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.
Published in collaboration with LinkedIn
Author: Michael Moritz is Chairman of Sequoia Capital
Image: Brochures for the initial public offering of Alibaba are displayed during a teleconference in Hong Kong. REUTERS/Bobby Yip