Alibaba’s Success Spawns Wave of New Competitors

China’s fast-growing e-commerce market is attracting more competition. The WSJ’s Wei Gu speaks with Jeff Walters from Boston Consulting Group about China’s online market.

Alibaba Group Holding Ltd. could be a victim of its own success. As the WSJ’s Wei Gu reports:

While all eyes were on the company in the months leading up to its initial public offering in New York a week ago, China saw a wave of e-commerce startups that benefited from easy access to capital and increasingly savvy consumers.

Alibaba’s growth is one reason for the new competition. For small-business owners that sell on Taobao and Tmall, Alibaba’s main e-commerce sites, it is getting harder to compete for attention among 8.5 million active sellers. For buyers, the sites can appear overwhelming.

There is also a sense that as Alibaba prepared for the world’s biggest IPO, it has milked the cow too aggressively. Yang Gao, chief executive and co-founder of online furniture shop Meilele, is one of the sellers to have turned his back on Alibaba.

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Attracting customers is becoming more expensive as the site gets larger. Alibaba makes much of its money selling marketing services to allow sellers to stand out on its sites. Because of the competition, sellers have bid up the price of those services, much as advertisers bid up the price of key search terms on Google. GOOGL -2.20%

Alibaba beat out other e-commerce companies in China partly by undercutting them on fees. But as it grew, Alibaba started to take more for itself. Company revenue rose 72% in the fiscal year through March 2013, outpacing the 62% increase in value of all merchandise sold on its Taobao and Tmall platforms during the same period. Last year, growth rates of revenue and value of merchandise evened out.

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E-commerce in China is anything but a zero-sum game. The potential is so strong that Alibaba and its competitors could all grow for years. Just half of China’s 1.4 billion people have Internet access, and a quarter have shopped online.

New shoppers will likely start on Alibaba’s sites. But it takes three years of online shopping experience for consumers to reach their spending potential, Boston Consulting says. The firm expects experienced, heavy spenders to account for 39% of China’s online shopper population in 2015.

Read the full story on WSJ.com

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