AlibabaAlibaba, China’s largest e-commerce company, announced on Tuesday that it has designed a smart television operating system and set-top box, to be known as the ‘Wasu Rainbow’. It’s the kind of announcement that’s difficult to describe without resorting to hackneyed clichés about sleeping dragons and giants awakening, but make no mistake: this is big news for the TV and video advertising industry – and not just for those in APAC. If you’re not yet familiar with Alibaba, then perhaps this stat will provide a little context: according to Forbes, the Alibaba Group’s gross sales of $170 billion are more than Amazon and eBay’s combined.

But Tuesday’s announcement about the company’s move into connected TV didn’t mention advertising. Aliababa said the OS will be used to sell products via connected TVs and a way to integrate its ‘Alipay‘ payments system. However, given that Alibaba are sitting on one of the most valuable sets of first party data on the planet, it seems highly unlikely that video advertising isn’t on the product’s road map.

Alibaba already has plenty of experience with digital advertising. ‘Alimama‘, the company’s ad platform, was set up in 2007 and now has three main components:

a) Taoke, an affiliate advertising service  (Taoke was formerly known as ‘Taobao Alliance’ – an off-shoot of Taobao, the Alibaba-owned ‘eBay of China’);

b) Display advertising via eTao’s TANX (Taobao Ad Network & eXchange);

c) A mobile advertising service.

According to Marbridge Consulting, Taoke alone has ‘over 500,000 website partners, several million merchant members, and daily average pageviews exceeding 4.5 billion’.

So this isn’t an ecommerce company making a clumsy foray into TV. Nor is it only about payments and product sales. If that was the case, it would have been easier to simply make Alipay available to app developers and to build a TV app. But that approach would have led to Alibaba’s dependence on third parties, which are the kind of dangers that only ecosystem ownership can eliminate.

Alibaba’s Acrimonious Relationship with Google

It’s difficult to emphasise just how powerful Alibaba would be if they can get content and user experience right. But that’s still a very big ‘if’ and one that various other players could solve long before Alibaba does. And, as Alibaba have discovered with mobile, it isn’t easy for any company to carve out a niche in verticals where powerful players already dominate the market.

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Back in 2011, Alibaba created the Linux-based ‘Alibaba Mobile Operating System (AMOS)’. The OS was designed to compete with Google, and it didn’t take them long to fall out with the US tech giant, who claimed that AMOS lifted elements from its Android OS. Alibaba disputed those claims, and Google hit back by putting pressure on handset manufacturers who were using AMOS.

Acer, for example, was forced to dump AMOS by Google, who claimed that Alibaba’s OS goes against the compatibility principles set out by the Open Handset Alliance i.e. you’re permitted to customise Android, but not to the point where apps won’t work or perform badly on modified versions. As Google believe AMOS is essentially a modified version of Android, Acer were given the choice of working with Android or AMOS. Dumping AMOS wasn’t a difficult decision.

Connecting the Mobile Consumer and the Factory Floor 

However, the Acer setback failed to dampen Alibaba’s mobile ambitions and the company claims to be aiming for 30 million activated units in the next 12 months or so, which amounts to about 10 percent of China’s smartphones. As with its ecommerce strategy, Alibaba’s strategy is all about lowering costs and cutting out the middlemen.

To ramp up its mobile business, Alibaba has dedicated a channel on Taobao (that’s the eBay style service) to enable handset manufacturers who adopt AMOS to sell directly to consumers, bypassing the traditional brick-and-mortar sales channels while also reducing warehousing, distribution and others costs in an industry where margins are wafer-thin.

According to an Alibaba blog post, the company also subsidises handset makers by paying them an ongoing fee of RMB 1 a month for every AMOS-equipped phone they sell, providing the phone’s owner remains an active user of the software. Alibaba also created a RMB-$1-billion reward program to incentivise app developers, and is working on ways to enable customers to sign up for the phones without paying deposits or down payments (shopping and payment records from Alibaba’s retail websites will be used to vet consumers).

Can Alibaba Win in TV?

When kicking the tyres of any TV operating system, the first question we should ask is not about how glossy the UI is or how the user navigates – but what’s the content strategy? Typically, the current generation of connected TV OS’s will have a few Netflix-style services, some apps featuring web content, and perhaps some catch-up TV.

While it’s too early to confirm what will feature on Wasu Rainbow, Beijing-based IDC analyst Neo Zheng thinks Alibaba might be able to crack the content problem. In an interview with the Wall Street Journal, Zheng said Alibaba’s cooperation with (government-controlled) Wasu Media also gives it a much better chance to succeed in China’s Internet TV market.

If Alibaba does manage to acquire the rights to TV content, the only barrier remaining will be consumer adoption of the device. If it fails, well then Alibaba will remain the ecommerce and tech giant it is today. If it gains traction amongst Chinese consumers, then Alibaba would in all likelihood grow into a marketing and selling machine unlike anything we’ve seen before, and one that’s plugged directly into China’s vast network of factories. While there are still plenty of hurdles along the way, Alibaba is a company the world should be watching.

 


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