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Alibaba's IPO could be 'open sesame' for global expansion

Zach Miners and Michael Kan | Sept. 19, 2014
Alibaba, an e-commerce giant in China, wants to make new friends in the U.S. Especially friends with money.

AliExpress and 11Main aren't exactly designed for mainstream American consumers. But Alibaba also has been investing in U.S. tech companies, and not just in the e-commerce sector. It's funded ShopRunner, an online retail site with free two-day shipping, as well as messaging app Tango and ride-sharing service Lyft, among several others.

That activity drives speculation that Alibaba is ready to buy its way into the U.S. market. But Alibaba's recent investments suggest that it is more interested, at least for the time being, in learning how things are done in the U.S. tech sector, rather than outright buying companies, said Michael Clendenin, managing director for consulting firm RedTech Advisors.

"I think they want to take those experiences and apply it back to the home market," he said, pointing to Alibaba's recent investment in U.S. mobile gaming company Kabam as an example. "They are looking at how they can be more competitive in their own domestic gaming market."

Alibaba is already generating more sales in gross merchandise volume than Amazon and eBay combined. And in its 2014 fiscal year ended in March, the company posted sales of $8.46 billion, up more than 50 percent from the previous year.

Sales are expected to grow, even though Alibaba's business is still largely focused on China. The country itself has 632 million Internet users, who are increasingly relying on the Web to make purchases, even as half of China's population still remains offline.

But the country only offers so much growth, and inevitably Alibaba will have to tap foreign markets to keep earnings strong, analysts say.

In the short term, the IPO will undoubtedly help the Chinese company generate international public awareness among consumers, businesses and investors. Funds raised may also let Alibaba make capital investments globally in the areas of infrastructure, data centers and cloud computing.

Further out, Alibaba may be looking to compete more with Google than with Amazon or eBay. As the firm attracts new users and businesses to its sites, and becomes active in more areas outside of e-commerce, the real gold for the company could be consumer data. It's already been trying to expand in China, by launching its own mobile operating system, search engines and messaging app, although they've all struggled to take off among the country's users.

"If you provide people with more reasons to come and visit your sites, then you're able to collect more information about who they are and what their interests are, and you can direct their activities toward things that will drive transactions," said IDC's Strawn.

Analysts are also not ruling out the possibility that Alibaba could use the IPO dollars to make an acquisition or two, but it's not clear what those might be.

Alibaba, like Google or Facebook, is broadening its scope, "branching out into all aspects of the Internet," said Strawn. The Silicon Valley giants want to own people's time online, and now Alibaba's trying to get into the mix.

 

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