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Alibaba says Open Sesame to online & offline riches

Innovation Strategy

When Facebook and Twitter floated, the media were in a frenzy, ensuring universal coverage and speculation about the implications for their future plans. And currently, there has been some speculation about what’s been called ‘the biggest IPO in history’, though with much less coverage. Perhaps this is because it’s being delivered by a technology giant still largely unknown outside its native China. Alibaba is a specialist in delivering ‘any product you want’, and in the last decade it has grown into a business equipped to take on the biggest and best the Western world can offer.

In the Western media, discussion about Alibaba is largely associated with the prospects for Yahoo, a major investor in the Chinese company. US/Eurocentric reporting emphasises the impact on Yahoo and where it’s likely to invest its windfall. However, from a creative thinking point of view, it’s more interesting to examine Alibaba’s and Yahoo’s intentions separately, in so far as they can be discerned.

Yahoo has a troubled history, and some tough choices to make under its new CEO Marissa Mayer. Predictions are that it will continue to trawl Silicon Valley for the ‘Next Big Thing’, and industry experts are sceptical about the new team’s ability to deliver. For every WhatsApp or Twitter there are dozens of me-toos devouring vencap investment at an alarming rate.

Taking a very different stance, Alibaba, headed by Jack Ma (pictured above) recently went on a large-scale roadshow across the world’s leading luxury brands, fuelling speculation about its true intentions. It has also shown great interest in shopping malls. Alibaba, in contrast to the Californian high-tech path favoured by Yahoo, appears to have absorbed the lessons of the ‘Sage of Omaha’ Warren Buffett, whose lifelong mantra has been about sticking to the fundamentals (especially when this is an unfashionable position). Buffett has always advocated investing in the tangibles that people like and need.

Following this Buffett-like train of thought, it appears that Alibaba has spent much time analysing the behaviour and preferences of its core target market (a basic strategy often overlooked by many otherwise smart businesses), and has decided that its core Chinese and Asian customers love shopping for luxury goods. When stated so bluntly, this sounds obvious, yet as a strategy it is innovative, even disruptive. Why is it so radical – and potentially world-changing?

Since the great financial crisis that kicked off in 2008, many traditionally solid businesses suffered badly, or even went to the wall. One market that not only survived but thrived amid the chaos was luxury.  In 2012, The Economist Intelligence Unit published a report on the outlook for luxury goods in Asia, which explored the trends and forecasts for the luxury goods market across key markets in Asia. According to this report, from 2014, the luxury sector is expected to grow significantly over the next 10 years “because of 440 million consumers spending a total of $1.2 trillion.” That’s big money.

And for shoppers, the mall market continues to grow, especially in the East. The largest mall in the world is the New South China Mall in Dongguan, China with a gross floor area of 892,000 m2. The world’s second-largest shopping mall is the Golden Resources Mall in Beijing, with a gross floor area of 680,000 m2. The construction continues apace.

When Xerox predicted the paperless office back in the Seventies, it was right in anticipating the rise of digital communication, but wrong in believing that this would result in the demise of traditional paper, and indeed the opposite is the case: there has never been more paper in the world. The answer is: “Both And”, not “Either Or”. The same is true about shopping and products: Sure, people love to shop online, and the digital revolution has matured quickly to enable instant product delivery. But browsing and buying are hard-wired human activities.  And people love both bargaining and the ability to acquire unalloyed luxury – the best of the best. Alibaba has shrewdly focused on these hardy perennials and plans to build a product-based empire in the least vulnerable niche – luxury brands in premium settings. That’s true innovative thinking.

And after all, even if Yahoo succeeds in identifying a successful Silicon Valley newcomer, Alibaba will probably be able to buy it out of petty cash.

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