Alibaba and the rise of China's internet giants

For years, Westerners pictured it as the creation of a
snake charmer from a Persian souk. But this week,
when the Alibaba Group prices its initial public
offering (IPO), even the most indolent observer should
get a major jolt. If anyone wants proof of the manner in
which the balance of power in the technology world is
shifting from the US towards China, the stock-market
launch of Alibaba offers irrefutable evidence.
Forget about the fact that Alibaba’s IPO could be the
largest offering ever staged in the US; forget that
Alibaba’s cash balance will swell by at least another
$20 billion; forget the idea that Jack, the first name of
the company’s principal founder, now joins the other
12-figure first names of the internet – Larry, Mark,
Pony and Jeff; just look at the numbers and ponder
the implications.
After the IPO, the twitterati estimate that Alibaba will
probably have a market value of around $200 billion.
This will make it the world’s fifth-most-valuable TMT
(Technology, Media and Telecom) company behind
Apple ($614 billion), Google ($387 billion), Microsoft
($382 billion) and China Mobile ($259 billion). Peer a
little closer and this list reveals more. The top fifty
TMT companies, after Alibaba’s IPO, will have a
combined market value of about $6.1 trillion. Thirty
years ago US companies accounted for the vast
majority of this number. Today the US share has fallen
to about 66%. The Chinese share has climbed to 10%.
A similar compilation of internet companies is even
more riveting. After the Alibaba IPO, the aggregate
value of the world’s largest 50 internet companies will
be about $1.7 trillion, of which about $530 billion is
accounted for by Chinese companies formed in the
past 15 years. Today, 15 of the world’s 50 most
valuable – and imposing – internet companies are
Chinese which, beyond Alibaba, include Tencent,
Baidu, JD.com, VIP Shops, Qihoo and CTrip. Add up
the combined value of a handful of companies brewed
in the US – eBay, Twitter, Netflix and Priceline – and
you would still require about another $20 billion in
order to match Alibaba’s market capitalization.
Beneath the surface, there are some less obvious
trends. Thanks to the market opportunity on their back
doorstep, Chinese internet companies have not
wandered far from home. It will be far easier for them
to expand in the US – organically and through
acquisition or investments – than for their American
counterparts to do the same in China. The US
companies will point accusatory fingers at regulators
but, in the past decade, most of their problems in
China have been self-inflicted – selection of the
wrong people; the assumption that what worked in
America will work elsewhere; and, of course, a reliance
on English as the mother tongue.
The fact that the Chinese companies listed among the
global TMT top 50 are a group of internet businesses,
the two major domestic carriers – China Mobile, China
Telecom – and Hon Hai, the electronic manufacturing
company, should cause other technology leaders
restless nights. Just because no Chinese
semiconductor, networking, enterprise software or
storage companies are included in the 2014 list is no
guarantee that this will hold true in 2024.
Sequoia funds may have investment positions in
companies mentioned.