It’s amazing how this highly upvoted answer (Ron Rule’s answer to What stops Walmart from beating Amazon in online shopping?) is basically proving, without the author realizing it, why Disruption Theory works. The answer takes an exceedingly narrow view of the entire retail industry and labels the pursuit of leadership in an emerging market/channel (ecommerce), which is clearly where the world is heading over the next few decades, as mere “bragging rights”.

“Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition).”

(Source: Disruptive innovation – Wikipedia)

The real answer is, Amazon has already won in online shopping. It is not due to a lack of effort from competitors, which is probably too little too late.

ecommerceIQ

This quote, attributed to Jeff Bezos, sums up why:

Your margin is my opportunity.

Even with Walmart’s massive revenues and profits (compared to Amazon), it cannot compete with the juggernaut that is built by Bezos. Amazon is “not profitable” by choice. All the earnings are put back into the business, either into more capital investments or to sell loss-leading products that lock in customers or drive competitors out of business, vertical by vertical, and market by market.

The investments that Amazon has made over the first two and a half decades of its existence give it momentum such that it is tough if not impossible for any other company to catch up over the coming decades: the technology stack, the deeply integrated logistics/supply chain (they are now getting into competition with FedEx/UPS), the effective third-party seller marketplace, the customer loyalty (through Prime).

Every exponential curve runs below the linear curve in it’s infancy, that is until it suddenly crosses over, goes through the roof and hits the sky. Even though in absolute numbers Walmart is still bigger than Amazon, only one of the lines below is going up and to the right:

ecommerceIQ

On top of all this, in the last couple of years, Amazon is also getting into physical retail, with acquisition of Whole Foods and pilot of Amazon Go. Here’s a great analysis of this: Amazon’s New Customer (I highly recommend Stratechery for tech+strategy topics in general).

At this point it is more likely that Amazon will eventually beat Walmart at physical retail, than Walmart will beat Amazon at online shopping. If Walmart wants to survive till the end of this century and not go the way of Sears, Walmart must come up with a strategy that creates value in a digital, super-connected future where everyone is hooked on to the convenience and choice furnished by online shopping, but in a manner that converts their massive current investments in physical retail from liabilities to assets.

The last thing Walmart should do is to build an Amazon clone. As then, they are playing by Amazon’s rules. And nobody beats Amazon at their own game.

 

Read the original on Quora by Pararth Shah, Software Engineer at Google

The holidays are a perfect time to relax at home, be with family and more importantly, refresh for a new year. As ecommerce continues to evolve in Southeast Asia, it’s always important to keep the creative bugs going. ecommerceIQ has put together a short reading list to get your new year started. It consists of startup lies to learn from, an in-depth dive of how Asia works and the story of what it took for Nike’s creator Phil Knight to build one of the world’s most well-known companies. Happy reading and happy holidays!

 

How Asia Works – Why do some countries thrive while others lag

“How Asia Works” by author and journalist Joe Studwell is perfect to learn more about Southeast Asia. Studwell delves into the recent economic history of nine Asian countries to answer why some countries thrive while others lag behind in their development.

 

 

 

“This book indicates that there is plenty to be done. It focuses down on the three areas of policy choice where political decisions make the biggest difference to developmental outcomes. What follows is not a set of detailed policy recommendations because the conditions of each country vary. But it does claim a degree of historical accuracy in describing what happened in east Asia. That history reminds us that, however fleetingly, the developmental destiny of a nation is in its government’s hands,” Joe Studwell, How Asia Works.

 

The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future

Kevin Kelly, the co-founder of the tech-focused magazine Wired, in his latest book explores the inevitable technological forces that will drive the advances in the coming decades. Kelly argues that the ongoing technological shift will continue and turn products to services and processes. This change will be the one driving all the disruptions of modernity.

 

 

“It is about the deep trends in the next 20 years that will shape your life. I suggest we embrace these changes, including ubiquitous tracking, accessible artificial intelligence, constant sharing, getting paid to watch ads, VR in your home, etc,” Kevin Kelly.

