INTERNET: Alibaba, JD Tussle Amid Pressure from Beijing

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Bottom line: The latest spat between Alibaba and JD over behind-the-scenes strong-arm tactics will quickly subside following JD’s filing of a formal complaint, as both come under government pressure to clean up their sites of counterfeit goods.

JD accuses Alibaba of strong-arm tactics

In what’s quickly becoming an annual ritual of fall, a war of words has broken out between e-commerce leaders Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) in the run-up to China’s November 11 Singles Day, the world’s biggest online spending extravaganza. This year JD has accused its larger rival of pressuring third-party online merchants to limit their Singles Day promotions to Alibaba’s own websites, effectively freezing out other sites like JD’s where those same merchants may also operate other online stores.

At the same time, Alibaba, JD and their many smaller e-commerce peers are coming under fire from a new Beijing report saying that more than 40 percent of goods sold online in China are either fake or of poor quality. This new report looks similar to another one that came out early this year uncovering rampant piracy among Chinese e-commerce firms. This time no specific companies are named in the latest media reports. The report earlier this year named many specific companies, and cited Alibaba’s popular Taobao mall as one of the most egregious marketplaces for trade in counterfeit goods.

All the e-commerce news is bubbling into the headlines as the clock ticks down to Singles Day, which will fall next Wednesday on November 11. The date has become a shopping phenomenon over the last 5 years, and most people credit its huge success to Alibaba’s promotional efforts. But other online and traditional retailers have also jumped on the bandwagon, leading to accusations that Alibaba sometimes acts unreasonably to try to maintain its rights over a shopping holiday it largely created.

Last year another dispute erupted between JD and Alibaba in the run-up to Singles Day, after Alibaba reportedly tried to exert its rights to the Double Eleven trademark that is the most commonly used moniker for the date. In that instance JD said Alibaba was pressuring media to reject advertisements for Singles Day promotions from its rivals, citing its ownership of the Double Eleven trademark. (previous post)

This year the story looks somewhat similar, with JD accusing Alibaba of forbidding merchants that participate in its own promotional activities from participating in promotions by other site operators. (English article; Chinese article) JD said it has submitted a formal complaint to the State Administration for Industry and Commerce (SAIC), the same regulator that issued the report earlier this year that was particularly critical of the big volume of pirated goods it found being sold on Alibaba’s Taobao.

Alibaba’s Denial

Not surprisingly, Alibaba has denied any wrongdoing. If any such tactics are happening behind the scenes, which seems likely, I do suspect that Alibaba may quickly abandon those moves due to its own particularly sensitive position right now. The company is currently under review by the Washington trade office, and is working overtime to ensure its name stays off an annual US list of websites “notorious” for trafficking in pirated goods that is likely to be published in the next 2-3 months.

Alibaba is also under huge pressure at home following the SAIC’s critical report early this year that kicked off a long-term decline for the company’s stock. That element was back in the headlines with the latest government report that showed that just under 59 percent of the 2.8 trillion yuan ($440 billion) worth of goods sold online in China last year were of genuine or good quality. (English article)

Significantly, word of this latest report came in a brief article issued by the official Xinhua news agency, and no author was given or company names cited. I suspect the author was the SAIC again, but that this time it delivered its report directly to lawmakers instead of making it public. That’s probably a smart move to avoid similar disruptive public spats. But it also indicates that Alibaba, JD and others will continue to come under pressure from governments both at home and abroad to clean up their sites of trafficking in pirated and other sub-standard goods.

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