Alibaba Avoids Facebook Miss as Mobile Focus Yields $37 Billion

Alibaba Group Holding Ltd., the Chinese e-commerce service filing for a U.S. initial public offering, has avoided Facebook Inc. (FB)’s costly miss by focusing on the country’s more than 500 million mobile users.

Alibaba, which might raise as much as $20 billion at the IPO, saw the value of its mobile transactions reach $37 billion last year, according to the filing yesterday. The Hangzhou, China-based company’s Taobao application has been the most popular mobile commerce app in China by monthly average users since August 2012, Alibaba said, citing iResearch.

That’s a far cry from Facebook, which had no mobile ad revenue at the end of 2011 and lost more than half its market value in the first four months after the $16 billion IPO in May 2012 due to slow mobile growth. Alibaba’s fast adoption of mobile platforms is a product of the strong mobile culture and market in China, according to Vivek Couto, executive director at Media Partners Asia Ltd. in Singapore.

“Mobile is a no brainer for them and in comparison to America it’s stickier for getting and keeping customers,” Couto said. “Mobile offers a way to do billing and authentication, whereas the U.S. relies on credit cards to do that.”

Photographer: Daniel J. Groshong/Bloomberg

A $20 billion IPO at Alibaba, founded by former English teacher Jack Ma, might top the $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show. Close

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Photographer: Daniel J. Groshong/Bloomberg

A $20 billion IPO at Alibaba, founded by former English teacher Jack Ma, might top the $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show.

Alibaba said it has already captured 76 percent of total mobile retail gross merchandise value in China.

“Our mobile apps are top-of-mind commerce apps among Chinese consumers and we believe that our leading market position in mobile commerce reflects the strong brands of our China retail marketplaces,” Alibaba said in the filing. “We intend to build upon our strength in mobile commerce to develop a broader spectrum of consumer offerings.”

Almost Tripled

The portion of Alibaba’s transactions that came from mobile users almost tripled to 19.7 percent of the total in the three months ended Dec. 31, from 7.4 percent in the same period of the previous year, the company said in its filing yesterday.

After its slow start, Facebook’s mobile ads now generate 59 percent of the company’s advertising revenue, up from almost nothing at the time of its 2012 IPO.

“Mobile penetration has been quite different in China to Facebook’s traditional markets, where desktop browsing” dominated, Mark Tanner, managing director at China Skinny, a research and marketing agency in Shanghai, said by e-mail. “The mobile platform is imperative for Alibaba. Chinese lifestyle characteristics such as busy urban lives and high public transport usage, lends itself towards high smartphone usage.”

Phone Service

A $20 billion IPO at Alibaba, founded by former English teacher Jack Ma, 49, might top the $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show. The company will continue to look for ways to increase its mobile user base through strategic alliances, investments and acquisitions, it said in the filing.

In June, Alibaba will start offering wireless phone service including voice and third-generation data packages on network capacity leased from all three state-owned carriers, the company announced last month. The packages will be sold through Alibaba’s Taobao and Tmall sites and can be paid for with Alipay, the company’s e-payment affiliate.

The HiChina unit of Alibaba was one of the first 11 companies to receive a mobile virtual network operator license in December and was the first to announce details of the planned service. China Mobile Ltd. (941), China Unicom (Hong Kong) Ltd. and China Telecom Corp., are all state-run. Alibaba said it is working with each of them to provide service.

Risk Factor

Alibaba in April 2013 said it’s working with five Chinese handset makers to use its mobile operating system. The company will pay the handset makers a fee of 1 yuan (16 cents) a month for every phone they sell with the Alibaba Mobile Operating System, or AMOS, as long as the owner continues using the software. Alibaba also said it would encourage developers to create apps for AMOS through a 1 billion-yuan fund using revenue sharing and other incentives.

While growing mobile use is a key opportunity, failure to execute the strategy well is also a risk factor, Alibaba said in the filing.

“User behavior on mobile devices is rapidly evolving, and if we fail to successfully adapt to these changes, our competitiveness and market position may suffer,” it said. “If we are unable to attract significant numbers of new mobile buyers and increase levels of mobile engagement, our ability to maintain or grow our business would be materially and adversely affected.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Suresh Seshadri, Dave McCombs

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