International analysis: Alibaba's IPO will keep it ahead of its rivals

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Chinese e-commerce giant Alibaba filed to go public last week, reflecting the fact that it is facing growing competition in its home market of China.

Chinese ecommerce giant Alibaba filed to go public last week, in what will likely turn out to be one of the biggest IPOs in tech history. The company will float on either the New York Stock Exchange or Nasdaq. Alibaba’s ecommerce sites handled $248bn (£146.8m) in transactions in 2013, more than Amazon and eBay combined, yet it is seeking to raise a relatively modest $1bn (£591m) – much less than Facebook or Twitter sought on their respective market debuts. The etailer is cash-rich, with a sizeable hoard of $7.88bn (£4.66bn) as of the end of last year, meaning it already has the funds for future expansion.

So why has Alibaba chosen to go public now?

The public filing reflects the fact that it is facing growing competition in its home market of China, namely from technology firm Tencent. Alibaba’s most important product Alipay, its online payment solution similar to PayPal, is increasingly coming under threat from Tencent’s WeChat platform.

With Alipay, Alibaba is able to control traffic and cash flows not only through its own ecommerce operations but via other retailers using the payment system. WeChat meanwhile has become the dominant social media and mobile platform in China, with 355 million monthly active users, and is now encouraging consumers to link their bank accounts to its platform to facilitate retail payments – essentially moving deeper into Alibaba’s territory. Although Tencent has not yet opened an online marketplace on WeChat, many see it as just a matter of time until it does. This will see competition between both ecommerce companies intensify further.

What are Alibaba’s future plans?

Once the IPO has completed, Alibaba has two important agendas; (1) overseas expansion and (2) to broaden its product offering.

The Chinese government is preparing new policies to encourage Chinese companies to sell products directly to overseas consumers, via ecommerce, and for Chinese consumers to buy directly from overseas sellers, by returning domestic tax, reducing tariffs, and simplifying currency exchange. Alibaba is expected to leverage its Taobao and Tmall platforms and huge number of vendors to cultivate overseas markets, first in the US and then beyond.

Second, Alibaba will look to broaden its product offering in the near term. The company has already successfully reformed online financing and has its eyes on video services, gaming, social media software, online banking, cloud services, O2O solutions, hardware and much more. Alibaba has already acquired several companies to accelerate expansion - mapping and navigation firm AutoNavi is one such company to be acquired so far this year. In the future, however, Alibaba is more likely to partner with innovative companies for quicker and stronger expansion, instead of going it alone.

Expect the Chinese ecommerce giant to acquire and expand aggressively throughout the rest of the year, in a bid to fend off competition from its rival Tencent and to capture a more global audience. Also expect the fanfare ahead of the IPO to reach fever pitch in perhaps the most anticipated public offering in history.