Three Things to Know About Alibaba's Ambitions

Photographer: Richard Levine/Demotix/Corbis
A news ticker on the Morgan Stanley building in Times Square in New York reports that the Chinese e-commerce behemoth Alibaba has announced that it has filed plans for an initial public offering on May 6, 2014.

Today, Alibaba Group is China's largest e-commerce company. But more importantly, what will it be tomorrow?

Alibaba filed its paperwork today in what could lead to the largest U.S. initial public offering ever. To get a sense of where this company might be headed, here are three things to know about its ambitions.

The People's Republic of Consumers

Tech companies in many countries are forced to think globally from day one because their domestic market is too small. That's obviously not the case for Alibaba, which is based in a country with the world's largest Internet population -- 618 million users. Compare that with the nation's number of online shoppers last year -- 302 million, according to the China Internet Network Information Center -- and that's a "relatively underpenetrated" market, the company said in its IPO filing.

The company also noted that the "underdeveloped retail infrastructure, limited product selection and inconsistent product quality," especially in the country's many smaller cities and rural areas, are causing consumers there to favor online and mobile shopping over traditional retailers. And sellers are getting in on the action too. Liu Yuguo, a former farmer in rural Qinghe county, was able to buy a Mercedes-Benz after raking in more than $1.6 million over two years by selling yarn on Alibaba's websites. That inspired others in his village to join the e-commerce rush.

The flip side to focusing on China: If the country's economic growth keeps cooling, watch out.

The Amazon, EBay, Google, UPS, Etc. of China

Alibaba has been called the "Amazon of China," and if you compare the two companies' mission statements, they generally say the same thing. Amazon: "to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators." Alibaba: "to make it easy to do business anywhere." But Alibaba, an online shopping giant that also has a computing-resources business similar to Amazon Web Services, is more sprawling. Its Taobao Marketplace, a massive retail and auction site, is similar to EBay, and Alibaba is trying to regain a stake in its Alipay affiliate, an online payment system like PayPal. The company even has its own mobile operating system.

Alibaba also owns 48 percent of its shipping affiliate China Smart Logistics Network, which aims to provide 24-hour delivery anywhere in China in the next decade. The company touted its logistics prowess by highlighting how it handled 156 million shipments generated on its Singles' Day promotion in 2013 compared with a daily average of 13.7 million packages. Alibaba's other investments include messaging app TangoMe and ride-sharing service Lyft.

"They're trying to build an ecosystem around them" with all of these investments, Victor Koo, CEO of Youku Tudou, China's biggest online video operator, said in an interview today. Last month, Alibaba and founder Jack Ma’s Yunfeng Capital agreed to buy a $1.2 billion stake in Youku.

But similar to the U.S., there's a risk of getting too big in China. Alibaba could become the target of anti-monopoly and unfair competition claims, which may lead to fines or constraints, the company said in the filing. Welcome to the top of the tech world.

No Risk Factors, No Rewards

There's no shortage of risk factors in Alibaba's filing, including failing to evolve with mobile users, new government regulations on its Alipay payment processing service and the improper use or disclosure of the mountains of transaction and customer behavioral data it's accumulating. (Although the company has faced computer attacks, Alibaba said none so far have resulted in any material damages.)

But if comments from the company's CEO are any indication, Alibaba seems to have the stomach for the next big chapter.

“I get very excited when I face setbacks,” Jonathan Lu said in an interview last year, referring to his first job after college -- at a reception desk in a Holiday Inn.

Prepare for some excitement.

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