George had the opportunity this weekend to attend Chinese e-commerce behemoth Alibaba Group’s 10 year anniversary celebration, dubbed the “Alifest”.

Alibaba is best known for its international B2B e-commerce and sourcing market place Alibaba.com, but also operates Taobao – the “eBay of China” and largest C2C Internet retail web site, Alimama – an online advertising exchange and affiliate network – as well as Alipay, China’s most popular third-party online payment system modelled after Paypal but offering additional features such as escrow services.

Alibaba’s chairman Jack Ma, a former English teacher, founded Alibaba in 1999 out of his Hangzhou apartment. Ten years later the company has grown to China’s second largest Internet company, after digital entertainment giant Tencent. His company Alibaba.com’s 2007 IPO on the Hong Kong stock exchange was the second largest Internet offering ever after Google’s debut on NASDAQ in 2004.

Since 2005, Yahoo! is a strategic shareholder when it acquired 39% of Alibaba Group for US$ 1 billion. In return Alibaba operates the portal Yahoo! China, but the secondary role Yahoo! China plays for Alibaba became evident when Ma shared his vision for the next 10 years of Alibaba during this weekend’s press conference. This was once again underscored yesterday when Yahoo! sold $150 million worth of shares in Alibaba.com.

Jack’s dream is to focus on empowering and encouraging small and medium sized enterprises (SME’s) across the globe and it centers around 3 major goals for the next 10 years:

Goal 1: 10 million people “work at” Alibaba

By “working at” Jack symbolically referred to millions of SME entrepreneurs that will not literally be employed by Alibaba but are turned to “netrepeneurs” and independently utilize and work online with Alibabas trade platforms and software solutions:

Alisoft was established in January 2007 and offers software as a service solutions for SME’s. In July 2009, Alisoft was merged with Alibaba Group R&D Institute to lay a solid technology foundation to further develop Alibaba Group’s businesses. At the same time Alibaba Group this weekend announced the establishment of a new subsidiary focusing on cloud computing. In the medium run, it is evident that Alibaba will strive to emerge as a leading software solution provider for SME’s, eventually competing with Western players such as Salesforce.com.

Goal 2: 100 million new jobs created worldwide by Alibaba

A megalomaniac target at first glance, this could very well become reality when considering Alibabas resources and Jack Ma’s obviously wide-reaching personal connections that became more apparent to me through the course of Alifest.

In May 2007, Alibaba.com introduced the Ali-loan program offering financing to small Chinese businesses in partnership with leading Chinese banks. This model was now hinted to be extended across other countries in cooperation with Muhammad Yunus’ Grameen bank. The second corner stone to achieve this goal involves Alibabas training department, Ali-Institute that was upgraded this July to become a new profit-oriented business unit under Alibaba.com.

During the cleverly staged Alifest program speakers such as Nobel prize winner Muhammad Yunus, former president Bill Clinton (both over video) and Starbucks CEO Howard Schultz underpinned the importance of fostering SME development across developing nations and endorsed Alibabas global efforts. This is quite remarkably for a Chinese company. Provided, you still consider it as such: “In 10 years we wont make differences between local or international companies any more, but only between differences in integrity”, Jack Ma said during his speech this weekend.

All points considered Alibaba is indeed in a powerful position to shape the worlds economy in the coming decade. Taking Alibabas already undisputed status among SME manufacturers in what is soon to become world’s largest economy, even the third proclaimed goal by Jack Ma can seem plausible:

Goal 3: 1 billion people trading on Alibaba Group’s platforms

The roadway to Alibabas most eager goal was visualized to us impressively when Alibaba.com’s CEO David Wei gave us an exclusive tour of his company’s new headquarters. (Which by the way also has a basketball court inaugurated by another of Jack Ma’s friends Kobe Bryant, who was also present in Hangzhou this weekend)

David presented us Alibaba’s realtime trading statistics generated from the three pillars of its business: international trade, domestic Chinese wholesale and domestic Chinese retail. (the according graphs can be seen in the picture above from left to right).

During the time of our visit last Friday evening at around 7pm Chinese time, 2.87 million concurrent users were active on Alibaba.com’s B2B portal. According to David the daily average concurrent user number is 4 million, around 10% of its 42.8 million worldwide registered users. The groups domestic C2C e-commerce marketplace Taobao holds around 78% of the online consumer market in China. As of mid-2009, it served 156 million registered users. Transaction volume on Taobao reached nearly US$ 11.8 billion in the first half of 2009, and by that exceeded the largest retailer in China in transaction volume during the same period.

