Alibaba

Magic-carpet ride

Oct 25th 2007 | HONG KONG
From The Economist print edition

The China bubble bumps into the dotcom bubble

BOTH China and the internet have a habit of going to the heads of investors. So perhaps it was inevitable that these two intoxicants would be combined in a single company. Alibaba is the world's most popular business-to-business (B2B) online marketplace. Its two best-known sites allow foreign buyers to find Chinese suppliers, and Chinese companies to trade with each other. Now the company is eager to trade a bit of itself. This week it priced its public offering on the Hong Kong Stock Exchange. Up to 19% of its shares will be quoted on November 6th.

Huge demand pushed up the pricing of the deal by a third. The company now hopes to raise .7 billion, which would value it at billion, or more than 100 times this year's earnings. The firm's biggest asset is perhaps its founder, Jack Ma. Mr Ma is everything that most Chinese entrepreneurs are not. Charismatic, plain-spoken and accessible to the press, he has parlayed a bold idea, a huge marketing budget and laudatory clippings into a business that has a large following and an eye-popping valuation. language=JavaScript src="/JavaScript/adcode1.js" type=text/javascript> language=JavaScript type=text/javascript> language=JavaScript type=text/javascript> language=JavaScript1.1 src="http://ad.doubleclick.net/adj/main.economist.com/businessart;abr=!webtv;sect=nonsubscriber;count=4;sect=business;pos=v5_art350x300;sz=350x300;tile=1;ord=9785760759694844?" type=text/javascript> src="http://m1.2mdn.net/879366/flashwrite_1_2.js"> language=VBScript> dcmaxversion = 9 dcminversion = 6 Do On Error Resume Next plugin = (IsObject(CreateObject("ShockwaveFlash.ShockwaveFlash." & dcmaxversion & ""))) If plugin = true Then Exit Do dcmaxversion = dcmaxversion - 1 Loop While dcmaxversion >= dcminversion > language=JavaScript type=text/javascript> >

Does Alibaba merit its price? If it could smooth all the pitfalls of Chinese procurement, it would deserve even more. But no website can do that. Fears about quality, safety and counterfeiting still worry wholesale buyers, who have to do a lot of offline work to satisfy themselves that a supplier is capable and trustworthy. As a result, once buyers have found a supplier they like, they tend to stick with it, rather than searching again when they have a new order to place. Firms involved in Chinese supply-chain management were once terrified by the idea of Alibaba. But their concern has faded as the demand for hands-on procurement has grown.

Alibaba hopes its position as the leading marketplace will allow it to sell more lucrative services on the side. Its members can subscribe to software, known as Alisoft, which handles their finances, inventories and customer information. But Alisoft is not included in the Hong Kong offering. Investors do not seem to care. The one product Alibaba can unquestionably shift at the moment is its own shares.