 

The 100-Year Life: Living and Working in an age of longevity

As the technology and its constant development has been changing the way we live and work, and the overall progress increases longevity, the question is – will 100-year life be a gift or a curse? Psychologist Lynda Gratton and economist Andrew Scott offer a broad-ranging analysis and raft solutions how to live 100 years in a fulfilling way.

 

 

“Our current practices are ill equipped to cope with a 100-year life. We either can’t afford to retire at the age our parents did or will have to work for so long that our mental and physical fitness as well as our enthusiasm for life could suffer. Individuals, companies and governments all have a role to play in ensuring we structure our lives differently so we can make the most of a longer life,” Lynda Gratton & Andrew Scott.

 

Shoe Dog – What it took to build one of the world’s best known brands

Shoe Dog is a memoir by the Nike co-founder Phil Knight in which he shares his story of the company’s early days up until it went public in 1980 and offers insights on what it took for the business to lift off.

As tech billionaire Bill Gates put it, this book “is a refreshingly honest reminder of what the path to business success really looks like. It’s a messy, perilous, and chaotic journey riddled with mistakes, endless struggles, and sacrifice”.

“Let everyone else call your idea crazy . . . just keep going. Don’t stop. Don’t even think about stopping until you get there, and don’t give much thought to where “there” is. Whatever comes, just don’t stop,” Phil Knight, Shoe Dog.

 

Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

“Chaos Monkeys lays bare the hijinks, trade secrets, and power plays of the visionaries, grunts, sociopaths, opportunists, accidental tourists, and money cowboys who are revolutionizing our world,”
Antonia Garcia Martinez.

 

 

 

 

Disrupted: My Misadventure in the Start-Up Bubble

“Mixed in with Dan’s uproarious tale of a job from hell is a trenchant analysis of startup culture and a poignant, painfully honest account of being middle-aged and struggling to pursue personal reinvention,”
Dan Lyons.

 

 

 

On a lighter note, Chaos Monkeys and Disrupted both provide an entertaining read from insiders about the realities of the startup world in the race to build the next unicorn. Dan Lyons, the author of Disrupted, recounts his experience in the marketing software platform Hubspot, while Antonio Garcia Martinez shares his insights from working for Facebook. Both authors share jokes as well as critique about the lucrative industry which nowadays offers the strongest promise of getting rich

 

Ecommerce delivery in Nigeria 2013. Source: Pius Utomi Ekpei — AFP/Getty Images

Ecommerce delivery in Nigeria 2013. Source: Pius Utomi Ekpei — AFP/Getty Images

Excerpts from Fortune.com

Rocket Internet is falling behind its emerging market targets and investors are beginning to doubt its ambitious goal to be the Amazon outside of America. Rocket now has a market capitalization of $3.3 billion, well below the $5.89 billion valuation it put on its portfolio at April 30, and only just above the $3.1 billion in cash held by Rocket and its operating companies as of March 31.  Its African fashion retailer, Jumia, made a loss of $18.8 million in the first three months of 2016 on sales that fell more than a third. The devaluation of Nigeria’s naira last week is a new blow for Jumia.

Its slowdown is the consequence of Rocket’s shift to rein in spending on marketing and logistics as it seeks to stem losses, which it said peaked at $1.1 billion in 2015.

The stock has been on a downward trajectory since peaking in February 2015 after it surprised investors with a new capital hike and shifted strategy to invest in the food-delivery business in developed markets.

The latest share price tumble started in April when Sweden’s Kinnevik, Rocket’s second-biggest shareholder after the Samwer brothers, slashed the valuation for its emerging market fashion websites by two-thirds.

Neil Campling, head of technology research at Northern Trust Securities, who rates the stock a “sell,” doubts the Rocket businesses can replicate Amazon’s success because its markets are so underdeveloped and the cost of logistics so much higher.

