The 6 Leading E-Commerce Businesses of Asia-Pacific
Technology businesses in China are often perceived as Silicon Valley clones. Alibaba is the Amazon of China. Baidu is the Google of China. WeChat (a product of Tencent) is the Facebook/WhatsApp of China. And while this may have been true as these businesses were starting out, it’s a perception based on an outdated reality. Today, these businesses are leading innovation in their own right — they’re launching avant-garde products and features, growing into adjacent market segments, and expanding to new territories. It’s just as true of e-commerce companies, all of which have transitioned from Imitators > Innovators.
In the first post of this intro series, I gave an overview of e-commerce in Asia-Pacific. In this post, I build on that by providing a summary of six key players in the market — their relative size, their history, and the market segments in which they operate. Out of the many, many e-commerce businesses in the region, why did I pick these six companies? It’s because each one of them meets one or more of the following criteria:
- Dominant in the industry — measured by # of customers and revenue
- High growth rate — measured by YoY revenue
- Leads innovation — measured qualitatively
If you’re looking for a high-level intro to these companies, here it is -
Interested in diving deeper? Read on…
Alibaba is the 800 lb. panda in the region. The big kahuna. The big enchilada. The big… well, it seems I have run out of synonyms, but you get the idea. Despite its size and the ensuing media coverage it receives, it’s often misunderstood in the West. So here’s a summary of what Alibaba is — it’s a multinational retail and technology company founded by Jack Ma (more on him later) that operates complementary businesses across a number of segments, ranging from commerce platforms to cloud computing to integrated logistics. Listed below are the largest segments that comprise Alibaba Group:
- Alibaba Cloud — a cloud infrastructure and services provider, Alibaba Cloud has 23 data centers around the world and is a market-share leader in China
- Alibaba Pictures — a content producer, promoter, and distributor that has invested in projects including Mission Impossible — Fallout, Ugly Dolls, and Gemini Man
- AliExpress — an e-commerce platform targeted at international buyers, AliExpress has 200M+ active users across ~230 countries that browse its platform in 1 of 18 languages
- Cainiao — a logistics network founded by an Alibaba-led consortium of companies in 2013, Cainiao partners with 3,000+ logistics firms and 3M+ couriers to enable shipping and delivery in China and internationally
- Freshippo — a manifestation of Alibaba’s New Retail concept, Freshippo is a chain of ~210 futuristic supermarkets that integrate technology into every aspect of the shopping experience, from product discovery, to order delivery
- Lazada — a regional player in SEA that was acquired by Alibaba in 2016, Lazada dominated the region’s e-commerce market till 2019 when it was overtaken by Shopee
- Taobao — a consumer-to-consumer e-commerce platform with shops operated by individuals and small businesses, Taobao, which means “seeking something precious” in Mandarin, caters to the domestic Chinese market. It’s the eighth most-visited site in the world
- Tmall — a business-to-consumer e-commerce platform with shops operated by larger businesses, including international brands like Nike, Tmall is the third most-visited site in the world (after Google at #1 and YouTube at #2)
In summary, Alibaba is a giant that has rapidly grown alongside the Chinese internet economy and expanded to adjacent market sectors. It’s an outcome that wasn’t obvious when Alibaba was founded by Jack Ma in 1999 — at the time, Jack would have been considered an unlikely candidate for launching and scaling a startup that would come to be one of China’s largest business conglomerates. The list of failures Jack had experienced was long — he failed to pass the college entrance exam (multiple times), he failed to secure a job after graduating from college (even KFC rejected him), and he failed to gain admission at Harvard Business School (despite applying ten times). But the failures taught him a lesson in resiliency that he applied at Alibaba, especially during its early years. If you’re interested in reading further about Jack Ma and his journey to build Alibaba, I recommend reading Alibaba — The House that Jack Ma Built by Duncan Clark.
Now back to the 800 lb. panda. Alibaba’s scale can’t fully be comprehended from it’s financials — especially in comparison to the other global e-commerce giant. In contrast to Amazon, which generates revenue by selling its own goods (first-party sales) and by operating a marketplace (third-party sales), Alibaba only operates marketplaces (third-party sales). The impact? Lower revenue, but higher profitability due to an entirely different cost structure.
A comparison from FY2020 shows that both Alibaba and Amazon generated net income of $21B, despite staggeringly different revenue figures. But while Amazon drives higher revenue, it doesn’t mean more products are bought and sold on Amazon.com — for that, we must turn to a comparison of Gross Merchandise Value (GMV). Amazon’s GMV for 2020 equaled $490B. Alibaba’s was… drum roll please… $1T. That’s one big panda…
First, some history.
