Over the millennia, the Great Wall of China has successfully defended the Middle Kingdom from foreign invaders. Modern China's Great Firewall has done much of the same against Western Internet companies that have come to dominate the web. Because of that protectionist impulse, the Chinese Internet has come to be dominated by a number of homegrown companies that differ substantially from their Silicon Valley counterparts. Journalists and analysts are always looking for familiar analogues. Is Weibo the Chinese Twitter? Does Alibaba's Jack Ma give off a Jeff Bezos vibe? The truth is that the Chinese web ecosystem is unique unto itself. Most of the major players are heavily invested in a variety of online avenues and have avoided specialization. They constantly copy ideas from Western companies and from each other, while simultaneously innovating in ways that would make Mark Zuckerburg's head spin.
When these companies go public-Sina Weibo did last week, Alibaba and JD.com will do so soon-they'll have to compete not only against American companies, but a number of established Chinese players that have also been scrapping for market share. The first part of this series will focus on the companies going public this year, while part two will examine the competition. Finally, we'll round it out with some of the smaller players. It's the year of the Chinese Internet, and here's your guide to understanding its ins and outs.
Valuation: $4.75 billion
Major investors: Sina Corp, Alibaba Group
Primary business: Microblogging
The Founder: Charles Chao
Charles Chao is a man who's often been stuck between worlds. A journalist by training, Chao got his education both from Fudan University in Shanghai and from the University of Oklahoma. As the leader of Sina Corp., the parent company of Sina Weibo, Chao has had to walk a tightrope between promoting the increased transparency and free speech that Weibo provides Chinese users while making sure not to anger the Chinese government, which still heavily censors the web. Some think of him as a thorn in the side of the Chinese leadership, while others accuse him of being a government puppet.
Sina Weibo was started up after the Chinese government shut down a number of microblogging sites. "Weibo" just means microblogging and is used by competitors, like Tencent Weibo and Baidu weibo. Owned by Sina Corp., a Yahoo-like web portal that came to prominence in the early day, it's become prominent in Chinese politics, especially around environmental issues, corruption over food safety, disaster response and in Chinese celebrity culture, where a number of actors and singers have gained millions of followers (or "fans" as their called in Weibo lingo). The company's been given the official blessing by the Chinese government because it willingly self-censors content that Beijing deems sensitive. Comparisons to Twitter are common, but they're not totally analogous. For one thing, 140 Chinese characters can convey a lot more than 140 English letters. It also utilizes photo and video in ways more reminiscent of Facebook.
Last year, Alibaba took an 18% stake in the company in an attempt to beef up its mobile presence. But Sina Weibo has seen a number of new competitors emerge, including from Tencent and Baidu, that have created their own microblogging services. Also, many have argued that Tencent's WeChat has become China's social network of choice, a fact evidenced by a 9% drop in Weibo's total user base in 2013. And because it's an "open" network similar to Twitter, Sina Weibo has often been the target of Chinese censorship. Some believe that if protests ever ramp up against the government, officials may just decide to ban Weibo outright. The company also has yet to find a way to make a profit and posted a loss of $38 million last year. None of that appeared to matter last Thursday, when Weibo officially debuted in New York and its stock jumped 19% in its first day of trading .
Alibaba founder Jack Ma gives a thumbs up at the company’s 10th anniversary celebration in May 2013. (Peter Parks/AFP/Getty)
Expected valuation: $150 billion
Major investors: Yahoo, Softbank
Primary business: E-commerce
The Founder: Jack Ma
Jack Ma performs as his punk alter ego during a concert celebrating the company’s 10th anniversary in 2009. (AFP/Getty)
Jack Ma has achieved rock-star status in China as a symbol of Chinese entrepreneurship and as an evangelist for small business. In fact, the 49-year-old sometimes literally dresses as a rock star, like at one corporate event where he sang "Can You Feel the Love Tonight" to thousands of cheering Alibaba employees while adorned in a leather jacket, white wig and a giant Mohawk.
Despite his immense fame, Ma is essentially the Chinese dadcore equivalent of a Silicon Valley entrepreneur; he's more likely to don a sweater-vest than a hoodie and is fond of comparing himself to Forrest Gump. And though he runs one of the world's most important Internet companies, Ma proudly proclaims that he still doesn't know how to code. Before starting up Alibaba in 1999, Ma was an English teacher and started up one of China's first websites, a Yellow Pages-like directory that never took off. Ma stepped down as the CEO of the Alibaba Group last year, but still retains significant control as Executive Chairman.
