Deal focus: Magento targets evolving online retailers

Chinese outbound retail e-commerce generates an estimated $50 billion in gross merchandise volume (GMV) per year. It amounts to a relatively small share of the country's overall online shopping market - which was projected to achieve GMV of RMB5 trillion ($721 billion) in 2016 - but represents a significant target for companies seeking to provide software services to retailers engaging in the complexities of multi-jurisdiction, multi-currency and increasingly multi-channel business.

"A lot of these outbound merchants start out as private sellers on eBay and Amazon, but as they grow they are building their own brands. This is where services like Magento really come into their own, enabling these merchants to control their own branding and customer journey and helping them handle multi-channels," says a spokesperson for Hillhouse Capital.

This business development angle is one of the reasons why Hillhouse agreed to invest $250 million in Magento Commerce, a one-stop-shop for companies looking to launch, promote, manage and scale online stores. The company spun out from eBay in 2015 with backing from Permira, its majority shareholder. Hillhouse's experience and networks in e-commerce support Magento as the team seeks to grow in Asia. It is already working with the company on marketing efforts, assisted by Darren Huston, the former CEO of The Priceline Group who joined Hillhouse last year in the role of senior operating advisor.

Magento is responsible for 29.1% of the top one million e-commerce sites globally, based on Alexa Internet traffic rankings, according to a study carried out last year by aheadWorks, which provides software extensions for Magento products. Customers range from small retailers to large multinationals. "What they have in common is their desire to have a flexible, open, and scalable platform that will support their growth, however it evolves, and provide continuous innovation to their commerce strategy," says Phil Guinand, a partner at Permira.

What Magento will not do is seek to meet the needs of China's domestic online retailers, given this group is already well-serviced by Alibaba Group's Tmall and JD.com - which collectively account for about 80% of online GMV. The immediate target is cross-border business-to-consumer (B2C) retailers that have multi-channel requirements, and beyond that the company will focus on the business-to-business (B2B) market.

"Retail e-commerce penetration in China has been growing fast and exceeds that of the US but when you look at omni-channel traditional retail and the B2B part, it is still very early," the spokesperson adds. "If you think about how these merchants handle e-commerce, they are probably where US retail merchants were 5-7 years ago, using in-house software. We think that will change and Magento is well positioned for it."

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• Topics
• Greater China
• Expansion
• Technology
• Consumer
• China
• Growth capital
• TMT
• Hillhouse Capital Management
• Permira Advisers