“As soon as they reduce marketing, you see revenue growth decline substantially,” he said. “They haven’t got the scale.”

Oliver Samwer says Rocket has more than enough capital to fund its main startups until they turn profitable.

Read the full Fortune article here, published on June 29. 

Alibaba is making aggressive moves to expand Alipay in Southeast Asia, expecting the payment platform that took Chinese ecommerce from the dark ages into the biggest ecommerce market in the world to sweep through the region similarly. We fully agree, and think his Lazada acquisition and the follow up planned 20% investment into Ascend Money are cunning moves to bring the trojan horse — Ant Finance (the parent group of Alipay) — into the ASEAN region. Yet despite many similarities, ecommerce in Southeast Asia is ultimately very different from China, especially when it comes to the adoption of a unifying payment system.

Cultural Revolution destroyed trust in China

Speaking at the recent Honour International Symposium 2016 in Singapore, Ma shares why Chinese culture, despite being one that traditionally valued trust and integrity, now lacks a system that enforces it. Some also argue that traditional Confucian values of trust were destroyed during the Cultural Revolution years. As a result, Alipay, a third-party escrow-based payment system similar to PayPal, was required to fill the trust gap and accelerate China’s ecommerce away from cash-on-delivery towards one that is seeing 68% of transactions from Alipay today.

But values are different in Southeast Asia

Contrast that with Southeast Asia, where for example in Thailand an estimated 33% of ecommerce gross merchandise value (GMV) is already going through small merchants on Facebook, Instagram, and Line. The transactions happening on these platforms are mainly done through the rudimentary bank transfer, with the user sending the money first and then the merchant shipping the goods after receiving the funds. Here, the essence of trust already established and critical to its continued growth and functionality.

This would be unlikely in Jack Ma’s world as he painfully reminisces why he had to built Alipay in China in the first place. Perhaps in a place like Thailand that never went through a Cultural Revolution and as a result was able to preserve traditional Confucian and Buddhist influences, Alipay may have to localize its product as people may not be that starved for an escrow service.

To watch the video of Jack Ma, a great visionary, and one that’s becoming increasingly influential in Southeast Asian ecommerce, see below.  We have also transcribed the entire video below. 

 

[ytp_video source=”n1s8I2xREZs”]

 

Note: errors and omissions may be due to translation. 

Greetings everyone!

It is a special honor to be invited to the symposium. However, due to work conflicts, I regret that I cannot attend and partake in the insightful discussions. However, I have a special interest in today’s topic and have many thoughts to share and discuss as well as to learn from you all. In this regard I would like to pay special thanks to the symposium organizers for allowing me the opportunity to show my video.

At first, I questioned both my English and Chinese language abilities as I could not precisely translate “honor” to Chinese. In the end, I was relieved when I learned many of you also had trouble translating the meaning of this word into Chinese. In fact, when you carefully consider the meaning of “honor” and the principles it embodies it has been ingrained in Chinese people for thousands of years and has also been deeply embedded in the “bones” of Chinese people around the world.

Chinese have long understood that in order to do things completely you must complete certain tasks first. As a first step, China took to thoroughly considering and understanding the meaning of compassion, justice, courtesy and wisdom before realizing the past two thousand years of glory, politics, culture, art, and economics. Each of these areas have been great achievements for China.

Over the past 800 years the rise in China’s GDP ranked first in the world. “The Analects of Confucius” is only 11,000 characters long, only taking the space of one page of a newspaper today, but this important literary work has influenced and guided China for 2,000 years. Similarly, today’s symposium represents a topic of equal importance because the next 2,000 years of human development also needs our influence and guidance.

I believe that Singapore has set an example for the Chinese-speaking world and I fully agree with the beliefs of the Singapore government.

This includes the level of development that it has achieved today and its international status but the most important factor is its steadfast commitment to “honor” and everything that it includes: respect, righteousness, integrity, responsibility, etc.

When I first started doing business, I asked my wife if she would rather have a husband that is rich or one that has values and is well respected? She replied, of course have values and be respected. Because at that time, most people did not believe I could make money.