Flipkart was founded in 2007 by former Amazon employees, Sachin Bansal and Binny Bansal (no relation), who saw a window of opportunity presented by India’s growing e-commerce sector. The company gradually scaled over the next six years, but started facing troubles around the same time Amazon entered the Indian market in 2013. Flipkart’s missteps gave Amazon an opportunity to play catch-up — the American e-commerce giant quickly established itself and started scaling around the country. So to ensure it’s long-term survival, Flipkart struck a deal in 2018 to be acquired by Walmart in a deal that saw the company valued at ~$20B (Walmart acquired a 77% stake in Flipkart for $16B). Then, in a move to compete with Amazon’s Prime Video offering, Flipkart launched Flipkart Video in 2019, giving customers free access to a wide range of local content.
Since then, the gap between Flipkart and Amazon has narrowed. Although estimates vary, each company has a ~30% share of the e-commerce market — no other business comes close in comparison. So there’s no clear winner yet, and there likely won’t be for many years to come — India is of great importance to both Amazon and Walmart, and both companies will compete fiercely to maintain their position in the market. Why?
India’s e-commerce market is nascent — only amounting to $64B in 2020. But it’s projected to grow 3X to $188B by 2025 and maintain that momentum for the remainder of the decade. That makes it an attractive long-term prospect for Amazon and Walmart, considering growth in the US market is relatively slow.
The coming years will prove to be a modern-day contest between Flipkart’s David to Amazon’s Goliath — except in this story, David’s main stakeholder is another entity even bigger than Goliath…
The JD.com mascot looks suspiciously similar to the Target mascot? Hmm. Must be a coincidence. Anyways…
JD.com’s history starts in 1998 when it was founded by Richard Liu, but not as an e-commerce company. Instead, it started off as a 43 sq. ft. retail outlet. During the 2003 SARS outbreak, Richard started selling products online in a bid to stay afloat. The initial success he experienced convinced him to shut his retail store and sell exclusively online. The business expanded to a full online marketplace in 2010 — accelerating its growth. 2014 brought an IPO, and 2016 saw Walmart buy a 5% stake in the company.
Today, JD is one of the e-commerce giants that has come to dominate the local Chinese market alongside Alibaba and Pinduoduo. It isn’t nearly as well known as Alibaba in the US — likely because it isn’t as diversified as Alibaba and wasn’t led by a CEO with a penchant for stardom. But JD actually generates more revenue — in 2020, JD earned $115B, exceeding Alibaba’s annual revenue of $72B. As we know, revenue alone doesn’t paint the full picture. JD’s GMV for 2020 equaled $402B, far lower than Alibaba’s $1T.
The gap between revenue and GMV stems from operational differences between the two companies. Unlike Alibaba, JD owns, warehouses, and sells its own inventory — a business model that is closer to Amazon’s than Alibaba’s. The benefit is greater quality control and faster delivery times, but the downside comes from a higher cost structure — as a result, JD has much lower margins than Alibaba. In 2020, JD’s net income was $3.7B while Alibaba’s was $21B. The other difference is that JD hasn’t expanded to adjacent, high-margin sectors like Alibaba — aside from its core e-commerce and logistics business, it only offers cloud services, and even there, its market share is far behind Alibaba’s, Tencent’s, and Baidu’s.
JD.com’s growth in the context of China’s economic expansion means it will continue scaling for years to come. How much it expands into complementary sectors beyond logistics and cloud services remains to be seen — but considering the pressure to increase profitability, it’s just a matter of time.
Meteoric rise and overnight success are just a few of the terms that come to mind when Pinduoduo is mentioned. That isn’t hyperbole, those terms are entirely justified. Founded in 2015 by ex-Googler Colin Huang, Pinduoduo has grown faster than any other e-commerce company in the world. It’s market cap is currently $171B, meaning it has a higher valuation than IBM, Zoom, and even Airbnb… Impressive for a company that hasn’t even reached its 6th birthday yet.
Interested in revenue and GMV comparison between Alibaba, JD.com, and Pinduoduo? Here it is -
In just five years, Pinduoduo has exceeded $250B in GMV — a milestone that took JD twenty years to accomplish, and Alibaba fifteen years. The tradeoff, as with any scaling tech business, has been lower revenue and significant losses.
Just how did Pinduoduo grow so quickly? It’s all part of the business model, characterized as a cross between Costco and Disney in Pinduoduo’s Prospectus, one that seeks to simultaneously provide good value and entertainment. Pinduoduo offers deep discounts through a group-buying model — consumers share an item they’re interested in purchasing across their social network, and can form teams with others to unlock deeper discounts. Considering Pinduoduo started off centered on agricultural products, I’ll use dragon fruit as an example: A user sees a price of $2.00 per dozen dragon fruit if they purchase alone, or a discounted price of $1.60 if they purchase with another user. It’s a clever way to make the shopping experience more fun and social — a sentiment supported by a consumer study that found Pinduoduo ranked higher than Amazon, Alibaba, and JD in terms of adventurous, fun, and playful characteristics.
