Alibaba Is Taking a Page From Amazon’s Playbook and Going Local

NEW YORK (TheStreet) -- Alibaba (BABA) is constantly expanding the definition of e-commerce in China, often looking to Amazon (AMZN) for hints. For its next venture, Alibaba will be taking local services more seriously.

Earlier this week, Alibaba announced a new joint venture with its subsidiary, Ant Financial, to be known as Koubei. The joint venture will focus on local services in China, pulling together some existing projects Alibaba and Ant Financial have launched separately, and expanding to new areas.

For example, Alibaba's Taodiandian business, which facilitates food delivery from nearby restaurants, will be folded into Koubei. Ant Financial's vending machine business will also eventually be folded in Koubei -- the vending machines are enabled to take mobile payments via Ant Financial's mobile wallet, Alipay.

Beyond that, Koubei will look into new ways to digitize the offline world through location-based services, focusing primarily on the food sector to begin with.

"Local service is a high-growth sector in China given that most consumption still takes place offline," Alibaba spokesperson Melanie Lee said. "Forming this JV allows us to focus exclusively on capturing offline consumption opportunities with a dedicated team."

In 2014, China's local services market was valued at around $38.2 billion, up 38% from the previous year, according to iResearch.

Both Alibaba and Ant Financial will be funneling about $483.3 million into Koubei to get it started. Each company will have a 50% stake in Koubei, and Ant Financial executive Samuel Fan will become its CEO.

"Consolidating our resources under Koubei allows us to capture opportunities that navigate both the offline and online markets," Fan said in a statement. "Harnessing the power of mobile commerce and data technology, Koubei will build synergies between offline consumption and internet-based offerings that will transform China's local services market."

If any of this sounds familiar, it may be because Amazon has been stepping up its local services game recently, with new launches like Home Services, which lets consumers order a local handyman to install a TV for example, and Prime Now, which delivers certain products within hours.

"Amazon has been getting into grocery delivery and other services, and I think Alibaba is also looking at that success and trying to apply it to the Chinese market," said Wedbush analyst Gil Luria.

There are a bunch of parallels between Amazon and Alibaba, starting with their cloud businesses and interest in digital content. Local services is just the newest category.

Though Luria is quick to note that Alibaba actually has an easier time entering these new areas as opposed to Amazon thanks to the infrastructure in China.

"Everything is always harder for Amazon because they always have to compete with an incumbent infrastructure," Luria said. "We have a huge brick-and-mortar infrastructure in the U.S. In China there's just not as much of an infrastructure around brick-and-mortar retail. When Alibaba gets into these services it's more of a green field opportunity, so they have an even better chance at being successful."

While Alibaba is not the first to take a stab at local services in China, it still faces fairly untouched opportunity compared to Amazon taking on traditional shops in the U.S.

Koubei will have to compete with companies like Dianping, a Chinese Yelp (YELP)-meets-Groupon (GRPN) that's valued at $4 billion, and 55.com (WOWO), a local services e-commerce platform. But there's certainly growth in the sector that suggests room for new players.

"Alibaba is trying to let a hundred flowers blossom," said Erik Gordon, a professor at the University of Michigan. "This is another small experiment. It is unlikely to be a big business on its own but might ingrain Alibaba a little more into Chinese life."

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