
There’s a good chance the numbers will play out well for Alibaba. As The Economist notes, Alibaba’s marketplace is so big that its websites get the most eyeballs. In turn, this drives more sellers to list more goods for sale — which then attracts more buyers. More so than any other e-tailer, Alibaba has this virtuous cycle that keeps raking in profits.
It’s for all these reasons that Microsoft Corporation (NASDAQ:MSFT) decided to partner with Alibaba. Acknowledging that it needs to drive Windows 8 device sales in China, the two launched Microsoft (NASDAQ:MSFT)’s online store in China. It’s a smart move, as Alibaba has the eyeballs and Microsoft distributes the OS only through downloads and pre-installed devices.
