Jack Ma eyes acquisitions to weave his magic again
Updated: 2016-02-06 15:56
There are lots of success stories in China and one of them is Jack Ma, founder of e-commerce giant Alibaba.
The 51-year-old former English lecturer rose to be China's richest man in only a decade.
And although he was relegated to second behind property magnate Wang Jianlin, president of Dalian Wanda Group, on the Forbes 2015 rich list published in October, his personal wealth still amounted to a hefty $21.4 billion (19.7 billion euros).
Virtually everyone in China at some time has used the company's Taobao retail platform - China's equivalent of eBay and described by The Economist magazine as "the world's greatest bazaar".
While its fourth quarter financial results announced on Jan 28 revealed that the value of products sold on its platform had risen a respectful 23 percent year-on-year to 964 billion yuan ($147 billion; 135 billion euros), they were also down on the 28 percent rise in the previous quarter. This led to the company's shares dropping 3.7 percent as the New York market opened.
Maggie Wu, chief financial officer of Alibaba group, remained bullish, however, saying the company's performance remained "excellent".
"We achieved impressive revenue growth as we are increasingly monetizing the user activity on our marketplaces, particularly on mobile devices," she said.
Ma, who remains an iconic figure in the world's second-largest economy and a role model for many would-be entrepreneurs, has embarked on a courageous diversification strategy to offset slowing sales growth.
Since its IPO, it has been on something of a spending spree. It has acquired many businesses away from its Internet core, moving into finance, entertainment, big data, logistics and healthcare.
It even bought a 50 percent stake in the Chinese football club Guangzhou Evergrande in 2014.
The latest move to grab the headlines was in December when it bought the South China Morning Post, the Hong Kong newspaper, for $266 million.
The move echoed Amazon founder Jeff Bezos' 2012 acquisition of the Washington Post, although he made the investment privately and not through his company.
Many media commentators certainly have also highlighted the fact that the company's shares, after hitting a high of $120 shortly after the float, are now trading just below the IPO initial price of $68.
What has been concerning some investors is whether its diversification strategy is logical.
Some argue the group would be better served paying more attention to and investing in its flagship retail platforms.
Comparisons are made between Alibaba and its great Chinese Internet rival Tencent - founded by Ma Huateng and Zhang Zhiding in 1998.
It has consistently focused on its core activities and, in particular, WeChat, which was launched in 2011 as China's answer to WhatsApp and now has 650 million active users.
Baidu has also hired Andrew Ng, who was once head of Google Brain, as its chief scientist to lead its research and development operations into the development of artificial intelligence in Beijing and San Francisco.
"I just don't think it is a great option for Alibaba. If you look at its Taobao core business, it is not growing as fast as before. How much can Alibaba gain from innovation? It is best going into other areas from which it can generate faster returns," says Lin Chen, assistant professor of marketing at China Europe Business School, or CEIBS, in Shanghai.
"Baidu is really investing a lot of time in artificial intelligence which is great. It is what US companies are doing right now but it is not a mature technology and, as such, it cannot be monetized right now."
Alibaba is unlikely to let up on its diversification strategy. According to analysts BNP Paribas, the company could even step on the accelerator.
It predicts the company has a potential war chest for acquisitions of some $38 billion in 2016, two-a-half times the $15 billion it spent in 2015.
Towson, also co-author of the best-selling The One Hour China Book, says Alibaba's love of dealmaking is partly driven by a need to gain greater scale.
"If your competitor becomes twice your size, you are likely at risk and just growing organically will not be enough. So Alibaba's activity is driven by a race to achieve size. This can often lead to competitive panic."
Qiu Lingyun, associate professor of management information systems at Guanghua School of Management, believes many misunderstand the logic of Alibaba's recent strategy.
"By these acquisitions they are actually investing in their core business. Their core competency is actually running a huge platform, which has now accumulated a huge amount of consumer data," he says.
"They need to find all kinds of ways to monetize this consumer intelligence. Many of its acquisitions are consumer orientated like online video, online gaming or what have you. So long as they are doing this, you can still say they are investing in their core business."
Wang Qing, professor of marketing and innovation at Warwick Business School in the UK, insists Alibaba is just taking advantage derived from freer regulation in China than in the US and Europe.
"They see what Alibaba is doing as risk and not an opportunity. What they often fail to appreciate is that antitrust regulation is not as well established in China as it is in the United States and Europe," she says.