I have been following all the hoopla about Alibaba’s upcoming IPO. Yep, I know it’s a big deal. It’s the biggest internet company in the world by a long shot. It has a lock on the Chinese market (for now at least). On paper it should be able to rise to even more commanding heights. So what’s not to like?
Well here’s my question. Can it keep it up? When you’re at the top, can you go any higher? Or is this one of those situations where the insiders realize that they are the peak and now want to offload on an unsuspecting and ever-gullible public?
I’m torn between belief and skepticism. On the belief side are several big factors. Taobao is a new model of online commerce that even we supposedly innovative Americans haven’t figured out yet. In China even showgirls have their own Taobao shop fronts selling European cosmetics. You have to see it to believe it.
And then there’s its undoubted success in building from scratch a rapidly growing wealth management fund, Yu'ebao. Again Chinese are hopping on this bandwagon in big numbers. That’s another thing we don’t have in the US of A.
And to add to the financial innovation onslaught, there’s Alipay, Alibaba’s equivalent to PayPal. It has the market sewn up in China. So Alibaba is one big-time leader, not just in internet solutions, internet shopping and commerce, but also in online finance and banking. Where could it ever stop?
Have you heard of the newly-released book “The Second Machine Age” by Brynjolfsson and McAfee? It’s basically yet another paean to high tech, but nonetheless insightful for that. Basically its argument is that innovation is getting easier and more powerful because there are many more building blocks around that can be combined in different ways to keep the pace of innovation increasing.
Well that reminds me of the recent news that scientists have been able to add two new letters to the DNA code, a pretty amazing accomplishment. They work is a new approach to recombining DNA sequences in new and different ways. Essentialky they have taken the science of recombinant DNA to new levels by adding in some totally new elements.
So here is my thought process. It kind of looks to me like Jack Ma, the founder and driver behind Alibaba has managed to devise a new approach to building and growing companies. I call it recombinant growth. That’s because he has managed to take elements of what he has seen overseas and transplanted them into the Chinese context in new and different ways to internet commerce and finance.
In China it’s worked brilliantly. That could because it’s a new universal formula that he has discovered or I could be that he didn’t have the mighty headwinds that would be met in a truly competitive economy like that in the US. It’s got to e a lot easier if you don’t have companies such as Amazon and Facebook around. Essentially he was able to emulate their approaches without having competitors.
I think that ask Ma is a brilliant, inspiring ad amazing person. But what I don’t know is whether he is a brilliant copycat or an innovator who has come up with a new formula that will also succeed outside its home base in China.
I do think he has invented a new form of growth, which I call recombinant growth. He got those elements from the US. That’s ok. Sometimes being a copycat works beautifully as we see with Apple and Microsoft.
Jack Ma is attempting what I see as a recombinant IPO. He may well be the first who does that. But I wonder whether his success so far is because he came from a place where the odds were stacked in his favor because of the particular elements that obtain in what is still a command economy in China.
And of course we have to remember we don’t really know much about what is going on inside Alibaba. Transparency is still a major issue there. It might not be as bad as some of the recent Chinese IPOs (see my post on these here). But we don’t have the skinny on Alibaba that we would have on a normal US or European company.
My gut is that Alibaba’s undoubted immense success derives in major part from the particular political and economic environment in China. He has managed to integrate a recombinant approach to the Internet that he saw overseas and creatively change it to work in China. That doesn’t diminish Jack Ma as an entrepreneur in any way. But it doesn’t necessarily mean that things will work like that outside the Middle Kingdom.
We’re going to see a lot of hype on Alibaba since it such an easy story to promote. But no-one’s going to tell you real story behind Alibaba’s growth because it involves factors that most people don’t understand or want to talk about, not least because it’s from China.
Alibaba looks to me like a China play, not a US play. And the Chinese economy is showing distinct signs of stress.
I would be very wary about what will happen to the stock price after its first run-up and after the excitement subsides.
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