…most people did not believe I could make money.”

In the past, I did not look highly on businessmen. Furthermore, I believed the societal value created by businessmen was very limited. However, after I had my own business, I realized that if you want to last long and be successful your daily considerations and analyses should have nothing to do with money. Decisions that are made related to money are not strategic. Instead, the decisions that aren’t made based on profit and instead made based on values are actually the truly strategic ones. Hence, I have always believed that a good finance director would not make a good chairman because a good finance director is always thinking about money. People that have money fully occupying their mind have difficulties in doing good things and have difficulty in being good friends.

I realized that if you want to last long and be successful your daily considerations and analyses should have nothing to do with money.

When Alibaba was founded, we were in a very difficult situation. We had nothing. Nobody believed in what we did. Everyone said we were crazy people or cheaters but what actually allowed us to survive? Was it money? In fact, we had no money. Was it resources? We had no resources. Was it human talent? In fact, our human talent all ran away when they saw our situation. In fact, what we had were our values. Our values included: customers first, team spirit, and integrity. And when you look at these areas they appear empty and worthless. When Alibaba first started, we were really poor. But we believed in the future development of the internet. We had a dream of creating a future. We had our own values for doing business.

We started out by helping Chinese foreign trade companies with their overseas orders, charging them annual fees. But after a year had passed, these companies’ transaction value did not even exceed their annual fees to us. Our staff felt heart broken and felt like they let their clients down. During the end of year’s visit, our staff spoke to them with honesty: Ecommerce will have a great future but results may not be instant. Perhaps you can get a refund and not sign up next year.’ What resulted instead was that our clients encouraged our young employees. “It takes time and training for foreign clients to migrate online. Your considerations of our business have earned our belief and trust.” There have been many similar companies and even from over ten years ago until now they remain Alibaba’s clients.

After ten plus years of building businesses, my most profound thought is that, as a businessman, the most important decision to determine a company’s destiny has nothing to do with money. Many people have asked me, “Jack why are you so capable Jack?” I said, in fact I’m not very capable, it’s just that we are lucky. Other people have said, “Jack, you are so lucky and succeed every time.” I don’t feel like this is the case. In fact, our success was due to right choices we made. Alibaba has grown to this point today because we made a few critical choices.

..my most profound thought is that, as a businessman, the most important decision to determine a company’s destiny has nothing to do with money.

The first case was in 2002 when the internet bubble burst, Alibaba had to survive. During that time the company was in a difficult situation but we set a goal of making $1 profit. At that time if we didn’t make any profit we would die and the most painful issue was in order to win website design business we had to offer bribes. So we held an all day meeting in Hangzhou. We understood that if we offered bribes we could survive but if we didn’t our company would likely die. I remember that day we met until 4pm and finally decided we would never offer bribes. We would rather close down the company. We would not operate without integrity. We would rather together find new jobs and continue to maintain integrity.

In 2002, because we maintained our integrity, we started to make a profit. After we started to make profit we discovered during our end of year review that two employees accounted for over 60% of the entire group’s sales. And we discovered these two employees were giving kickbacks, commissions, and bribes. So what should we do? If we fire them immediately, the company will not have profit. If we do not kick these two employees out then what does this say about us? It would imply that our words are empty so in the end we decided to let these two employees go. “Do not bribe”, this rule is written into Alibaba’s employee code of conduct. Employees that violate this rule are immediately expelled.

After Alibaba became a large company, bribes started to flow the other way around. We set new rules that forbid employees to take bribes. We have billions worth of procurement contracts every year. In our contracts we include this sentence: “Thank you for doing business with us. We hope that in our future business interactions our employees cannot ask for bribes and you will not offer us bribes. If we discover any such related problems, our group will never do business with you.” This is written in our contracts.