David continued to say that “Alibaba’s combined trading statistic give us 3-6 months lead time to predict Chinas domestic trade and export volumes”. These are without doubts immensely powerful insights to possibly the biggest driver of our current world economy. Not without reason, Alibaba’s founder Jack Ma was one of the first to recognize the economic downturn in February last year, when he predicted “a though (economic) winter is coming, dark clouds are forming and the thunder is coming closer” during the annual Alibaba all-employee conference. “Today, the darkest period for Chinese exporters is over”, Alibaba’s CEO David Wei confirmed to us.

I asked David to tell us more about AliExpress – a new international wholesale platform for small-sum orders from its Alibaba.com database of Chinese manufacturers. He confirmed “the platform is still in beta but bound to launch in rather weeks than months from now”. The service offers minimum orders as low as 1 item, escrow payment and delivery with full tracking. Advertising “factory prices on even the smallest orders” the service is de facto a B2C marketplace just like Amazon and in part eBay that connects the Chinese manufacturers on Alibabas existing B2B portal Alibaba.com with the US consumer market. It will also be the first international roll out of Alibaba’s online payment and escrow system Alipay now competing with PayPal China in fight for Chinese SME merchants. Alipay currently facilitates about 4 million online payments worth up to US$100 million per day. It surpassed 200 million registered users in early July 2009.

With AliExpress the company for the first time attacks eBay directly in its home market. In China the US company already lost against Alibabas Taobao, giving up its domestic eBay platform and partially selling it to Chinese Internet group TOM Online in 2006. Not included in that sale, however was eBays and PayPals cross-boarder business of Chinese merchants selling to US consumers, that continues to be operated by PayPal China itself. This remaining eBay asset is now under serious threat, with Alibaba entering the B2C export business.

The move nevertheless comes with many risks for Alibaba. Only in December last year, Alibaba’s competitor Global Sources Direct, a division of NASDAQ-listed online sourcing platform Global Sources, announced it would discontinue its wholesale services. The platform was established in 2005 as a joint venture between Global Sources and eBay. A major part of the failure was attributed to the fact, that in such a cross national market place setting, it is impossible for its operator to guarantee quality, availability and delivery times. Instead it has to rely on the goodwill of its merchants, which in a developing market like China is a huge challenge. It remains to be seen how Alibaba can solve this problem better than its competitors.

Additionally to its international challenges Alibaba Group is under constant attack from rising Chinese rivals such as Baidu’s new C2C e-commerce platform Youa. Since the end of last year China’s number one search engine Baidu.com has blocked all Taobao merchants offers in its natural search results, leading to a huge loss of search volume. In retaliation Alibaba Group, previously one of the biggest ad spenders on Baidu, stopped all its PPC campaigns.

In the “Art of War”, Chinese military strategist Sun Tzu writes “concentrate your energy and hoard your strength”. However, Alibaba’s Jack Ma seems to ignore this advice by competing on multiple battlefields both at home and abroad, potentially stretching his company’s resources too thin. Yet the man reinforced his modesty in yesterdays closing speech when he said “looking back we are now a big company, but looking ahead we are still a very small company”. Having seen Ma passionately in action this weekend, it is clear that he’s lost none of the tireless energy that has made him successful, instead gaining in charisma and determination that will be necessary for the next 10 years ahead.

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Yahoo announced a little over 4 years ago that it would purchase a 39% stake in the e-commerce giant’s parent company for US $1 billion – which it will be retaining – plus Yahoo’s Chinese assets (worth about US $700 million). Alibaba in return took charge of Yahoo! China, while Alibaba’s founder Jack Ma remained in charge of Alibaba Group. Yahoo China recently underwent a significant restructuring, during which its popular classified listings service Koubei was taken and moved to Taobao.com.

Partly because of the restructuring, tensions started to lurk between Alibaba Group and Yahoo, and they recently became even more strained when insiders also revealed that Yahoo’s new CEO Carol Bartz was far from being satisfied with the way Alibaba has handled its Chinese portal.

To add fuel to the fire, Alibaba CEO Jack Ma confirmed last weekend at the company’s 10-year anniversary celebration that Alibaba has so far not yet decided if and how to manage the search engine’s algorithm in China after the cooperation agreement between Yahoo and Microsoft, even though the deal was considered to be global. We earlier reported how China could potentially throw a wrench in the Microsoft-Yahoo deal, because of a Chinese law that went into effect in August last year and essentially gives the Chinese government regulatory oversight over any merger that “involve acquisitions of Chinese companies or foreign businesses investing in Chinese companies’ operations.”

Interestingly, Jack Ma also sold 13 million of his shares, or less than 5 percent of his total direct and indirect holding, in Alibaba for about HK$273 million (US $35 million) just last week.

We’re trying to find out more about Yahoo’s plans in China and will update when we do.

