As Alibaba faces challenges over the past year as the Chinese government has cleaned up private enterprises, it faces another problem: increasing competition.
Alibaba has held an unshakable position as China's leading e-commerce company for more than 15 years. The company, founded by Jack Ma, squeezed out one challenger after another and rose to become one of the world's largest and most valuable companies.
As China's e-commerce industry matures, consumers have embraced new ways of shopping that focus more on browsing and interaction rather than targeted product searches. This trend has put Alibaba in a position to catch up in some areas, and competitors have taken advantage of the change to gain a foothold in the world's largest online retail market.
Alibaba is still the leading online shopping platform, but according to research firm eMarketer, its share of China's retail e-commerce market has fallen from 78% in 2015 to 51% in 2021.
Some of Alibaba's rivals have made progress in contending with the company: Tencent is incorporating its online store into its ubiquitous social chat app WeChat; Pinduoduo, an e-commerce app that came out six years ago, has injected gamification elements into shopping and attracted people who like to buy bargains with lower-priced goods; and TikTok's sister app in China, Douyin, is using its algorithm to sell goods through short videos and live streams.
Alibaba's response is to increase investment in areas such as content creation, live streaming and discounted merchandise. In May, Alibaba CEO Daniel Zhang listed rising competition as one of the company's biggest obstacles over the past year and said it would reinvest all of its new profits into improving its e-commerce business.
Daniel Zhang said in August that the core market-based businesses that used to be often referred to were Alibaba's flagship shopping platforms, Taobao and Tmall, but now Alibaba is working hard to build all of these different businesses, each with its own unique and compelling value proposition. Asked about its moves to tackle competition, Alibaba mentioned its past press releases and earnings reports.
Alibaba's revenue still dwarfs other rivals in China's e-commerce sector, and Alibaba's sheer size remains its main strength. But Alibaba's size also makes the company a target for regulators, which have targeted China's tech giants.
Earlier this year, China's top market regulator discovered that Alibaba had abused its dominant market position by prohibiting merchants on its platform from setting up shops on other competitive platforms. In April, Alibaba was fined a record $2.8 billion. At that time, Alibaba said that the company sincerely accepted the punishment and resolutely obeyed.
Still, analysts say chinese tech companies are under increasing pressure to level the playing field, which could limit Alibaba's speed and enthusiasm for responding to new threats.
Alibaba's latest competitor faces a test of its own. Pinduoduo is not yet profitable, and part of its growth relies on subsidies. Last year, most of the sales on Douyin's platform were made through rival platforms such as Alibaba or JD Group Co., Ltd. Pinduoduo and Douyin parent company ByteDance declined to comment.
WeChat is under regulatory pressure to open up its vast social media and instant messaging ecosystem to other e-commerce platforms, which is WeChat's biggest advantage in controlling traffic. Tencent declined to comment.
One consumer trend that is bad for Alibaba is that consumers' online shopping methods are shifting from targeted product searches to browsing. While many Chinese consumers still go directly to Alibaba's Taobao or Tmall to find goods, some are attracted to place orders when interacting digitally or consuming online content.
Le Xinru, a 31-year-old guangzhou-based accountant, has replaced her need for traditional e-commerce apps by buying products on live-streaming platforms, including food and home appliances.
Le said she would browse douyin for more than an hour a day, sometimes when she was queuing up in the cafeteria to buy food or on the way to work, and sometimes after coaxing her children to sleep, she would lie on the couch and brush it for a while. She said the platform offers very suitable referrals that save her time.
She said that the quality of merchants on Douyin is now no different from those on traditional e-commerce sites; whoever can provide consumers with more interesting products, persuade consumers to buy in more interesting ways, or offer lower prices, wins.
Douyin set up an independent e-commerce team last year and has since banned links that lead to external sellers, encouraging more brands to sell products in their apps and use Douyin's own payment platform to complete transactions.
Xiong Wanting, a 25-year-old businessman from Suizhou, Hubei Province, China, used to sell succulents on Taobao and switched to Douyin a year ago. Xiong says she likes to be able to show off merchandise in videos, and she struggles to get enough followers on Taobao to successfully stream live.
Xiong said: "As long as I have the ability and supply, I can open a store to broadcast live. ”
In January, the Taobao live streaming app was redesigned, allowing sellers to share short videos showing lifestyles and products. Alibaba employees said the app also incorporates other popular features from competitors, including improving algorithms to provide more customized recommendations and creating interactive circles for influencers and regular buyers.
WeChat has also become an e-commerce force, with more than 1 billion WeChat users browsing and buying goods without leaving the app. WeChat said total merchandise sales through its mini-programs (light apps embedded in its platform) more than doubled in 2020 from $123.5 billion in 2019.
Mike Ling, a Beijing-based merchant, said he opened a yogurt drink shop on Alibaba's Taobao and JD.com a few years ago. But last year most of his customers came from his WeChat Mini Program. As a result, Ling said, he has reduced his advertising spending on traditional e-commerce platforms and instead invested more in WeChat stores.
"Alibaba's influence will be diluted in the future," he said. "There are so many merchants selling goods on WeChat now."
At the same time, the battleground for new users has shifted to less developed cities, where Pinduoduo has grown through aggressive pricing strategies. Last year, Pinduoduo surpassed Alibaba in the number of annual active users, although its users had much less per purchase.
Alibaba employees said Alibaba's initial response was to focus on existing group buying apps, but it underestimated the price sensitivity of Pinduoduo users.
Alibaba then shifted its focus in 2020 to Ataote, another app that works with factories to develop low-cost new products. For example, according to Wang Hai, a vice president of Alibaba, the company partnered to develop an electric toothbrush that costs less than 10 yuan (about $1.50). The product took about a month to develop and sold 100,000 units in the first few days.
Wang Hai said that the biggest growth point of the industry is among consumers in cities below the third tier.
In the 12 months to June this year, Taote had more than 190 million annual active users. This year, Wang Hai has been promoted to Alibaba partner.