Today, Alibaba employees are well respected in the community. This isn’t because our business has grown large but rather the result of the many codes of conduct our employees follow. In many places, our employees are warmly welcomed. But our employees are not allowed to accept free car rides or meals. Small gifts, even a piece of candy is sent back. Otherwise the employee’s value score will be very low, and even be subject to penalties.

There was one time when I sat in a salesperson training session. The training instructor was speaking about how to sell hair combs to monks. After listening for five minutes, I got extremely angry and expelled the instructor. I thought the instructor was a cheater because monks do not need combs in the first place. So to sell a product to a client that doesn’t need it is deceptive and not skill-based sales. This practice was a significant challenge to our values.

Enter Alipay in China

The second choice we made at Alibaba was Alipay. As soon as we launched Taobao it quickly became very popular. However, many users communicated online without transactions actually occurring due to the lack of trust between strangers.

People were not willing to provide payment in advance and no one was willing to ship merchandise first. Our biggest problem was to solve this transaction problem.

That year I participated in the World Economic Forum meetings in Davos with the intent to find a solution to this problem. Instead, I discovered that all the businessmen were discussing corporate social responsibility. During my time at Davos, I suddenly realized that if we wanted to develop e-commerce in China, we needed to do something that had true value, something that would promote societal development. Without it we will never succeed. To do something like this requires tremendous responsibility. Without it, we will not be able to get anything done.

The lack of development in China’s eccommerce was due to one missing piece—a mechanism that could facilitate trust between people.

I believe that Alipay is the mechanism that can fulfill this gap. That same night at Davos, I called my friends and colleagues. I said, “Immediately, right now. Let’s create this product, let’s launch Alipay.” I understand the regulatory risks associated with creating Alipay in China, and if someone needs to go to jail for this product, I will go.

China is a country that has valued credibility and integrity. Confucius has said, “every day, I self-reflect on three issues.” During ancient times people self-reflected on three issues a day, two of these three issues are related to sincerity and honesty: did I try my best in helping others and did I keep my word when engaging with friends. Chinese value credibility but lacks a system of trust. If Alipay wants to have value in China it must establish a trust system.

Today, Alibaba has built a trust system in China: users provide reviews, Alipay facilities transactions, and all the actions taken on our platform is data which helps inform credibility and credit ratings.

Only with this system, would it be possible for users to send strangers money and merchandise solely based on a picture and a few sentences posted online.

Today, we have millions of daily visitors on our site. Sometimes an order can represent a diamond worth several hundred thousands or a car worth millions. A few days ago, we sold 100 Mercedes-Benz in only 25 seconds. As a result, without this trust system, these transactions would be nearly impossible. What makes us most proud today is not how many products we sold but rather the trust system Alibaba has built. We proved to everyone in a commercial manner how much trust is worth. We built a system of trust. We are also a beneficiary of the system. This system provides the foundation for Alibaba to achieve $500 billion in sales during our fiscal year. The power of honor is tremendous.

If the past 30 years of China’s development relied on its advantage in population size and the relatively low price of labor. Then in the coming years China should not look to rely on having cheaper products but instead rely on the trust or honor between people. If there is a significant human potential that has not been realized I believe mutual trust and credibility is the biggest undiscovered fortune. Only when we pay attention and care about “honor” will we “honor” ourselves. I believe it is only then that we can earn other people’s “honor.”

Many thanks to the symposium organizers for inviting me, and I am very sorry that I was not able to be here personally for the meetings. Congratulations to everyone here. Thank you all!

By Sheji Ho

Please share your feedback to @ecomIQ and @sheji_acommerce

Wal-Mart Yihaodian Fails in China, B2C bloodbath

(Hint: It’s a red ocean bloodbath), Image source: FactsRider

Its demise was inevitable. Since its 2008 launch, Wal-Mart’s online grocery business Yihaodian struggled to gain traction in China in the red sea of deep pocketed local B2C ecommerce players. Finally, Yihaodian has thrown in the towel and being sold to ecommerce Goliath JD.Com. The recently announced deal means JD will take over Yihaodian online and Wal-Mart will acquire a 5% stake in JD.com.