Update: a statement from John Spelich, VP of Alibaba Group’s International Corporate Affairs

“We are pleased to learn of the Yahoo! decision because having broader ownership of Alibaba.com with increased liquidity and support among institutional investors is what Alibaba.com hoped to achieve when it released the cornerstone investors.”

We’ve also confirmed with a Alibaba spokesperson that UBS AG will handle the sale of the shares and line up several institutional investors to get the shares sold by tomorrow morning.

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According to the report Alibaba “will seek a stronger voice for its management team in Microsoft’s talks to acquire Yahoo.”

Although Alibaba has Yahoo as its biggest shareholder, the firm is run locally by founder Jack Ma, who maintains effective control over the business, although Jerry Yang sits on the board.

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In a comScore ranking of the top-10 global search engines as measured by number of searches during the month of December, 2007, Yahoo comes in at a distant No. 2 with only 13 percent of global share. (Although, in the U.S., Yahoo actually gained a half-point of share in December, whereas Google dipped 0.2 percent). The big surprise, though, is the strength of local search engines in countries that don’t use the Roman alphabet. No. 3 on the list is not Microsoft, but Chinese search engine Baidu (with 5 percent share, versus Microsoft’s 3 percent). No. 5 is Korea’s NHN Corporation, which operates the Naver portal and search engine. Creeping up on Ask’s No. 8 spot, is Russian search engine Yandex. And Alibaba (which may include Yahoo China) brings up the rear at No. 10.

Shouldn’t the best search technology win no matter what the language? These market share figures suggest that culture and marketing play a big role as well—unless, of course, you are Google.

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Never heard of MFG.com? You are probably not in the manufacturing industry. Founded in 2000 and based in Atlanta, MFG.com is an eBay for manufacturers—a B2B marketplace for sourcing manufactured parts from all over the world. Companies as diverse as Black & Decker, Harley Davidson, NCR, and Sara Lee use the site to find suppliers for machined parts, plastic moldings, metal stampings, and fabrications.

You can find nearly $50 million worth of requests for manufacturing quotes per day on the site, complete with CAD diagrams and other specifications. Manufacturers bid on the requests. MFG.com makes money by selling yearly subscriptions of several thousand dollars each to suppliers who want access to MFG.com’s community of purchasing managers and engineers at buying companies (who get to use the site for for no charge). Free learned that in the manufacturing world suppliers are much more willing to pay a flat fee than to give a cut of each transaction.

Over the past year, he’s been making a big push into China and connecting the vast network of manufacturing suppliers there with corporate customers all over the world. In part, that is what attracted Fidelity Ventures, which was an early investor in Alibaba and sold its stake to Yahoo. One part of Alibaba’s business is an online B2B directory. Fidelity’s Larry Cheng, who invested in Alibaba and now will take a board seat at MFG.com, told Free that he sees MFG.com as an “Alibaba on steroids.” (Cheng is also a board member of P2P lender Prosper). Daniel Auerbach of Fidelity Ventures Asia will take an observer seat on MFG.com’s board. Aurbach was previously an Alibaba board member.

Free has been known to talk smack about Alibaba, which recently had a successful IPO. He tells me:

The Alibaba model (directory “brochure-ware”) is not very deep but it was in step with the sophistication of the Chinese market. To truly remove inefficiencies in the manufacturing industry there has to be a platform that facilitates collaboration, transactions, negotiation, audit trails, intellectual property protection and more. MFG.com has built that platform and is preparing to scale it globally.

Free plans on using MFG.com’s new capital to continue expansion in the U.S., Europe, and China, as well as to ramp up in India, Japan and Eastern Europe. But he has greater aspirations for MFG.com than just to break into new markets. He wants MFG.com to become the “operating system for the manufacturing industry.” His acquisition in 2006 of SourcingParts.com gives him the technology and customer reach to build Web-based software for the manufacturing industry. He wants to build a platform similar to Salesforce.com’s AppExchange for manufacturing-oriented applications. He’s already gathered the community of purchasing and factory managers who might use such software.

Another possible use for that $26 million is more acquisitions. Free has talked to me about his desire to find 3-D search technology that can operate on a commercial scale to match an engineer’s CAD diagrams with the historical inventory of parts sourced on MFG.com. His idea is to offer a service that would allow engineers to estimate the manufacturing costs of their designs on the fly, based on the shape and materials of the parts they need. If he ever finds such a technology, now he has the money to buy it.

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Alibaba.com is a spinoff from the Alibaba Group, the company that owns Alipay, Taobao.com and Yahoo China and is 40% owned by Yahoo.

Applications for shares in the IPO were 256x the amount of stock available, 858.9 million shares or 17% of the company. The IPO price was HK$13.50 ($1.74) per share.

