Alibaba shows subtle strategy to seed the world with Alipay

Just as foreign companies have struggled to gain a presence in the Chinese market, Chinese companies are likely to have a similarly difficult time in getting a foothold in the overseas market.

A number have tried and failed. A couple of years back, Alibaba had a spectacular failure when it bought New York-based e-commerce site 11 Main, made a mess of it and sold it on for about a third of the original price a year later. Alibaba, like the other cash-rich Chinese digital platforms, like to partner and acquire businesses, but this was a lesson that going straight into e-commerce in the West is not the answer.

Technology analyst Richard Windsor of Radio Free Mobile believes Alibaba is now trying a slightly more subtle strategy. He said: "They have started from the perspective that obviously retailers, particularly in the US, want to sell branded products to Chinese consumers.

"So they approach retailers like Bloomingdale's or Macy's and say if they support Alipay, they will be able to get customers in China to buy on their website and then send them products into China, no problem."

Windsor said that once large retailers are supporting Alipay, the next step is to persuade consumers in the US to use it too. "It's like: 'Hey all these guys you buy from support Alipay'. It's a much simpler, safer solution than Samsung Pay and all these other things on Android - why don't you use it because your retailers already support it?

"Once you have basically got the buyers and the sellers both using Alipay, it's much easier for them to come in with an e-commerce solution that fully supports Alipay. I think that's what their overseas strategy is."

Alibaba is also looking to expand aggressively into other Asian markets where it can help consolidate logistics the way it has done in China, and other regions where the middle classes are emerging like India, assuming it can get a banking licence, as well as Africa.

From a fintech perspective, Alipay with its add-on services such as wealth management and buying stocks and shares from a mobile, is light years ahead of payment apps in the West, which are little more than UIs on top of the card network.

Another innovator is Tencent and WeChat Pay, which for now has its sights fixed on the Chinese market. WeChat mixes messaging with online and offline commerce, driving huge volumes by issuing discount coupons that can be redeemed at retailers like McDonalds or shared with friends.

So are Western firms learning from these Chinese platforms? This is already happening said Windsor. "If you look at Facebook, Microsoft, Google, they all have a developer day, and talk about what they are developing on their platform and where they think things are going. What you basically find is that everyone is talking expanding chat to do other things. So everyone is copying what WeChat is doing."

Pushing for an overseas market

Right now Tencent's WeChat Pay and Alipay are concentrated in quite different areas. In terms of straightforward e-commerce, Alipay is huge and WeChat Pay tiny. Tencent is competing through its stake in JD.com, another large e-commerce player which targets an upmarket, brand conscious Chinese consumer. But Tencent only holds 15% of JD.com so it has no control over it.

In the online to offline (O2O) world where mobiles are used to pay for taxis or in physical stores, it's a much more balanced market share between Alipay and WeChat.

Alibaba is also pushing overseas with logistics and wholesale exports solutions like Aliexpress, which allows Chinese manufacturers who have great difficulty in finding customers overseas to do so more easily. This was the sort of matching ethos Alibaba was founded on.

Windsor pointed out that Aliexpress is a tiny part of the overall business and that generally the verticals these large platforms offer are not their essential or defining characteristic. That is simply engagement.

"These are basically network-based businesses to match buyers and sellers. You become the go-to place to buy or sell something; the buyers will pay a premium to buy on your site because they know whatever they want they can get it there.

"You can then charge the sellers a premium to list on it because they know that that is where the buyers are. Once you have got to that stage you can print money like there's no tomorrow," he said.