Is A Chinese E-Commerce Giant Coming to Gobble Ebay?

While its name is not well known by those in the West, the largest e-commerce company in the world is not in fact Ebay, or Amazon, but rather it is Chinese web giant Alibaba. Alibaba group was founded in Hangzhou, near Shanghai in 1999, and over the course of the last 15 years, has managed to beat Ebay and a number of local competitors to become the largest online marketplace in the world.

So large is the company in fact, that last year it handled more transactions than Ebay and Amazon combined, in a country where the average wage is less than a quarter of that of the US. Indeed, its Taobao and T-Mall shopping sites, have brought access to rare goods for the first time to hundreds of millions of Chinese consumers. While its exact value is unknown, the Economist has valued the company at somewhere between 55 and 120 billion US dollars.

Now Alibaba is crossing the Pacific and planning to take the fight to Ebay on its own turf. It is opening today its first US platform 11Main.com, heralding the start of an increasing presence outside of China. The site itself is an exclusive platform aiming to sell high-end goods from so-called ‘main street’ stores. It will be available first only to users who have received an invitation, although presumably this will be expanded to the general public at a later date.

Should the likes of Ebay and Amazon be afraid?

11Main.com will not charge fees for stores to host their products on the site, but rather take a 3.5% cut of the total sales price. In return for this amount, 11 Main will give these stores access to a large marketing network through the site. The company hopes that the site will be host to hundreds of thousands of products from over 1000 vendors in the near future.

While this site represents only a small fraction of the US e-commerce pie, it could foreshadow further and much greater investment in this market by Alibaba. But should the likes of Ebay and Amazon be afraid?

Maybe yes and maybe no. While Alibaba has enjoyed a meteoric rise in China, it has been buoyed by a series of market specific conditions which made this easy. Among these is the fact that major supermarket chains are not prolific in China in the same way they are in the US, allowing Alibaba to replace them as the go-to place for a huge inventory of items. In addition international firms (such as Ebay) which competed with Alibaba in China, were at a severe disadvantage as they lacked the knowledge to successfully exploit the culturally specific shopping habits of Chinese people.

This being said, what Alibaba has is cash, and lots of it. Theoretically it could offer e-commerce platforms at a much cheaper price to sellers and buyers, running its businesses at a considerable loss for the first few years until they have built established user bases. Furthermore, it could use its huge network of Chinese suppliers to establish exclusive distribution networks, keep the costs of Alibaba items low, while driving up the costs for the rest.

While the future moves of this giant company are indeed uncertain, we can be sure, when it does move, it will make waves.