Alibaba’s new e-commerce strategy faces fierce competition

The Hangzhou-based company, once dominant in China’s booming e-commerce market, had an impressive 83% market share when it went public in 2014. This dominance has eroded significantly, largely due to the onslaught of increasing competition and partly because of its lukewarm approach to improving technology and pricing strategies.

“So we kind of shot ourselves in the foot by not really focusing on creating value for users,” Alibaba CEO Joe Tsai said in an interview on the fund’s YouTube channel, Nicolai Tangen, chief executive of Norges Bank Investment Management, in April. .

The e-commerce giant said in February that it is “in the process of revitalizing Taobao and Tmall Group” and is strategically focusing on competitive pricing and investing in technology improvements to improve the user interface. In May, Alibaba announced that its e-commerce platform Taobao had undergone the “biggest update” in seven years to improve the customer experience as part of a sales campaign spanning 618 shopping days from late May to mid-June.

Taobao also canceled the pre-sale process for its 618 shopping festival, which many consumers said made shopping difficult. They also modernized the website layout to make it easier for customers to buy and sell products.

Alibaba is currently “prioritizing growth over profitability,” which could put pressure on profitability, said Nomura analysts Jialong Shi and Rachel Guo, revising down some of the company’s earnings estimates.

Some of these growth initiatives appear to be showing early signs of progress. In the fourth quarter ended in March, revenues of Alibaba’s Chinese e-commerce unit, Taobao & Tmall Group, rose 4%, compared with 2% growth in the December quarter. The unit accounted for almost 42% of Alibaba Group’s revenue.

“We are basically back to growth. This is very important news,” Toby Xu, Alibaba’s chief financial officer, told analysts after the company released its results in May.

Citigroup analyst Alicia Yap said “initial positive progress showed a renewed acceleration in growth driven by strategic reinvestment.”

The current strategy may have excited many, but analysts warn that competitors such as U.S.-listed PDD, which operates an e-commerce platform in China, TikTok owner ByteDance and online short-video company Kuaishou Technology, pose a challenge to major players such as Alibaba and JD.com are increasing their market share.

“We see that Alibaba has made some changes (strategy changes) and is doing better than before,” said Shawn Yang, senior research analyst at Arete Research. “But it is also clear that PDD continues to excel in its first quarter results.”

PDD’s first-quarter revenue more than doubled to 86.8 billion yuan ($11.98 billion), accounting for about 40% of Alibaba Group’s revenue.

Alibaba’s market share has been steadily declining and currently stands at 39.5% from 83% in 2014, according to data provided by market research firm Insider Intelligence.

By comparison, PDD-owned Pinduoduo’s market share rose to 16% from 11% in 2020. JD.com’s market share remained between 16% and 18% during the same period. Data from ByteDance and Kuaishou were not available.

“Investors may continue to doubt Alibaba’s ability to turn around its e-commerce business in China after losing significant market share over the past few years,” Nomura analysts Shi and Guo said.

Write to Tracy Qu at [email protected]