There’s a Dragon at the Door

All eyes are focused this week on Alibaba. The Chinese-based ecommerce powerhouse will make its debut as the largest technology initial public offering in history. By the time of the closing bell on its first day of trading, Alibaba could be the fifth most valuable Internet company in the world, sandwiched tightly between fellow behemoths Facebook and Amazon.

This is big news in and of itself. But Alibaba’s IPO is just one of many factors that, taken together, should be viewed as a wake-up call for U.S. tech companies. China is on the move, no longer satisfied by winning in its own markets. The technology landscape from Shanghai to Beijing has shifted and now boasts enough money, talent and entrepreneurial zeal to rival the U.S. establishment in marketplaces around the globe. To think otherwise is naïve, shortsighted –and potentially very costly.

In a recent letter to investors, Alibaba’s charismatic Executive Chairman, Jack Ma, was unequivocal. He wrote: “In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world.”

Looking around at what is already unfolding, I believe him.

As of a week ago, about a third of the top 20 Internet companies in the world with the highest market capitalizations are Chinese based. This includes Tencent, Baidu, Qihoo360 and others that are lesser known in the West. These companies are aggressive and nimble. They are also innovative, moving away from copying what they see succeed in the U.S. to blazing their own business models that we are now looking to imitate. Tencent, for example, is envied as the global leader successfully selling virtual goods at scale. The company has also racked up huge market share by using free games to lure customers to its apps stores and other services—a strategy Microsoft appears to be adopting with its purchase this week of Mojang AB, the Swedish maker of the wildly popular Minecraft series.

This growing confidence is thanks, in part, to a flourishing community of well-educated entrepreneurs. Many of these folks are as good as any found in the U.S. They are willing to take risk, are relentless in their drive to win, and are immensely hard-working. Even China’s government has had to acknowledge their burgeoning power and contributions to the overall economy. The Ministry of Commerce acknowledged in 2013 that entrepreneurial ventures now account for 75 percent of new jobs annually. No surprise, then, that China is taking steps to make the starting of companies easier and less costly.

Beyond the revving of this Silicon Valley-style creative engine, Chinese Internet companies are moving in ways that make clear their aspirations to be dominant global brands. They are investing their considerable cash more aggressively than ever, particularly in the U.S. In just the last two years, Alibaba and Tencent alone have put big money into 13 U.S.-based early stage companies. Most of the startups have been in the mobile or e-commerce spaces, including Snapchat, Lyft, Tango, Whisper and Kabam. This is in addition to countless other smaller infusions of capital in other enterprises. The Chinese tech giants are also establishing serious outposts in the U.S. and in other markets, like Latin America. It is only a matter of time before we will see important, sizable, brand name acquisitions of U.S.-based tech companies.

The bottom line is that U.S. tech companies should worry as much about what the technology giants in China are doing as they do about Google, Twitter, Amazon or Facebook. WhatsApp, acquired by Facebook earlier this year, is the world’s leading messaging application with 600 million monthly active users. But Tencent’s WeChat is a competing product that draws on some of the lessons learned by WhatsApp, Instagram and others. It offers a unified messaging app that embodies a combination of Facebook, Instagram, Twitter, Viber and Paypal in a single experience. In a very short time, WeChat already boasts almost 450 million monthly active users worldwide. And it has only begun to tap into markets outside of China.

The writing is on the wall. Alibaba’s IPO, while an important milestone, represents much more than just a big day on Wall Street. It is a coming out party for one of the most valuable Internet companies in the world—and a slew of other ambitious China-based players. They may be thousands of miles and multiple times zones away. But make no mistake: They are already at our doorstep.

 

Published on LinkedIn 9/17/14