As of 12:30pm local time (+8 GMT) Alibaba.com shares were trading at HK$35.75 ($4.60), an increase of 164% on the list price.

Yahoo is a big winner from the IPO, having obtained a 8.2% stake pre-IPO that went from a paper value of $720.89 million to $1.9 billion based on the 12:30pm price.

Alibaba now has a market cap of a rather staggering $23.24 billion, significantly more than the market cap of China’s biggest search engine, the NASDAQ listed Baidu on $14.05 billion.

See our previous coverage here and here.

Update: Alibaba.com stock is now trading at HK$39.60 as at 3:40pm local time (2:40am EST). We’ll update again once the days trading closes in Hong Kong

Update 2: at the close of trade Alibaba.com stock was HK$39.50 ($5.09). Market cap is now $25.17 billion.

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Alibaba, which was founded by Chinese celebpreneur Jack Ma, saw its profits rise 382 percent during the first half of 2007 to $39 million (or 292 million RMB), on revenues of $128 million (or 957 million RMB), a 61 percent rise. You can find the find the financials here. Alibaba’s main business is to function as a directory for Chinese manufacturers and other companies, and connect them to other companies around the world looking for suppliers. Alibaba also runs Taoboa, an eBay-like marketplace that is more for consumers and saw $2 billion worth of goods traded over its site the first half of this year; Alipay, the PayPal of China; Yahoo China (Yahoo owns 40 percent of Alibaba); and Alisoft, a Web-based accounting and management software for small businesses.

For a dose of competitive counter-hype on Alibaba, I asked the CEO of Atlanta-based manufacturing marketplace MFG.com, Mitch Free, for his take on Alibaba’s business prospects. (I’ve written about MFG.com previously here and here). Says Free:

There is not a lot of depth in what their business is doing. They are basically a directory and that offers limited value beyond supplier discovery. They will need to build or acquire the systems to truly facilitate industrial commerce and protect intellectual property. Bringing products to market is about more than just finding a supplier. Bringing products to market and sourcing the components requires a lot of collaboration, logistics, revision control, negotiation, due diligence, process and workflow integration.

Alibaba has done a great job selling listings to suppliers in China. However, Alibaba is virtually unknown within the industrial community in North America and Europe. In order for their model not to implode they will need to deliver value to their supplier customers in China. And for those customers, value for the money they spend with Alibaba will be judged by the new customer relationships they win as a result of being on Alibaba. Alibaba will also need to build a brand and value proposition with the industrial-buying community in North America and Europe. The challenge for them will be that those buyers have moved way past using directories and are looking for more transactional depth and process integration.

Conveniently, that is what MFG.com offers. And MFG.com, which is backed by Amazon’s Jeff Bezos, is entering China in a big way. So it is a potential competitor of Alibaba’s. But behind Free’s trash talking, there is some good analysis. He knows the manufacturing market well, and China is his biggest growth area. (If Jack Ma or someone else from Alibaba would like to respond, send me an e-mail to erick at techcrunch).

TechCrunch reported on Alibaba’s IPO earlier here and way back in July.

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Alibaba.com Ltd. and Alibaba.com Corp. will sell a combined 858.9 million shares (17%) in Alibaba.com at HK$10 to HK$12 apiece, with Yahoo, currently a 40% share holder in the Alibaba Group buying HK$776 million of the IPO shares, resulting in 8.2% ownership of Alibaba.com Ltd, the newly listed IPO entity.

As we reported in July, the IPO will see the partial spin-off of Alibaba.com from the Alibaba Group, the China based holding company that owns sites including Alipay, Taabao.com and Yahoo China.

The IPO will value Alibaba.com at up to $7.8 billion.

As Bloomberg reports, the Hong Kong IPO is likely to encourage other China based companies to consider listing locally as opposed to the NASDAQ only, where many leading Chinese ecommerce ventures are currently listed.

In related news, Baidu’s market cap has now passed $10 billion, up from $7.97 billion September 17. At close of trade 15 October Baidu stocks closed at $314.95 for a market cap of $10.69 billion, nearly double the market cap the company had in August.

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Alibaba.com shares will be listed on the Hong Kong Stock Exchange in the third quarter and the IPO is expected to raise HK $7.8 billion (US $1 billion). Alibaba has said that they would be using the additional capital to expand their international footprint.

The IPO will see the partial spin-off of Alibaba.com from the Alibaba Group, the China based holding company that owns sites including Alipay, Taabao.com and Yahoo China.

Yahoo Inc is currently the largest shareholder of the Alibaba Group, having acquired a 40% stake in 2005.

(via cs.com.cn)

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