A virtual empire

A virtual empire

From brick-and-mortar acquisitions to reality both virtual and augmented, Alibaba defines the digital shopping revolution.

Signage for Alipay payment service, an affiliate of Alibaba Group Holding Ltd, is displayed on a store entrance in Shanghai. Alipay processed 100,000 transactions per second in 2016 in markets worldwide. (Bloomberg photo)
Signage for Alipay payment service, an affiliate of Alibaba Group Holding Ltd, is displayed on a store entrance in Shanghai. Alipay processed 100,000 transactions per second in 2016 in markets worldwide. (Bloomberg photo)

Since the early days of e-commerce, traditional retailers have struggled to balance their established brick-and-mortar stores with online and mobile shopping components.

Nowadays, major retailers are revolutionising commerce through interactive, highly engaging online and real-world retail environments where virtual reality (VR) and augmented reality (AR) technologies play a key role in enhancing and differentiating brands.

And in the latest chapter of e-commerce evolution, Chinese giant Alibaba Group Holdings is gearing up to bridge online shopping with physical shopping through VR and AR, along with acquisitions, to increase new sources of revenue and maintain its key position in the internet economy.

Alibaba has already come to dominate internet retailing worldwide -- including in Thailand.

The e-commerce giant recently announced it will spend more than 2 billion yuan (10.3 billion baht) buying a third of Sanjiang Shopping Club Co, a regional Chinese discount supermarket chain, which has more than a million members.

Bloomberg, a global business and financial information and news leader, said Alibaba's latest investment in a physical retail outlet underscored its efforts to revamp traditional offline and online models.

Billionaire co-founder Jack Ma's goal is to replace distributors and middlemen to make it possible for stores to buy directly from suppliers based on real-time demand and inventory, said Bloomberg.

The success behind the Chinese e-commerce powerhouse over the past decade has put a spotlight on the reliability of its technology, advanced, real time data analytics and strong payment system.

"We want to create a new economy where the online world is integrated with the physical world," said Mr Ma. "We're building an economic entity -- a virtual economy on the internet."

Youngsters and small businesses can take advantage of new economic infrastructure to buy and sell globally. This is what Alibaba wants to create over the next 20 years, he told media at Alibaba Group's 11.11 global shopping festival, the world's largest 24-hour online sale, which started on Nov 11 at midnight in China.

"We want to create a brand new internet and a brand new economy accessible via phone," said Mr Ma. Alibaba is using technology and data to help converge online and offline retail to move beyond simple transactions.

During the global 24 hour shopping festival, its Chinese-language business-to-consumer (B2C) site, Tmall, along with its consumer-to-consumer (C2C) site, Taobao, registered total gross merchandise value (GMV) through Alipay of RMB 120.7 billion, an increase of 32% compared to 2015.

Of total sale transactions, mobile accounted for 82% compared with 69% in 2015.

Alibaba Cloud processed 175,000 orders per second during the peak period of the festival, while Alipay processed more than 1 billion payment transactions in total -- 120,000 transactions per second at its peak.

Its logistic firm Cainiao Network, meanwhile, processed more than 657 million delivery orders from Alibaba's sites.

Alibaba virtually functions as its own economy, with its GMV in 2015 equivalent to that of the sixth-largest province in China. This year its projected GMV will be equal to the 20th-largest economy in the world.

"Our 11.11 shopping festival is no longer about the number of transactions or GMV, it's about the experience for buyers and sellers, how we can help them enjoy it. We want to do it globally," said Mr Ma.

Behind all of its success, Alibaba has invested a lot in research and development, but still faced some technological bottlenecks during the first few minutes of the festival.

Technological innovation is another major driving force behind change,with the internet providing new infrastructure for logistics, finance and consumer experiences. Moving forward, Alibaba will need economists, sociologists, and people with integrated knowledge to solve unexpected challenges.

"We are no longer a simple e-commerce firm as we have 40,000 employees out of 50,000 who are doing things not related to Tmall or Taobao," he said.

"The future of online shopping is individualisation of experience. Shopping has become entertainment," said Joe Tsai, executive vice-chairman of Alibaba Group Holdings.

For the first time during last year's global shopping festival, Alibaba kicked-off the trial for the world's first VR shopping experience, which employed VR headsets.

Meanwhile, the company has also led users back to physical shops from the online world through its mixed reality gaming experience offered through its Tmall mobile application.

The virtual shopping and mixed reality shopping experiences came about thanks to its new VR division, which was set up last year. Alibaba also uses artificial intelligence to detect online fraud.

The shopping festival was first introduced in 2009 with 27 merchants to raise consumer awareness about shopping online. It has grown exponentially, generating $14.3 billion in sales in 2015 -- surpassing combined online shopping figures for Black Friday and Cyber Monday in the US.

In 2015, 68% of Alibaba's transactions were conducted via mobile phone. It boasted 40,000 merchants and 115 million buyers globally.

Mr Tsai said Alibaba needs to build a strong e-commerce ecosystem, particularly in the areas of merchants, brands and logistics partners.

In addition, the company needs strong technical abilities to handle huge transactions for its Alipay payment system, cloud computing and real-time big data analytics to gain insight into consumers' shopping behaviour.

For instance, AliPay processed 100,000 transactions per second last year. By having its own payment system, the company has been able to remove its dependency on less reliable external banking infrastructure.

Eric Jing, chief executive of Ant Financial Services Group (Ant Financial), the online and mobile financial arm of Alibaba Group and the operator of Alipay, said Alipay provides a service that helps create trust among both merchants and online shoppers.

The company offers credit loans for merchants and personnel lines of credit for users who never had credit cards before.

"All of this is empowered by data analytics, fostering consumption," he said.

Ant Financial also supported 18 global currencies as the 11.11 festival attracted online shoppers from 235 countries and regions. Cross-border transactions made up 37% of total purchases from international brands and merchants.

"We've used technology to make a smart fulfilment network through 163 warehouses and 140,000 routes. Our data analytics can be used to analyse the shortest routes and help merchants manage their inventories," said Judy Tong, chief executive of Cainiao Network, the logistics arm of Alibaba Group.

Ms Tong said in rural areas, it has stations where locals can serve as reception centres for parcels, which helps to create jobs.

Mr Tsai said Alibaba, through collaboration with its subsidiary, Lazada, plans to roll out its Global Shopping Festival in Southeast Asia, including Thailand, in 2017.

"We will bring more Chinese products, especially apparel and electronics, to the Thai market," he said.

Southeast Asia's population of 600 million is part of Alibaba's ambitious goal to reach 2 billion consumers by 2020, said Mr Tsai.

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