As Alibaba announced its fourth-quarter revenues May 4, analysts couldn’t resist comparing the company to Amazon, with descriptions such as “the Amazon of China.” The comparisons from a financial standpoint are understandable. But Alibaba draws from a number of Western business practices from businesses such as Google while departing radically from Amazon in its approach to online marketplaces. As we have asserted on our blog, the more relevant way to understand Alibaba is in context of its China-based competitors, Baidu and Tencent. Together, Baidu, Alibaba, and Tencent are popularly known as BAT. And as Alibaba’s earnings announcement showed, BAT is a formidable force.

Alibaba’s quarterly earnings topped analysts’ expectations for both revenues and earnings per share in a familiar story for BAT. One of the crucial growth indicators consisted of revenue growth for Alibaba’s online marketplaces, Taobao and Tmall. As Eric Jhonsa of The Street noted, their gross merchandise volume now exceeds the GDP of all but 17 countries.

The growth of Taobao and Tmall demonstrate why it’s important to understand Alibaba in context of Baidu and Tencent. Taobao and Tmall are part of a self-contained ecosystem that includes Alipay, Alibaba’s mobile payments system. In effect, this ecosystem acts as a walled garden that locks shoppers into the Alibaba’s world using Alibaba’s payment app. By contrast, Tencent operates its own walled garden using Tencent’s popular WeChat app. Alibaba and Tencent have been building and fortifying their own walled gardens as they compete for their share of the Chinese consumers’ wallet.

Taobao and Tmall also demonstrate why it’s important to exercise caution when comparing Alibaba to a Western business. Amazon is a transactional site that emphasizes speed and efficiency. Taobao and Tmall creates experiences such as virtual reality and livestreams to engage customers differently. These approaches – emphasizing engagement over frictionless transactions – are paying off. As Alibaba noted in its announcement,

Fiscal year 2018 witnessed the success of Taobao App’s strategy to redefine the shopping experience through innovative content formats and intelligent personal recommendations. These initiatives drove strong growth in user engagement, purchase conversion and annual active consumers. A robust content ecosystem has developed around the Taobao App to propel it into one of the most popular mobile apps in China. As of March 31, 2018, approximately 1.5 million content creators were actively supporting the Taobao App and helping brands on our platform engage with consumers through curated posts, short-form videos and live-broadcast events.

Growing two wildly popular online marketplaces in the world’s largest retail market would be an ambitious goal for any business. But Alibaba, like Baidu and Tencent, aims to do more. Alibaba wants to be an international superpower, and its ambitions are coming at a cost as the company spends more money in endeavors outside China, such as the Lazada Southeast Asian online marketplace. As a result, the company reported sharp increases in operating expenses.

If we’re going to compare Alibaba to a Western company, we should also bear in mind similarities between Alibaba and other commerce giants such as eBay and Alphabet’s Google. Like eBay, Alibaba earns revenue from fees charged to larger sellers, and like Google, Alibaba earns a lot of money from digital advertising. Alibaba encourages that growth by providing ad-targeting tools as Google does via AdWords. As Alphabet showed with its latest earnings announcement, the advertising-focused model remains strong. In another way, Alibaba actually resembles Netflix, which is spending money in large amounts to make money via content, just as Alibaba is doing. Alibaba isn’t afraid to spend large, and its strategy seems to be working in one important way: its top-line growth is dependent less on Tmall and Taobao. Look for Alibaba to gradually increase its revenue share in areas such as cloud computing and Cainiao, its global parcel tracking platform.

In 2018, look for Alibaba to continue to invest into becoming a premier global brand – opening up more competition and opportunities. And if you want your business to succeed in China, it’s important that you align the company’s complex ecosystem against your own people, processes, and platforms. Moonshot recently created a framework to help you do just that – the BAT Framework, which we announced on May 3. Here is a quick overview of the BAT Framework. Contact us to discuss how to succeed in BAT’s world.

Saul Delage

Saul Delage

VP Growth