On Thursday, yours truly here conceded that virtual reality isn’t just a clever solution to a problem that doesn’t exist, but is a viable business opportunity. Although many of the touted uses of VR were downright silly, enough of them were practical enough to sway me that virtual reality devices like the Oculus Rift would find, or create, a decent market.
As it turns out (and the timing was purely coincidental), Thursday was the same day Alibaba Group Holding Ltd (BABA) unveiled GnomeMagic Lab — the company’s answer to the materializing virtual reality market. The announcement revealed some interesting prospects for BABA stock, such as the company’s proposed use of VR technology as an entertainment platform.
But its initial use of the technology — selling merchandise by offering virtual tours of goods — is much less promising.
Owners of BABA stock expecting the company’s foray into virtual shopping to be a real boon for BABA may want to dial back their near-term expectations. Virtual shopping is one of those silly uses of the technology that sparked my initial distaste of the whole idea.
It’s not exactly as if Alibaba dove unexpectedly in virtual reality waters. Alibaba invested in an augmented reality company called Magic Leap back in early February, with Alibaba more or less being the key reason the startup was able to move forward and finish its key product’s development.
Now, presumably leveraging the technology from Magic Leap, Alibaba CEO Jack Ma has big plans for GnomeMagic.
As was noted, the initial plan is to let Alibaba’s 400 million users shop online by immersing themselves in a shopping experience rather than merely looking at pictures of goods. The company says it has already created virtual reality visuals for hundreds of items sold at its e-commerce sites, but conceivably could pump that number up as much as needed to help its merchants and vendors win more business.
Down the road, Alibaba hopes to make GnomeMagic the backbone of a virtual entertainment enterprise.
It’s not too far-fetched, even if it won’t happen immediately. Owners of BABA stock will already know Alibaba is part-owner of Youku Tudou — a blend of China’s equivalent to YouTube and Netflix, Inc. (NFLX) — so it already has an audience that may be willing to take a short step toward virtual movies, shows and video games. Indeed, this was the very use of VR technology I acknowledged was feasible and monetizable on Thursday.
The interim plan of virtual shopping, though, may be a different story.
(Virtual) Reality Check For BABA Stock
As much as I hate to borrow cliche quotes from a fictional movie, if it’s the best way of illustrating the impasse, I’ll do so.
So …
It was Jeff Goldblum’s character Ian Malcolm who made the poignant point in the 1993 blockbuster Jurassic Park:
“Yeah, yeah, but your scientists were so preoccupied with whether or not they could that they didn’t stop to think if they should.”
Sure, it’s possible to provide a virtual shopping experience, but does it actually help drive sales that wouldn’t be achieved otherwise? Is Alibaba absolutely sure that the investment, time and trouble being put into virtual looks at merchandise is worth it, or is it simply assuming this is the shape of things to come in the world of retailing?
I only ask, because I have a background in retail. I used to work for a couple of different department store chains … in their stores. Granted, it was years and years ago, but shopping hasn’t changed that much.
Browsers — people who want to buy something but don’t know what they want — are visceral. They smell the leather used to make a purse. They feel the fabric used to make a shirt. They lay on the mattress they’re mulling. They try on shoes not for fit, but for comfort. They make entire, color-coordinated outfits.
These are things that can’t be done via virtual reality.
The counterargument is Amazon.com, Inc. (AMZN). Consumers can’t feel, smell or try-on anything purchased at Amazon, and the company is still thriving.
That’s true. But, take a closer look at what comprises most of Amazon’s sales. These are electronics, books and toys … things that don’t lend themselves to a virtual tour. Most buyers know exactly what they’re getting (specs, quality, features, etc) when they buy from Amazon.com.
That’s not to say Amazon doesn’t sell a respectable amount of clothing. It is to say, however, shoppers know exactly what they’re buying when they purchase apparel from Amazon.com. A virtual tour of the merchandise doesn’t make it any more marketable.
VR won’t make Alibaba’s goods any more marketable either, despite how cool the gimmick may be.
Bottom Line for BABA Stock
Don’t hear the wrong message.
Alibaba isn’t doomed, and BABA stock is still a worthy speculative play. But, if your deciding factor in favor of investing in Alibaba is its virtual reality shopping plan, you’re likely in for a rude awakening. Like I said, shopping is one of the less-than-compelling applications of VR that too many people think will matter.
Me? I’m going to hold out and see what the company does with immersive movies and virtual entertainment.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
