Ever since its first bet in India – a $575 million investment early in 2015 in the parent company of Paytm, the No. 1 digital payments shop here – Chinese e-commerce major Alibaba and its affiliates have been watched keenly for their grand push into the country in what is predicted to be an intense battle with Amazon outside their respective home markets.
Alibaba has pumped in close to $2 billion, or some Rs 12,800 crore at today’s currency rates, into half a dozen Indian companies in the three year since but that is small change for a company whose free cash flow this fiscal year alone is projected by analysts to be over CNY 89 billion (nearly Rs 91,400 crore).
The deals in the last three years were just the beginning, as it turns out, and Alibaba is gearing up for a big push into India with multiple pieces of its strategy jigsaw falling in place.
Over the next four years, the Hangzhou-headquartered company plans to invest nearly $8 billion in India across sectors such as entertainment, enterprise and payments, said a source with close knowledge of Alibaba’s plans, as it pursues its globalization drive and battles arch-rival Amazon.
“Alibaba’s top objective is to beat Amazon. It doesn’t want India to be a digital colony of Amazon,” said this source. For tech giants, India is the last major single growth market with hundreds of millions of potential consumers, first-time internet users, and a burgeoning smartphone market.
Until recently, Alibaba’s investments in companies that fall into the three corners of what is known as its Iron Triangle strategy (logistics, e-commerce and payments) was seen as business as normal. But its investments in restaurants listings company Zomato and online ticketing startup TicketNew are a departure from its earlier approach, signalling that a bigger game is afoot.
“They’ll invest in anything that moves,” as one e-commerce executive puts it, referring to Alibaba’s plans to bet on companies and services that consumers use frequently.
To commerce, via entertainment
According to the first source, who spoke to FactorDaily on the condition of anonymity, gaming, original episodic content, movies for cinema goers, and so-called over-the-top platforms are of interest to Alibaba in the entertainment space.
Alibaba Pictures Group will likely lead most of these investments, as is evident from the company’s recent acquisition of TicketNew, a relatively unknown movie ticketing company from Chennai. Alibaba executives have met film directors and Bollywood producers such as Kiran Rao, a second source, who is close to Alibaba, said. This could not be independently verified. Rao is one of the producers of Dangal, an Aamir Khan starrer that grossed over $150 million at the box office in China.
“Over the next decade, Alibaba will invest $10 billion in the entertainment space in India,” said the first source. When sent questions for this story late Tuesday, an Alibaba spokesperson said the company would respond but we haven’t received anything at the time publishing. We will update the story when the response comes in.
Alibaba’s enterprise strategy is to mostly focus on its cloud business Aliyun. The company has already talked about plans to put up a data centre in Mumbai this year. Google, Amazon and Microsoft, its rivals in cloud computing, already operate their data centres from Mumbai to serve local businesses.
At $553 million in the quarter ending December 31, 2017, Alibaba more than doubled revenues from its cloud computing business from a year ago. In the corresponding period, Amazon Web Services raked in $5.2 billion in revenues. Google and Microsoft don’t break out revenues from cloud services but, according to estimates, they comfortably rake in a billion dollars revenues a quarter.
Besides Aliyun, Alibaba is likely to promote its electronic world trade platform, focused on helping small, micro and individual businesses buy and sell globally.
The third pillar of Alibaba’s play in India is payments. Part of this strategy is to buy out Paytm Mall, the e-commerce business spun off from Paytm when it split into commerce and payments-focused companies. “A total of up to $2 billion is planned for this, which includes buying Paytm Mall, investments in e-commerce and some other businesses,” said the first source. This is expected to happen by mid-2018. At the time of publishing, Paytm had not replied to questions sent on e-mail.
The investments in Paytm Mall, a marketplace like Amazon or TMall in China, will, in turn, help the payment services business of Paytm, the source added. Paytm faces competition from homegrown rivals such as PhonePe and deep-pocketed rivals Amazon, Google and WhatsApp who have launched or are launching payment platforms in India. As we wrote earlier, 2018 will be the year in which the payments battle will be at its most intense.
The Paytm Mall deal “will show how serious Alibaba is about e-commerce in India,” said the source, who has been briefed on the company’s plans.
