Update published January 5, 2021
It has now been confirmed that Alibaba’s billionaire co-founder, Jack Ma, is not missing. According to CNBC’s David Faber, who spoke to a person familiar with the matter, Ma is simply lying low. Not a bad strategy, for now, as China’s antitrust investigations into the tech giant continue. On the upside, however, news that he is presumed to be keeping a low profile in Hangzhou has sent Alibaba Group shares soaring.
Update published January 4, 2021
Speculation is growing as to the location of Alibaba founder Jack Ma, with many claiming he has gone missing. Reports reveal that the high-profile businessman has not made a a public appearance or been active on social media since October 2020.
Ma’s outspoken criticism of the government resulted in a halt to the public offering of his company, Ant Group, valued at $35 billion. Since then, the multibillionaire has disappeared, failing to appear even in the final episode of his own talent show, Africa’s Business Heroes. His woes continued when on December 24, the State Administration for Market Regulation initiated an antitrust probe into the Alibaba Group. Below, read on for the implications of the investigation on luxury.
Original article published December 28, 2020:
Last week’s news that Chinese regulators have launched an investigation into “alleged monopolistic practices” by Alibaba sent shares of the tech giant — and its rivals Tencent Holdings Inc., Meituan, and JD.com — into freefall, with the companies losing nearly $200 billion in value since last Thursday.
Many analysts believe that Beijing is on the verge of a stronger tech crackdown for 2021, with the primary focus on e-commerce in general and practices like predatory pricing in particular.
As such, younger platforms like Pinduoduo and Bilibili may take the opportunity to court luxury brands.
One of the biggest news stories to come out of the China market in recent months was the announcement last week that Chinese regulators have launched an investigation into “alleged monopolistic practices” by Alibaba. The revelation sent shares of Alibaba — and its rivals Tencent Holdings Inc., Meituan, and JD.com — into freefall, with the companies losing nearly $200 billion in value since last Thursday.
Throughout 2020, the central government in Beijing has gradually tightened its leash on major tech players due to concerns about their expansive growth in the areas of media, gaming, and education. One area of particular concern for Chinese government regulators is how China’s biggest tech companies (Alibaba and Tencent) have become heavily vertically-integrated ecosystems encompassing everything from e-commerce and social media to film and television production/distribution.
With Alibaba firmly in the crosshairs, some commentators have predicted that Beijing is on the verge of a stronger — albeit targeted — tech crackdown for 2021, with the primary focus on e-commerce in general and practices like predatory pricing in particular. And it has made an early example of Alibaba. As analysts at Nomura put it in a note today: “We think [China’s State Administration for Market Regulation] might want to use BABA’s case as a precedent to send a message to the rest of the industry that the authority is determined this time to address the” pricing issue.
Ultimately, Beijing’s latest crackdown on the country’s tech champions may amount to a show of force (reminding that it holds the cards) and the payment of some fines or policy changes but nothing more. But with the central government focusing most strongly on Alibaba, it has already caused some reputational damage and has likely repercussions in the luxury industry. In recent years, Alibaba has taken great pains and invested heavily in recruiting major global luxury brands onto its Tmall Luxury Pavilion platform — efforts that finally began to pay off over the past two years. Currently, the platform boasts more than 200 leading luxury and designer brands – up from 150 before the Covid-19 outbreak – and has aggressively moved to fend off competition from rival JD.com, which also claims to host more than 200 luxury brands.
But as brands prepare for a crucial 2021 following a challenging 2020 defined by COVID-19, many are wondering whether putting too many eggs in the Alibaba basket will be too big a risk. Some brands on Tmall Luxury Pavilion are already in deep with Alibaba across multiple branches of its ecosystem: They sponsor streaming programs on Alibaba-owned Youku, collaborate with celebrity livestreamers on Taobao Live, or accepting Alipay via their online or brick-and-mortar stores worldwide.
Presumably, Alibaba’s rivals are looking on with a mix of concern and excitement. While JD.com and Tencent may lean more to the concerned side, given the breadth of their tech offerings and — in Tencent’s case — involvement in media production, younger platforms like Pinduoduo and Bilibili may take the opportunity to court luxury brands. According to KeyBanc Capital Markets analyst Hans Chung, the biggest beneficiaries of this antitrust investigation could be JD.com and Pinduoduo. He noted that the investigation is “mostly centered around exclusive agreements with merchants on the Tmall platform, which prohibit them from opening stores on rival platforms.” He added that “Pinduoduo could stand to benefit if the unfair practice is removed, given its customer scale and [return on investment] are attractive to merchants.’”
Considering it already has deals in place with major luxury brands, JD.com could gain as brands potentially look to invest less in Alibaba in the next year and more into other platforms. But Pinduoduo is an interesting choice for Chung. The five-year-old, U.S.-listed Pinduoduo is a social e-commerce platform with a higher valuation than HSBC, Uber, or Sony (and double that of Baidu), and it has a stated goal of becoming “a combination of Costco and Disneyland.” Pinduoduo initially fueled its explosive user and revenue growth through a laser-like focus on price-sensitive consumers in lower-tier cities who supposedly have more leisure time and strong demand for social commerce and shoppable entertainment.
Yet, unlike Tmall and JD.com, which have spent years cultivating relationships with reluctant luxury brands before gradually getting them on board, Pinduoduo has no official partnerships with any luxury brand or group. And the company’s brash way of doing business is likely to rub some the wrong way, especially those that would rather destroy unsold merchandise rather than discount it. So while Pinduoduo may benefit from more spending on lower-priced items among consumers in lower-tier cities, it may not see interest among more premium brands.
Ultimately, we will have to wait and see whether a growing platform like Pinduoduo can attract the attention of more luxury brands or whether those brands stick with the status quo and continue doing business with Alibaba across its ecosystem. Or perhaps they will start investing more in platforms with strong e-commerce growth potential, such as Bilibili (which has benefited from content-commerce diversification among luxury automakers and beauty brands throughout 2020.)
But just a whiff of antitrust investigations against a powerhouse like Alibaba is sending shockwaves across China’s tech industry. And for any luxury brand heavily invested in e-commerce and online marketing in China, what happens over the next couple of weeks will have a major impact on their planning for the year ahead.