On an average morning, a young urban professional anywhere in the world might wake up, check her social-media feed and order a cab on her phone. While sitting in traffic, she might use her phone to purchase groceries and watch a video, and later to pay the driver and buy a coffee. Once at work, she might make an online payment to reimburse a friend for a concert ticket. So far, so normal.
But if that young urbanite were living in China, every one of these activities could have been powered either by Alibaba or a company in which it has a stake.
E-commerce in China is sweeping the board. Last year online sales in China hit $366 billion, almost as much as in the U.S. and Britain combined.
Growth has slowed from its eye-popping pace of a few years ago, but Euromonitor predicts that online shopping's share of total retail will rise to 24 percent by 2020; Goldman Sachs, whose forecast includes sales from one consumer to another, puts the figure at 31 percent. That will mean selling more to existing shoppers and gaining new ones in smaller cities and towns. About 80 percent of adults in China's biggest cities already shop online.
Alibaba, the company leading this transition, makes most of its money from advertising. But it has permeated consumers' lives in ways not yet seen in America or Europe. Westerners should picture a combination of Amazon, Twitter, eBay and PayPal, but broader.
Alibaba's creation story is well polished. Jack Ma, its founder and chairman, was born in Hangzhou in 1964, the same year as Amazon's Jeff Bezos, and perfected his English by offering free tours of his hometown to foreigners. His first visit to America in 1995 inspired him to set up an internet business in China. After a few false starts he founded Alibaba in 1999 to help Chinese manufacturers sell to foreign buyers. He also established Taobao, where independent sellers can list products, and Tmall, an e-commerce site for big brands. Much more followed.
Alibaba's vertiginous rise was powered by hundreds of millions of increasingly well-off Chinese coming online, and helped along by a dearth of well-established incumbents. For example, its online marketplace required a reliable way to make payments in a country where credit cards were still rare. So Alibaba created Alipay, a digital payments system that held a buyer's money until he received his order and was happy with it.
Alipay is now used by about 520 million people, not just to shop on Taobao or Tmall but to pay bills, buy lunch or send money to family. Amazon has nothing of this kind. Last year Alipay had 2.5 times as many users as PayPal and more than 11 times as many as Apple Pay.
Alibaba's online marketplaces are expanding. The company not only sells all manner of goods but has now moved into health care and services. Ali Health sells medicines online.
Daniel Zhang, Alibaba's CEO, recently announced a partnership with Marriott, the world's biggest hotel chain. His company has also bought or taken stakes in other firms to extend its reach. It owns Youku, a video-streaming site, and has invested in Weibo, a Twitter-like social-media company with 361 million users, as well as Didi, a ride-sharing service. If a consumer likes the dress worn by an actress seen on Youku, she can instantly buy it through Tmall.
But if China reveals how broad one company's scope can be, it also shows how a rival might emerge. Alibaba has two main competitors, JD and Tencent, which have recently joined forces. Tencent began as a gaming and messaging business. Its "Honour of Kings" is estimated to be the world's top-grossing video game; its popular messaging app, WeChat, has 963 million monthly users.
Whereas Alibaba began with e-commerce and payments and then expanded, Tencent began with gaming and messaging and has moved further into commerce. Tencent's mobile-payment app, WeChat Pay, had 40 percent of the market in the first quarter of the year, compared with Alipay's 54 percent. Tencent started investing in JD three years ago; it now owns about one-fifth of it and is its biggest shareholder.
Unlike Alibaba, JD sells its own inventory and that of third parties, and has its own distribution system. Shoppers can buy goods from JD within WeChat's app. In August JD announced a partnership with Baidu, China's biggest search engine. This blurring of boundaries between digital activities provides Alibaba, JD and Tencent with a vast amount of information about its customers' lives.
