Chinese Internet company Alibaba is going through the process of an initial public offering at this very moment.
It’s expected to raise more than $US25 billion — making its IPO the largest in US history. When it begins trading tomorrow on the New York Stock Exchange, Alibaba’s market capitalisation will be somewhere around $US166 billion. It may reach $US200 billion by the end of the day.
5,000 current and former employees are going to make about a billion dollars on the sale. Yahoo, which owns a huge chunk of Alibaba, will make something like $US10 billion. Alibaba CEO Jack Ma will become the richest person in China.
But what is Alibaba? How does it make its money? What does it actually look like in person?
Just about a year ago, I flew from to Alibaba’s home city of Hangzhou and took a tour of the company. What I saw and heard those days answered all those questions.
In China, Hangzhou is best known as a tourist destination, thanks to a beautiful lake called West Lake.
Hangzhou has 3 million people, making it a small city for China. On the drive from the airport to the campus, I saw a homes like this one.
There are two secrets to its success. The first is that Taobao is entirely free to use. There are no fees for buyers or sellers.
The second is that Alibaba blocks China's most popular search engine, Baidu, from searching Taobao and Tmall.
In a way, Taobao/Tmall is more like Google than eBay or Amazon. (Google makes all its money from commercial searches.)
One big reason Taobao and Tmall are successful is Alibaba's payments service, Alipay. Alipay takes buyers' payments in escrow. Then the goods are shipped. Sellers don't get paid till buyers get their goods. This solves a big trust problem in China.
Alibaba's biggest vulnerability is mobile. Until recently, it was developing mostly for the Web. Now it's building its own mobile OS and all products are mobile first.
When we finally entered a building, we found this Lamborghini replica, built entirely from parts bought on Taobao.
On the walls, there were photos from company events -- like the annual wedding ceremony held at Alibaba HQ …
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