May 20, 2017 6:55 am JST

Seeing is wanting: Alibaba creates demand out of thin air

Chinese e-commerce power envelops customers in its business ecosystem

WATARU KODAKA, Nikkei staff writer

Point-and-shoot shopping is a major new feature of Taobao, Alibaba's e-commerce site. (Photo by Wataru Kodaka)

SHANGHAI -- Chinese tech titan Alibaba Group Holding is enhancing its online shopping platform with big data and artificial intelligence, looking to expand its vast business empire further by creating new demand and enticing customers to spend more.

A young woman walking through downtown Shanghai recently noticed a passerby's cute bag and asked to take a photo. Click, went her smartphone's camera, and in the space of three or four seconds, an AI-driven image recognition system on Alibaba e-commerce site Taobao found the goods most closely resembling it from a catalog of 800 million items.

The image recognition feature lets people stroll through department stores or shopping streets and simply hold out their phones to buy whatever they see in real life from online sellers. For children of the smartphone generation, it turns the whole world into a storefront.

Creating demand

E-commerce has advanced from the stage of filling demand to that of creating it, Alibaba CEO Daniel Zhang said at an earnings presentation for investors Thursday, explaining the company's strong performance. For the fiscal year ended in March, the company reported a 56% increase in sales to a record 158.2 billion yuan ($22.9 million). Operating profit also hit a record, surging 65% to 48 billion yuan.

The company had 454 million online shopping customers as of the end of March in China, where it generates 70% of sales. But this customer figure translates to 7% growth over the past year, compared with 20% in the prior year.

However, revenue per user soared 33% to 251 yuan -- around $36 -- for the year ended in March, compared with 10% growth the year prior. That sales figure is based on the roughly 3% in fees that Alibaba charges from sellers based on the value of each item sold. Considering this, the actual amount each shopper spent appears to have topped $1,000 per year. The search-by-photo feature and other new services, which have spread widely this year, contributed heavily to rising sales numbers.

Social 'credit score' taps data

Alipay, Alibaba's widely used online payment service, also launched a feature that tracks a user's social "credit score" based largely on troves of past usage data. The score, out of a possible 950, appears on a circular gauge akin to a car's speedometer. High scores, indicating strong credibility, entitle users to benefits such as borrowing money at lower interest rates, buying branded goods on installment payments without incurring credit charges and staying at certain hotels without putting up the normally required deposits.

Customers actively use Alipay to boost their social credit score and gain access to preferential services. Many retailers are keenly interested in identify high-scoring customers. Alibaba is working with a number of businesses to develop services targeting those big spenders.

Alibaba's drive to create demand revolves mainly around delivering cloud-based big-data analysis and practical financial technology to users in easy-to-understand ways. The company's effort to envelop consumers in its business ecosystem is gradually succeeding.

But the tech titan is not invincible. Internet services company Tencent Holdings said Wednesday its WeChat free online chat app had attracted more than 900 million users. The sheer size of its general user base gives Tencent an advantage in rolling out new services and analyzing data. Alibaba has built a formidable presence by enhancing its online shopping service and nabbing customers from bricks-and-mortar stores, but the company cannot rest on its laurels.

Asia300

Alibaba Group Holding Ltd.

China

Market(Ticker): NYS(BABA)
Sector:
Industry:
Retail Trade
Internet Retail
Market cap(USD): 423,669M
Shares: 2,529.36M
Asia300

Tencent Holdings Ltd.

China

Market(Ticker): HKG(700)
Sector:
Industry:
Technology Services
Internet Software/Services
Market cap(USD): 395,598M
Shares: 9,497.99M

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