Alibaba Group Holding Ltd founder Jack Ma (C) and Joseph Tsai (center L), vice chairman and co-founder, pose with employees as they arrive for the company's initial public offering (IPO) under the ticker 'BABA,' at the New York Stock Exchange Sept. 19. (REUTERS/Brendan McDermid)
It’s arguably the biggest and most publicized IPO since Facebook. When Alibaba, the Chinese e-commerce giant, made its public offering debut Friday, its shares surged more than 40 percent on the New York Stock Exchange. The digital commerce company that consists of consumer-to-consumer shopping site Taobao, online retail platform Tmall, which is the eighth most-visited site in China, as well as Alibaba.com, generated $248 billion in online sales last year alone. Now, analysts are watching carefully to see how the Chinese company measures up against U.S. online retail stalwarts like Amazon.com, Overstock.com, and eBay as it looks to stake its claims with North American consumers.
“The foremost overarching theme that resonates for me is that there is now going to be more competition in this online retail sphere,” Kosha Gada, principal in the media and retail practices of global management consulting firm A.T. Kearney, told FoxNews.com. “This will enable small businesses to have a platform to get to consumers, which is a good thing on a macro level. It will have a trickle down to consumers.”
Gada said that more competition in the retail market gives small businesses the opportunity to establish themselves on an ever-growing platform, potentially reaching new consumers. Does this spell trouble for a company like Amazon that has been able to dominate the playing field? Gada suggests that the excitement over Alibaba might be just a lot of hype at the moment.
“It’s exciting, it’s an interesting story, but it isn’t easy to automatically build brand loyalty. A company like Amazon really mastered customer service. They’ve made it their mission, and it’s an uphill battle for any company to compete against that,” she said.
For Alibaba to explode across the board in the U.S., it will have to focus on developing itself as a global brand. Given that it is essentially an umbrella company that incorporates distinct businesses that do exactly what Amazon, eBay, and Overstock.com have been doing successfully on their own for years, Alibaba will have to set a social media agenda and take a “gorilla marketing” approach to grow, Gada added.
According to a report from global research and advisory firm Forrester Research, Alibaba won’t be able to assert dominance in the U.S. retail field anytime soon. Forrester asserts that it will take a “major acquisition or a number of years,” for Alibaba to be able to compete with the major online commerce providers in the U.S. That being said, things look promising for the company in the long-term.
“Future investment possibilities include real estate, to bridge the gap between online and offline transactions, or possibly an alternate payment provider to help drive cross-border sales,” Forrester reports.
Part of raising Alibaba's brand awareness involves finding a way to make it a household name and not just something that only business, retail, and media insiders know about, Robin Lewis, CEO of retail strategy newsletter The Robin Report and co-author of The New Rules of Retail – Competing in the World's Toughest Marketplace, told FoxNews.com.
"They will have to spend an enormous amount of money building their brand, just like anything else. And they don't offer anything better than eBay or Amazon, and I think they also have huge room to grow in China," Lewis said. "They have grown rapidly there, but are still establishing themselves. Why would they want to take their eye off of that ball to come to the United States and spend millions of dollars over the course of several years just to build up recognition?"
Given that the U.S. is the "most congested" and "over-competed marketplace" in the world, Lewis said that trying to break into the fold is "suicidal" for most companies unless they have "deep pockets."
"I don't see them [Alibaba] doing that at the moment. If they do, I think they are nuts. They need to take advantage of the foothold they have in their own country," Lewis said.
As it continues to expand globally, one major concern circles Alibaba's reputation – specifically, the presence of counterfeit goods that can easily find their way on a retail platform like Taobao.
“There is a very well documented challenge concerning the manufacture and distribution of counterfeit goods using Chinese marketplace platforms, and in spite of recent IPR [intellectual property rights] protection efforts, the Alibaba Group of companies is used by infringers as an outlet for these products,” wrote Haydn Simpson, product director for brand protection at global online brand protection firm NetNames, in a statement emailed to FoxNews.com.
“The protection of U.S. Intellectual Property rights has to be a priority for U.S. authorities,” Simpson added. “If a new, relatively deregulated, platform is successfully launched giving these manufacturers and products a straightforward and cost-effective method of targeting U.S. consumers with cheap sub-standard products, those consumers will buy these products using the Internet as a shop window.”
Simpson wrote that all U.S. businesses, including much more vulnerable small companies, will see increased competition from manufacturers overseas. Ultimately, this leads to a much more challenging online retail climate for small businesses that need to distinguish themselves.
On the flip side, it will be difficult for Alibaba itself to stand out among trusted brands like Amazon when building relationships with major retailers like Macy's, Lewis said.
"A lot of third parties or retailers in this country are well-established on Amazon's platform. So, why would they want to shift to Alibaba's platform? How are they going to lure a brand and retailers onto their platform when consumers don't know them?" Lewis added.
Moving forward, Gada said it will be interesting to observe federal government's response to the Chinese company as it steps onto the U.S. retail stage.
“This is not my area of professional expertise, but it will be interesting to see what this does to the Feds’ policy on interest rates and small business lending,” Gada said. “What impact, ripple effects, and unintended consequences could come out of this with money lending and interest rates? It’s an interesting angle to look out for in the future.”
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