11/22/2007

Alibaba.com - Biggest E-Commerce Debut Ever

This article here talks about how Alibaba.com had a 192% increase on their first day of trading in Hong Kong in an IPO that raised $1.7 billion. This is considered record for a mainland web company.

Isn't this a wonderful age that we live in, where intellectual property with practically no physical presence can make such a dramatic affect on the business world? Traditional 'brick-and-mortar' stores have numerous issues and concerns to overcome and constantly monitor, and much of the revenue is taken to sustain the physical plant, inventory, workforce, warehouse, etc. Now, you can get a group of techs together with a good idea, a domain name, and a server with adequate bandwidth, and make millions or even billions of dollars.

How soon will it be until there are a limited number of traditional 'stores' and e-commerce becomes the major marketing presence?

7 comments:

Dr. Tufte said...

A weakness of our text is the lack of treatment of "real options". This is the application of modeling techniques from financial options to understand the valuation of projects or firms. Since these are collections of option-like decisions, the same techniques apply.

Most of the high valuation of e-commerce firms comes from the low probability of very high upside potential associated with the small size of sunk costs in e-commerce. Since those sunk costs are low, there isn't too much to lose. But, if it works out, the profit rates can be very high (think of the incremental margin that you can earn if you can corner some digital content).

Matthew said...

Dr. Tufte mentioned that in industries with low sunk costs, when things work out, profits can be very high. It is true that lower costs provide for higher profits. It is also true that low sunk costs usually mean lower barriers to entry, meaning more people are entering the market and trying their hand at the trade. More people working hard at a goal increases the chances of someone coming up with a great product that will produce high profits. Investors just need to make sure that they are investing in a good idea or person, and not getting on board for the next fad or dot com bubble.

Reagan said...

Dr. Tufte-Extra Credit

I agree with your comment about low sunk costs and the possibility of high returns. However, Alibaba.com has very large sunk costs. Alibaba.com has been around for quite awhile and developing its infrastructure and network has been very costly. In addition to those sunk costs Yahoo purchased 39% of Alibaba.com's parent company for over $1 billion dollars. The reason why Yahoo was willing to pay so much for a part of Alibaba.com is because of the amount of commerce that is generated between China and the world on Alibabi. It isn't a coincidence that Alibaba raised $1.7 billion in its IPO and their profitability isn't because of low sunk costs.

Dr. Tufte said...

Reagan - I stand corrected.

Mehul Vansdadiya said...

The popularity of online business is limited to the internet users. You will only find Savvy customers who will have many "online stores" in there browser. Obviously online business have many merits. All of the "brick-and-mortar" companies must have there "Online outlet" in the next decade.

Bartholomew Dot.Net Pro. said...

If you are selling a product that is substantially smaller in scope than, an e-commerce infrastructure would be useful as it will expand your market to the whole world ie. Your product will get exposed to customers across the world thus giving it the required boost. http://www.infyecommercesolution.com/

seo.media said...

Won't you wonder if somebody says he doesn't know what is a software company ? Am sure you will fall off from your chair. But believe me it is true. There still are people in third world countries who don’t know anything about Web Design, Ecommerce Solutions or internet. So those who are not really aware about these buzzing things, try to find out what is a tech-world of Internet.