Next, it wants to create “some sort of a network effect” through a string of companies that it has invested in, he said. In e-commerce, Flipkart is the market leader with Amazon in tow. Forrester Research pegs the size of India’s online retail market in 2017 at $19.7 billion but that’s still just 2.3% of the overall retail market — indicating the headroom for growth.
Battle Ground India: Amazon vs Alibaba
Malcolm Gladwell highlights a defining trait of the Chinese rice farmer in his book Outliers: They work hard. ‘No one who can rise before dawn three hundred sixty days a year fails to make his family rich,’ the saying goes. Alibaba is the proverbial Chinese farmer and it is hard at work in India, the ground zero in the battle of tech titans for the next billion Internet users.
But it is up against the likes of Amazon, which has made a $5 billion commitment to India, and other large players such as Softbank and Tencent, who are also making strong India bets. Tencent, one of Alibaba’s key rivals in China, is an investor in Flipkart and ride-hailing company Ola. Softbank has also led funding in Flipkart, Ola and a bunch of other startups at astronomical valuations.
“Big tech companies have their ecosystems and that’s being built in India, too, around Flipkart, Alibaba, Amazon and others. We are seeing the same alignment in China across e-commerce, logistics, (and) payments. It’s important for startups (in India) to see if they align with these ecosystems,” said K Ganesh, Founder of GrowthStory, an investor in Indian e-grocery company, BigBasket.
Alibaba recently closed a deal with BigBasket, leading a $300 million round valuing the company just shy of $1 billion. FactorDaily has learnt that Amazon, which was also in the fray to invest in the Bengaluru-based grocer, lost the deal to Alibaba. An Amazon spokesperson declined comment on what she called “speculative remarks of what we may or may not do for our investment plans”.
The terms of the deal with Alibaba is such that BigBasket can’t sell or raise money from a direct competitor like Amazon or Flipkart. Ganesh declined to elaborate on details of the deal.
So far, Alibaba has chosen to play it slow and through proxies in India, careful not to trip up on regulatory aspects. While this has worked in the case of Paytm, it may soon have to show its hand to stake a serious claim at winning India. “At some point in time, they might put together an alliance against Amazon. These small bets don’t work. They need to come in directly to give themselves a chance,” says K Vaitheeswaran, e-commerce veteran and author of Failing to Succeed, a book on his journey as the founder of India’s first e-commerce company, Indiaplaza.
Vaitheeswaran says that Amazon, which recorded Rs 32,255 crores ($ 5.04 Billion) in GMV revenues in India in 2017, has a better chance of winning in a market like India because of its early start, a propensity for Indians to favour an American brand, and Amazon’s experience in other countries whereas competing in an open market like India is new for Alibaba. In retail parlance, GMV is the value of goods sold.
Ant Financials’ IPO rush
Earlier this month, Alibaba said that it will acquire a 33% stake in Ant Financial and discontinue a profit-sharing arrangement it had with the payments company earlier. The move is widely seen as a precursor to a public listing of Ant Financials, which owns China’s biggest mobile payments company Alipay.
In 2016, brokerage CLSA valued Ant Financial at $74.5 billion with a potential to grow into $100 billion in two years. Some of this growth will hinge on its ability to attract newer users. “Alibaba is no different from any other global player. All of them want to show the large user base they have – just like Facebook and Whatsapp,” says an executive at one of Alibaba’s Indian investee companies.
However, as we wrote earlier, much of India’s potential lies beyond bigger cities and its existing set of online buyers – estimated at 10 million a month. The current juncture in e-commerce makes for better cost structures but still it is difficult to make inroads into the next 100 million customers, says a person active in the startup and payments ecosystem.
The growth in the number of online buyers is flattening out, points out this person. “That’s because none of the current players have the business model for the next 100 million (customers). They are air ticket sellers, not rail ticket sellers.” He included Alibaba in his cohort of air ticket sellers although it has, in China, leveraged low costs of customer acquisition, payments, and logistics very well.
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Updated at 12:18 am on February 7, 2018 Added an image representing Alibaba's thrust areas.
Updated at 12:30 pm on February 8, 2018 Added an Amazon spokesperson's comment.
Updated at 10:05 am on February 9, 2018 Gave photo credit
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.