The Chinese branch of Sam’s Club, an American chain of membership-only retail warehouse clubs owned and operated by Walmart, will open a flagship store on JD.com, and the two companies will link their supply chains, broadening the range of imported goods. Wal-Mart, No. 8 in the China 500, will receive approximately 145 million newly issued Class A shares of JD.com in the transaction. So why and how did Wal-Mart’s seemingly successful Yihaodian fail so quickly in China?

 

Wal-Mart Yihaodian Fails in China Acquired by JD.com

Wal-Mart Yihaodian fails in China because the B2C market in China is a bloodbath. Smaller or global players will be hard-pressed to succeed there.

Wal-Mart’s Yihaodian fails in China, but why?

Walmart’s China strategy sought to establish itself as a source of high-quality food products after a series of safety issues in China, but failed because it could not adapt to local culture and buying patterns. It could also not compete with the economies of scale that giants JD and Alibaba wield. In TechCrunch last year, Sheji Ho and I predicted this when writing Forget China, There’s a Gold Rush in Southeast Asian Ecommerce Sphere

“In the Chinese ecommerce race the market giants have taken too large a lead for too long in China.

“Smaller” players such as Amazon, Rakuten, and Neiman Marcus entering the market struggle to compete because of fewer domestic resources, a lack of understanding of the Chinese market, as well as slower execution. Recent examples include Macys and Neiman Marcus shutting down their China ecommerce initiatives and Amazon throwing in the towel and opening a store on Tmall, China’s largest B2C marketplace.

With Tmall and JD owning close to three quarters of the Chinese B2C ecommerce market, there just isn’t much room for both “smaller” global and local players like Yihaodian, Suning, Amazon and VIPShop to compete. They cannot tap into the economies of scale enjoyed by the market leaders. B2C ecommerce is a winner-takes-all market where the rich get even richer.”

With nearly 6,000 delivery and pickup stations in approximately  2,500 counties and districts across China compared to Yihaodian’s mere 250 hubs, it sadly did not have a strong chance.

Cross-border ecommerce isn’t the answer either

Nonetheless, the company seemed optimistic last year. At a logistics conference in Shanghai, Yihaodian senior manager Yang Shenling said with confidence that ‘cross-border is the last blue ocean for Chinese ecommerce.’

The inbound cross-border market is estimated to be 155 billion RMB ($25 billion) and is expected to grow to a whopping 1 trillion RMB ($164 billion) by the end of 2018 according to The China e-Business Research Center cited by Shenling. But when we asked Yihaodian how big its new cross-border business was in terms of percentage of total company sales it turned out to be only 2% and projected to go up to 10% over the next five years.

Ten percent is still a very small number and getting there would be an uphill battle as the quality and safety of domestic products will no doubt increase over the next few years thanks to increased government pressure and regulation. As quality improves, there will be no need for Chinese consumers to look abroad.

In many ways, cross-border ecommerce in China can be seen as a desperate move to cope with the fact that the domestic market is reaching saturation. And despite all the hype, it is still a very small business compared to the Chinese domestic ecommerce market.

Lucky for them, JD.com has been doubling down on winning the food category. Last August, it bought a 10% stake in Yonghui, a rival that specializes in fresh food. From the Yihaodian acquisition, the company stands to gain credibility of a global brand in its efforts to be seen as a more trusted food retailer in the rightfully suspicious Chinese food ecommerce landscape.

Businesses are realizing that China is a Venus Flytrap – plenty of allure but crushing once inside.

This is just the beginning as global players are increasingly realizing that China is a Venus Flytrap – plenty of allure but crushed once inside. They instead start to look longingly south towards the real blue ocean- Southeast Asia. Expect China’s B2C ecommerce bloodbath to get a lot murkier as global and smaller ecommerce players learn the Amazon and Yihaodian China lesson the hard way.

By Felicia Moursalien

Please share your feedback to @ecomIQ and @LilFel