Alibaba is the undisputed e-commerce king, with more annual sales than Amazon and eBay combined. It's also by most measures one of the most valuable Internet companies in the world, behind only Google, Amazon and Facebook. But it isn't so much a single company; it's an umbrella for 26 distinct business units. The last few years, Alibaba has emerged as an aggressive ecosystem builder in the vein of Google or Apple, but its bread-and-butter remains e-commerce. It's namesake site allows small businesses to sell to other businesses and was at the forefront of China's export economy the last decade. Taobao is a closer equivalent to eBay, where customers can buy from one another, while big brands sell directly to consumers through the Tmall portal. Alipay, their online payment service, is the mostly widely used in China and has become the vehicle through which Alibaba has launched a full-on attack on China's banking system. While most of its services are free, Alibaba makes a good chunk of its revenue by charging vendors for better placements on its sites.
When Alibaba goes public later this year, it's sure to be the biggest IPO of the year and one of the largest ever for an Internet company. In preparation for its flotation, Alibaba has gone a shopping spree, spending $3.8 billion on acquisitions and investments since 2013. It's been expanding into a dizzying array of fields, including cloud computing, messaging, mobile, mapping, TV, ride-sharing, taxi services, media and crowd-funding. Many of its investments have been with American firms, including Amazon rival Shoprunner, ride-sharing service Lyft and Tango, a popular messaging app. Last year, Alibaba launched Yu'e Bao, a money market fund that users can invest in directly using Alipay. With $80 billion, it's already the fourth-largest in the world and is sending shock waves through China's ossified banking system. Its most ambitious project is to significantly upgrade China's logistical network to enable one-day delivery to any part of the country within 7 years, a Herculean task considering the size of country. Alibaba's biggest challenge will be to pull off a successful pivot to mobile, where it still lags behind archrival Tencent, despite years of heavy investment. It's also been feeling the heat on e-commerce from new entrants, like JD.com.
JD.com founder Liu "Richard" Qiangdong (ChinaFotoPress/Getty)
Expected Valuation: $8 billion
Major Investors: Tencent Holdings, Ontario Teachers' Pension Plan, Sequoia Capital, Saudi Prince Alwaleed bin Talal
Primary Business: E-commerce
The Founder: Richard Liu
Qiangdong "Richard" Liu began his career in food service, buying a restaurant in 1994, which almost immediately went bankrupt. He blamed his failure on his inadequate management and vowed never to make the same mistake. He later founded the electronics retailer that morphed into JD.com. He's known for his obsessive micromanaging, making sure he gets daily updates from hundreds of managers about every detail of the company. Liu's cultivate a reputation for ruthlessness that's brought on comparisons to Chairman Mao-he immediately fires any delivery person who gets three complaints about their service.
JD.com, also known as Jingdong Mall, is the second-largest e-retailer in China, though a very distant second. The company's been around since 1998, starting out selling electronics in brick-and-mortar stores. But When SARS hit in 2002, and many Chinese were avoiding leaving their homes, the company began to sell online, and found it to be quite profitable. They went fully digital in 2005 and quickly acquired a number of high-profile backers looking for a piece of China's lucrative e-commerce market. Unlike Alibaba, which only facilitates transactions, JD bears a much closer resemblance to Amazon. It has dozens of warehouses and ships goods directly to customers. IT's gotten so good that it's able to do same-day shipping in many large Chinese cities. At this point, Alibaba doesn't have that sort of logistical strength. As of September last year, JD had 35.8 million active customers and $8.1 billion in revenue, but still wasn't posting a profit.
On March 10, Tencent, Alibaba's nemesis, announced that it had acquired a 15% stake in JD.com, with which it intends to launch a full-frontal attack against Alibaba's e-commerce business. Tencent will use its popular messaging service WeChat (think WhatsApp) to promote the site. This is a nightmare scenario for Alibaba. Tencent's mobile strength combined with JD's logistical muscle could take a serious chunk of the e-commerce marketplace. An IPO later this year is expected to bring in another $1.5 billion, which will give JD.com even more firepower against Alibaba.
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