"China's eBay" targets U.S. entrepreneurs

August 14, 2009: 8:00 AM ET

Alibaba.com expands staff, launches ad campaign in a bid to sell wares to American small businesses.

The faces of Alibaba.com. Image: Alibaba.comYou might not be in the market for mass quantities of biodegradable flower pots or fly masks for horses, but chances are there's someone out there who is. Both are for sale--along with hydraulic briquette presses and canned sweet corn in bulk--on Alibaba.com.

Never heard of Alibaba?

The Chinese e-commerce site has sometimes been likened to eBay (EBAY), with a distinct focus on serving the nation's small- and medium-sized enterprises. (Alibaba also has a store on eBay.) Since it was founded a decade ago the Alibaba Group has operated two sites: an international site in English--Alibaba.com, and one in Chinese—Alibaba.cn. As of March, the Chinese site had 32 million registered users, four times as many as the international site.

But the English-language site contributes the lion's share of revenue --more than 63%, or $84.2 million, in the most recent quarter.

A push to reach U.S. customers

To raise further awareness of the English-language version of Alibaba, the company this week launched a $30 million marketing campaign, encouraging small business owners to connect with wholesale suppliers through their online marketplace.

And while the marketing drive is billed as a global initiative, the $439 million-a-year Alibaba Group clearly has its hopes set on penetrating the vast U.S. small business community.

The company has purchased advertising in American television and print outlets, and it is sponsoring contests, events and promotional partnerships here. A microsite features fictional small business owners whose success was aided by finding sourcing partners on Alibaba.com. (The creative is earnest and funny—you may even laugh out loud at Dave, the action figure proprietor.)

The company also is bolstering its employee presence in the U.S., with plans to double its  Santa Clara, Calif.-based staff of 60.

Alibaba certainly could benefit from greater visibility in the states.  Only 1.4 million of the 8 million users on the international site are U.S. based. That leaves plenty of room to grow. The Small Business Administration estimates that there are 27 million firms in the U.S. with less than 500 employees.

Snagging 'net-savvy entrepreneurs

Unlike eBay or Amazon (AMZN), which broker transactions on their sites, Alibaba takes an approach similar to dating site Match.com, connecting enterprise buyers and sellers. U.S. vendors pay an annual membership fee of $3,000 in exchange for verification and promotion, but deals take place outside Alibaba's walls.

Sellers can also list their products for free on the site, but 85% of buyers mostly do business with the paying "Gold Suppliers," which currently number 480,000.

Alibaba's business-to-business core makes it difficult to identify competitors. Sites like Liquidation.com and Overstock.com are far smaller than Alibaba and focus more on overflow goods in the U.S. And while eBay does dabble in B2B, Lazard Capital Markets analyst Colin Sebastian says it's not really set up to serve the enterprise customer. "B2B requires more touch points and value-added services like a sales force geared toward enterprise buyer which eBay doesn't have."

Alibaba's biggest competition may actually be offline. Alibaba's general manager in the U.S., Kelly Sang, said that a lot of product sourcing still takes place at trade shows. "We want them to know there are alternatives to find what they are looking for that are cost effective," says Sang.

Another obstacle for Alibaba may come from the fact that U.S. small business owners are already fairly Internet savvy. The importance of e-commerce and Internet marketing is widely recognized and most entrepreneurs possess the means to set up at least rudimentary websites. Not so in China, where Internet capability though growing is still less available, contributing to Alibaba's success there.

Since its founding in 1999 by CEO Jack Ma--now somewhat of a cult figure in China—Alibaba has grown into an empire. Today the Alibaba Group includes an online payment service (Alipay.com), a classified ads platform (Koubei.com), and an online shopping site (Taobao.com), among other businesses. The company is also responsible for running Yahoo China, thanks to a 2005 deal that gave Yahoo (YHOO) a 40% stake in Alibaba Group.

According to a FORTUNE article the $1.7 billion initial public offering of Alibaba.com, spun out of the group in 2007, was the biggest IPO since Google went public in 2004. On the first day of trading on the Hong Kong Stock Exchange the stock shot to $5.13 with a market value of $26B. Revenues for 2007 hit $182 million, climbing to $439 million in 2008.

Today the stock hovers around $2.56, giving it a market capitalization of $12.9 billion.

Alibaba's growth-stock status could return if Alibaba's recent push connects with U.S. small business owners. Ultimately, though, Alibaba will have to offer entrepreneurs more than just charming advertising.

Says Lazard's Sebastian: "It's incumbent upon [Alibaba] to show potential buyers what they have that you can't get anywhere else."

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