For Alibaba, a challenge is to turn mobile into money

Jul 01 2014, 10:10 IST
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Alibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce. (AP) Alibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce. (AP)
SummaryAlibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce.

Chinese e-commerce giant Alibaba Group Holding Ltd may have dominated online retail on personal computers, but is some way from replicating that leadership in shopping by smartphone and other mobile devices.

Alibaba, which is heading towards a bumper New York IPO later this year, is throwing billions of dollars at figuring out how to thrive as half a billion people, 80 percent of China's 618 million internet users, go online via mobile.

The Hangzhou-based firm said last month that mobile has become an increasing source of transactions, now accounting for more than a quarter of the value of goods sold across its online marketplaces. But Alibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce.

The quick-hit impulse buys commonly seen on mobile generate less money for merchants, and advertising on smartphones is a challenge few internet companies have overcome. Both problems threaten to squeeze future profitability.

Making life tougher, rival Tencent Holdings Ltd has already planted its flag on smartphone screens with WeChat, the nearly ubiquitous app that has gone from a mobile messaging tool to a digital Swiss Army knife.

"They're not just competing with other e-commerce companies, they're going against messaging apps. It completely changes how competitive they can be," said Sameer Singh, an analyst who writes about technology at Tech-Thoughts.net. "I don't think the same margins are realistic."

Alibaba has spent more than $3 billion this year on mobile-focused investments. In its latest initial public offering prospectus, filed in the United States last month, "mobile" was mentioned 304 times - well ahead of "online" (264) and "internet" (144), while "computer" figured just 36 times.

ON THE DEFENSIVE

Alibaba's leadership is still trying to shore up the firm's position on mobile, even as the competition surges ahead, said people familiar with the matter.

This includes Alibaba moving beyond its comfort zone and attempting to control how users access content on their mobile devices - though Laiwang, its attempt at a social messaging app to rival WeChat, has seen little traction among users in China.

Alibaba has also invested in Tango, a U.S. messaging app company, and spent more than $1 billion apiece for full ownership of mobile browser UCWeb Inc and digital mapping firm AutoNavi Holdings Ltd.

While these new ventures are in their early stages, Alibaba admits that profitability could suffer.

"Our strategic investments and acquisitions may affect our future financial results, including by decreasing our margins and

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