Fines aren’t Alibaba’s problem, competition is

Earlier this month, Alibaba was fined a jaw-dropping $2.8 billion for anti-competitive business practices following an investigation launched by China’s market regulator in December. The fine, a record for global antitrust, mainly indicates two things:

1. Authorities are stepping up in terms of tech oversight—China’s walled gardens aren’t quite crumbling, but they’re showing plenty of wear and tear; and
2. Beijing isn’t too happy with Jack Ma.

Ultimately, it’s a lot of money, yes. But that’s not the point. The fine has spurred a broader discourse of the state of Alibaba and where it will (or can) go moving forward: the terrain it has conquered, the terrain it hasn’t, and what that means for the giant.

Alibaba faces increased competition on all fronts, and it’s not winning

Anti-monopoly does what anti-monopoly does. China’s tech landscape certainly hasn’t lacked competition in itself, but it was missing fair competition. For the benefit of consumers, the ultimate objective of the big Alibaba fine was to compel it to give up on its longstanding “forced exclusivity” policies.

Alibaba required merchants who wanted to sell on its e-ommerce platforms to refrain from working with rivals such as JD.com or Pinduoduo and commit exclusively to Taobao or Tmall. Half a decade ago, Alibaba leveraged a similar policy to prevent fashion brands on Taobao from selling on JD.com. As a result, JD.com’s apparel business never really took off, according to an executive from tech-focused think-tank Hatun. But now, you’ll be able to find your favorite fashion labels on both Taobao and JD.com. 

Alibaba’s Taobao and Tmall may represent the standard for ecommerce in China, but standards are fleeting. With lower-tier cities moving increasingly towards community group-buying models as championed by Pinduoduo, and JD.com chipping away at Alibaba’s market share in the premium and first-tier urban segments, Alibaba has gradually found itself getting caught in the middle. And while China’s “middle” is still massive and wildly profitable (and Alibaba still reigns there), ecommerce isn’t growing as rapidly in that space. With more than 750 million active users, saturation is in sight.

Alibaba as an established player

Alibaba really only made it into the Western collective consciousness upon its IPO in 2014, when it already had 135 million monthly active users (MAUs). Whereas many outside of China still feel that the platform is the “next big thing,” that’s akin to saying Amazon is the next big thing. It’s not—Alibaba is a firmly established player.

The key to the tech giant’s future lies in how well it can pivot to or innovate in other sections of tech (a catchall for everything happening on “the internet” these days). “Recommerce,” a marketing rebrand of “vintage” (which is in itself a cool rebrand of “secondhand”) seems to be doing well. Alibaba’s cloud business is a shining star on the horizon, but it only achieved profitability in December 2020.

Alibaba, as the standard for ecommerce, won’t be going anywhere anytime soon. But there are competitors coming at it from every angle and with the ecommerce market nearing saturation, the question is whether that’s enough? 

Extra:

• With the disintegration of forced exclusivity come perks for the giants too: Alibaba launched a mini program on WeChat for community group buying of groceries called Hema Market, and is seeking to add WeChat mini programs for its discount-focused Taobao Deals app and secondhand platform Idle Fish, which would give users able to complete transactions using WeChat Pay instead of Alipay—unheard of.