West can learn from Alibaba

Although Alibaba's IPO is yet to happen, company founder Jack Ma is already the richest man in China - at least according to Bloomberg News, which recently put his fortune at $21.8 billion, sending him to the top of its billionaires' index. Unlike many of its western rivals, Alibaba has been highly profitable for years. In the first quarter of this year alone, it tripled its profit to nearly $1.99 billion. The Alibaba group of Internet-based e-commerce businesses not only sells more goods than eBay and Amazon combined, it also enjoys significantly higher profits. Until now, the richest man in China was Wang Jianlin, who made his money the old-school way - with real estate. He's slipped down the billionaires‘ index to 6th place.

As far as returns are concerned, Ma is not even a stand-out case. In China, Internet businesses are flourishing, with digital entrepreneurs occupying second and third place on the country's rich list: Ma Huateng, founder of Tencent, the largest Internet company in China according to market value, is followed by Robin Li, founder of search engine operator Baidu.

For now, Ma is languishing in 35th place on the international rich list. But this might change next week when Alibaba makes its stock market debut. Analysts estimate that the group is worth $154 billion. After the initial listing, it could well be as much as $200 billion. Given that Ma still owns 7 percent of the shares himself, he would be worth $14 billion in one fell swoop - before tax.

Impressive growth

Since Jack Ma founded the company with a couple of partners in his living room in Hangzhou, southern China, 15 years ago, its rise has been meteoric. In the first year, Ma secured financial backing to the tune of over $25 million from prestigious overseas banks including Goldman Sachs, and investorls like Japanese software giant Softbank. Unlike its western predecessors, the company was instantly profitable. These days, Ma is not just a billionaire but a popular hero who has made a key contribution to shaping the Internet and e-commerce in China.

Much like eBay and Amazon, Alibaba has revolutionized consumer behavior. But in many respects, it has gone about things very differently, studying the weaknesses in the US companies' businesses models very closely and avoiding the same pitfalls in China. In contrast to eBay, sellers on Taobao pay no fee. Alibaba earns money with Taobao with advertising and extra services that help set it apart. Ma has successfully attracted to the site not only millions of amateur sellers but also around 58 million small and medium-sized retailers. Innovation is also the trademark of the buyers' page.

Millions of potential new users

Also in contrast to eBay, which makes prepayment obligatory, Taobao allows payment upon receipt - a policy that helped win over even the most skeptical of users. Merchandise for money, just like in the good old days. The Chinese are used to unpacking a new product and trying it out – a throwback to the times when only one in three devices actually worked.

With these two simple but inspired improvements, the company tapped into a vast market and took it by storm.

The potential of this business model is unlikely to be exhausted in the foreseeable future. For this reason it seems likely that Ma will continue making astronomical amounts of money even when western e-commerce businesses are reaching their limits of growth. Only 618 million of the 1.3 billion people who live in China have Internet access. Even so, the last fiscal year saw goods worth $171 billion sold through Alibaba platforms. One can only imagine what the figures will look like when the rest of the population is online.

DW columnist Frank Sieren has lived in Beijing for 20 years.