Necessary to Pinduoduo’s long-term sustainability is finding a means to increase revenue without taking steps that alienate customers or vendors — a difficult task considering the company has built its brand around low-price products with thin margins and hasn’t charged sales commissions to incentivize vendors to join its platform.
2015 was an important year for e-commerce in Asia-Pacific. Just as Pinduoduo was emerging in China, so too was Shopee in Singapore. Founded by Forrest Xiadong Li, Shopee was always a gamble — it was entering a saturated market dominated by Lazada and Carousell. To differentiate itself, Shopee focused on optimizing mobile user experience and engagement — tapping into the region’s high mobile penetration rate and average of 4+ hours spent online. The strategy was successful, and expansion to other markets in Southeast Asia, including Indonesia, Malaysia, the Philippines, Taiwan, Thailand, and Vietnam, soon followed. Knowing each country had unique features and distinct cultural preferences, Shopee hyper-localized its platform and adapted to the needs of each market.
Today, Shopee is the e-commerce leader in the SEA region — it’s the most-visited e-commerce website, the e-commerce platform with the highest monthly average users, and the most downloaded app in the region. It’s an achievement that’s reflected in Shopee’s financials: 2020 revenue equaled $2.2B, a 168% YoY increase from $822M in 2019. Market cap is now 7X what it was just 15 month ago, rising from $19B in January 2020 to $140B at the end of April 2021 — for context, the $121B increase is more than the market value of Target ($103B).
What’s next for the company? Further expansion, surprisingly not in Asia, but rather across the Pacific Ocean in LATAM. Shopee launched its e-commerce platform in Brazil in 2019, where it started off by selling imported products while gradually developing an array of local brand and sellers. Although initial results from Brazil haven’t been publicly reported, they must have been promising as Shopee is also expanding to Mexico further on in 2021.
Considering the proximity to the US, it’s a move that will pique the curiosity of American retailers. Whether or not they see Shopee as a threat is an entirely different matter… Despite its high growth and astronomical valuation, Shopee is still a relatively small company.
Tencent is the only business on this list that is a tech- and investment-company first, and e-commerce player second. Founded in 1998 by Ma Huateng, also known as Pony Ma, Tencent is one of the worlds largest tech conglomerates with business units spanning gaming, messaging, social media, entertainment, and internet services, and stakes in numerous businesses around the world — including a 23% stake in Sea Limited, Shopee’s parent company. Together, these businesses make Tencent the 7th largest publicly traded business in the world, two spots ahead of Alibaba at 9th place — at the end of April 2021, Tencent’s market cap was $767B.
Listed below are a few of Tencent’s business units:
- Tencent Games — first and foremost a gaming company, Tencent has developed its own games through Tencent Games and has heavily invested in game developers, including Riot Games (developer of League of Legends), Supercell (Clash of Clans), Grinding Gear Games (Path of Exile), and Epic Games (Fortnite), along with smaller investments in Activision Blizzard and Ubisoft
- Tencent Music — a music-streaming business that started off as a joint-venture with Spotify, Tencent Music’s streaming platforms exclusively hold rights to music from partnerships with Universal Music Group, Warner Music Group, and Sony Music Entertainment
- Tencent Pictures — a film investor, producer, and distributor, Tencent Pictures has funded upcoming movies including Terminator: Dark Fate, and Top Gun: Maverick
- QQ — an instant-messaging service primarily targeted at the domestic China market, QQ offers its ~700M users a variety of app add-ons for gaming, socializing, and all manner of utilitarian purposes
- WeChat — an instant-messaging service targeted at a global market, WeChat is an all-in-one platform used by ~1.2B worldwide. In addition to messaging, WeChat includes social media components that allow users to share Moments, a translation feature, a popular payment platform used across many countries, and Mini-Shops where individuals and businesses can sell merchandise directly to consumers — a feature that was launched during the Covid-19 pandemic in 2020
Tencent’s scale across business segments and its wide network of business partnerships mean its entry to e-commerce through Mini-Shops could be disruptive to incumbent e-commerce players in China. It’s too soon to tell if Tencent’s move into e-commerce was a short-term reaction to market needs, or if sees the sector as a growth opportunity in the years ahead. Either way, Tencent is another company worth keeping an eye on in the years ahead.
Next time…
Now that the intro to the market and its players is over, I’ll be diving into particular topics. In the next post, I discuss Alibaba’s Freshippo concept and how it’s blurring the lines between digital and physical retail. It will be out three weeks from today, here and on LinkedIn.
