Alibaba went too far with Singles Day vendor ultimatum

The dispute between JD and Alibaba over Singles Day is now in the hands of China’s commerce authorities. For those who haven’t been following the controversy, here’s a very simple rundown of what happened:

• Alibaba allegedly told some clothing vendors that they couldn’t participate in Singles Day sales on both Tmall and JD. If those vendors participated in JD’s Singles Day events, they would be subject to punishments like diminished traffic on Taobao.
• JD reported this to China’s State Administration of Industry and Commerce (SAIC) and requested an investigation on the grounds that it is unfair competition, and is unfair to vendors who already spent money advertising sales on both platforms.
• SAIC has accepted the case and is currently investigating.

It’s not clear what the SAIC is going to do, if anything. But from my layman’s perspective, things don’t look great for Alibaba. Its alleged actions certainly seem to violate a SAIC regulation that prohibits platforms from “limiting or excluding online vendors from participating in sales/marketing events on third-party platforms.” And although the SAIC hasn’t said anything explicitly about Alibaba, SAIC head Zhang Mao did tell Chinese reporters on Thursday that with Singles Day approaching, ecommerce platforms must abide by the law, and that competitors must be fair and not restrict vendors, among other things. He made those remarks during a visit to Alibaba, and it seems plausible that they were directed at the company, at least to some extent.

Feels bad, man

Whatever the SAIC decides, though, as an Alibaba fan, it’s hard to feel great about the company in the wake of this latest controversy. Alibaba hasn’t directly admitted to giving vendors an ultimatum, but when I asked an Alibaba rep a direct, yes-or-no question about whether JD’s allegations were accurate, he responded with a PR platitude that dodged the question entirely: “We are offering sellers access to a wider range of customers, logistics and payments then [sic] our competitors can offer.”

That’s not enough for Tech in Asia to consider it an official Alibaba confirmation that the allegations are true, but it’s enough to convince me personally that yes, Alibaba did tell vendors they had to choose between JD or Tmall for Singles Day this year.

It’s not hard to understand why Alibaba would choose to lay down an ultimatum like this, at least from a business perspective. Alibaba and JD are competitors, after all, but Alibaba’s superior market position ensures that if faced with an ultimatum, most vendors are going to choose Tmall. If the SAIC ultimately rules that Alibaba violated the law, then the move will make less business sense, but the basic concept is sound: if you can keep vendors from working with competitors, why wouldn’t you?

The answer to that question, I think, is PR. While it may be a sound business strategy, it doesn’t look very nice. And Alibaba’s PR response to JD’s complaint only opened the company up to further ridicule. When asked for comment, Alibaba SVP of international corporate affairs Jim Wilkinson told Tech in Asia:

JD is panicking because they’re losing. They simply can’t match our customer and merchant experience and logistical scale because Alibaba wins with customers and merchants as we provide a superior experience for users on our platforms.

But as Tech in Asia commenter Vladimir Prostran quickly pointed out, this doesn’t make a lot of sense. If Alibaba is so confident about its customer and merchant experience, as Prostran put it, why is it afraid of competition? Why strong-arm vendors into taking your side in a fight you’re positive you’ll win anyway? In forcing vendors to choose a side on Singles Day, it’s actually Alibaba who looks desperate.

The whole thing is baffling, because the numbers show that at least in terms of market share, Alibaba really does have the upper hand. Just how big an edge it has depends on who you ask, but it to put in perspective, early this year Business Insider estimated that Tmall had 61.4 percent of China’s B2C ecommerce market, compared to JD’s 18.6 percent.