Monday, July 14, 2014

Alibaba's investment in Singpost and its implications for Startups and SMEs

Alibaba recently took a significant minority stake in Singpost for S$ 312.5 million ( US$ 249m). This was announced right after its US$ 206 million investment in Shoprunner Inc. and participation in US$ 250 million Series D in Lyft. These transactions made it amply clear that Alibaba wants to complete the loop by inorganically playing the last mile delivery scene. But why this interest in last mile delivery from a successful enterprise commerce platform?

Alibaba clearly has the global sourcing under its control. It would be hard to find a decent supplier or manufacturer in China (and beyond) who is not a verified (paying) member on its website. It dominates the Business to Business commerce. But whats next?

Their ambition now is not just to supply to distributors, traders, brands, and other intermediaries. They want to connect the producer to consumer. No intermediaries. It seems that now they have set their sights on Business to Consumer commerce. As a result, its business model is rapidly evolving from "Factory to Port" to "Factory to Door". And it is the last bit of "Port to Door" that Alibaba is now trying to sort out.

Imagine a world where an individual in Ulaan Bataar ( do you know where it is?) can use their phone to logon to Aliexpress, select anything that can be manufactured, verify the manufacturer, make payment and get it delivered the same/next day at its doorstep. This completely removes middlemen and the 7 time price hike from FOB price to MRP.

What does it mean for SMEs who are just intermediaries?
Death. Yes. All those businesses that thrive on being an intermediary and making money on inefficiencies and opaqueness of the market will eventually become irrelevant. Good luck to private equity players who are busy doing deals in "mature" intermediaries.

So where is the opportunity and what does this mean for Startups?
It is really important for all e-commerce related startups to think beyond just creating a shop front and throwing money on google adwords. Can they build a sustainable business model? What would be their edge when a common man can buy anything direct from the factory floor. Can they be part of the future value chain? Lots to think.. and act :)

Note: We have invested in www.anchanto.com that provides logistics and fulfillment services to businesses and brands in SE Asia and are looking for more opportunities to invest and build the businesses of future.


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