For Alibaba, Ordinary E-Commerce Isn't Enough

The Chinese Giant's Shopfest Will Be About Connecting the Online and Offline Worlds

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Alibaba is hosting its mega shopfest this week.
Alibaba is hosting its mega shopfest this week.

Alibaba's annual online shopping festival last Nov. 11 generated $9.3 billion in sales in 24 hours, more than four times the size of Cyber Monday in the U.S. For this Nov. 11, Alibaba has decided straightforward e-commerce isn't enough. It's tackling a new front with omnichannel retailing, usually known in China by the easy-to-pronounce buzzword "O2O." That stands for "online to offline," or connecting internet users to shops and services in the real world.

Whenever mighty Alibaba sets a new priority for China, the world's biggest e-commerce market, brands quickly get to work, and "the scale is instantly huge and massive," said Alex Misseri, senior VP-retail and commerce at Razorfish Asia-Pacific.

So when customers walk into any of 180,000 participating brick-and-mortar stores, a text message from their Alibaba mobile app pops up on their phone, asking them to scan a code in the shop to compete for coupons for the 11.11 event, as it's called. Alibaba says about $755 million in coupons will go out for the event.

Another push is to get items delivered from local brick-and-mortar shops instead of distant warehouses—meaning delivery times could be slashed, maybe measured in minutes instead of hours or days, Mr. Misseri noted.

Retailers with shops on Alibaba's Tmall platform have their own O2O incentives. Cadillac is selling cars online through Tmall, and the first 100 buyers to click on Nov. 11 will get an ATS-L at half price. There's an O2O twist for a (slight) discount: Customers who visit a showroom and post a photo of a car on mobile app WeChat can get an extra $31 off.

Alibaba isn't alone in the O2O craze; China's other internet behemoths, Tencent and Baidu, are all fighting for domination in this space. Robin Li, the CEO of Baidu, the world's No. 3 digital ad player after Google and Facebook, has even said that O2O services and retail are the company's future, as opposed to search ads, where the company gets most revenue today. And he has complained that investors in the U.S., where Baidu is listed, don't understand how important O2O is.

The Chinese giants' intense rivalry, and their spending spree on O2O-related businesses, are spurring on a golden age for smartphone users in China.

Tencent's WeChat is no longer just a chat app; you can use it to buy plane tickets, call a cab, pay your electric bill, play a mobile game pushed out by a brand or go shopping. (To convince people to link their bank cards to WeChat, the company ran hugely successful social games at Chinese New Year that played on the seasonal tradition of giving and receiving cash in red envelopes.)

Tencent has a partnership with China's second-largest online retailer, JD.com, which has its own Nov. 11 sales event to try to compete with Alibaba's. It also backed an online review platform and on-demand service called Dianping and integrated it onto WeChat; now with a few clicks you can order a chef to cook a meal for you ($15.50), hire a manicurist to do your nails at home (from $10.70) or get someone to wash your car ($6.13).

All that is made possible by China's low labor costs and the population density in Chinese megacities, said Eugene Chew, chief digital officer at J. Walter Thompson Shanghai. People also find the services convenient because of low car ownership in China as well as undeveloped retail offerings in many cities. And another factor is that China embraces digital change so fast.

"A lot of people leapfrogged the PC generation and went straight to smartphone, and there's less built-up resistance to new behavior because of that," Mr. Chew said. And because people's lives are improving, and their spending power is growing, "we're excited to try new things, and buy new things, and we're a little bit more open to being marketed to."