Class code: L43
Introduction
Jack Ma and 17 of his friends launched Alibaba in 1999, an e-commerce company from China. They provide business to customer and customer to customer sales and services through the web portals as well as other services such as electronic payments, cloud computing services that are data centric and search engines for shopping. Although the company was started in the year 1999, the group started earning profits only from the year 2001.
The best way to understand Alibaba is as a mix of Amazon.com, eBay and PayPal with a dash of Google thrown in, all with some uniquely Chinese characteristics. Alibaba has always acted as a middleman, connecting buyers and sellers and facilitating transactions between them.
1. business value proposition
Alibaba's value proposition is "We are making it easy to do business anywhere and we are helping the merchants on our platform reach consumers in the most efficient way".
This year, domestic Chinese shoppers were also invited to browse products online or visit participating retail stores prior to the event, using their smartphones to scan QR codes and add discounted items to Tmall or Taobao’s virtual shopping carts. Once they had done this, consumers were then able to click a "buy" button to trigger purchases of the merchandise in the carts once the sale began. Alibaba also introduced software algorithms to predict and display personalized items consumers wanted to see on their mobile phones.
2. revenue, pricing and cost
Taobao, Alibaba's biggest website, is like a gigantic Chinese bazaar with about 760 million product listings from 7 million sellers. Merchants don't pay to sell products on Taobao--and that fee-free model is a big part of its appeal in China. Instead, they pay Alibaba for advertising and other services to allow them to stand out from the crowd. Much like on Google, the ads from merchants appear with Taobao's product-search results.
3. market opportunity
Part of the success is driven by the Chinese customer who does more more online shopping than any other consumer in the world. Considering its large customer base and their propensity toward repeat business, Alibaba enjoys a massive market opportunity in its home country and it shows in their gross sales numbers. With so much success at home, Alibaba’s management has voiced ambitions to grow globally.
Alibaba has made major moves to expand its role in mobile commerce and shopping through social media platforms. On Singles Day, the biggest Chinese online shopping holiday, 21% of transactions took place over mobile devices, up from 5% just one year ago. Other businesses such as Laiwang and Airpay are also increasingly focused on mobile.
Several companies within the Alibaba Group are taking strides to expand their businesses overseas. The company’s overall strategy is to expand into markets where there are large Chinese reading populations such as Singapore, Hong Kong, Malaysia, Taiwan.
4. competitive environment
Even though Alibaba is still by far the biggest player in China's fast-growing e-commerce market, the company is facing stiffer competition as more Chinese consumers use smartphones. In this new environment, social media and online gaming giant Tencent Holdings Ltd., which operates massively popular WeChat mobile messaging application, is emerging as a powerful competitor to Alibaba, because of its ability to use WeChat as a mobile-based platform to offer other services such as e-commerce. To further bolster its e-commerce capabilities, Tencent earlier this month announced a deal to buy a 15% stake in JD.com Inc., China's second-largest e-commerce firm.
5. competitive advantage
a) Huge marketplace (China): Alibaba operates in China and taps this vast market, where other e-commerce players have limited access. A rapidly developing economy of over a billion people has a rapidly growing middle-class with millions of people. These people are savvy, have deep pockets and prefer online shopping due to time constraints, the freedom it offers, discounts, and the ability to choose from various options (in a single place). This is very similar to the growth of Flipkart in India. Thus Alibaba is tapping a big market.
b) Seller-based revenue models: Unlike other e-commerce companies, Alibaba offers three different revenue models for different types of sellers. While small sellers can list products for free on Taobao, Tmall is exclusive to big brands and sellers pay for subscription and transaction. Alibaba.com itself works as a middleman and connects buyers and sellers (mostly importers and exporters), charging them for each transaction. Thus the strategy of multiple revenue platforms offers it a distinct competitive advantage in attracting all types of sellers.
c) Networking: Alibaba, through various online portals, has the biggest network of sellers and buyers.
d) Scale of operation: Given the transaction size in the Chinese economy, Alibaba has scale of operation working wonders for it. If you have a large scale operation, a very high number of sales/transactions, you have a lower cost of operation and thus a more profitable business.
e) Retaining customer's trust: The company has also emerged as a huge player in China's creaky financial system. To solve the problem of buyers trusting the merchants on the site, Alibaba created Alipay, which is a payment system that protects buyers if sellers don't deliver. Alipay has become so ingrained in China, that when the company launched a money-market fund, it grew to be one of the world's largest in just eight months.
5. market strategy
Alibaba target two marketplaces which include the global marketplace based in English Language that cater to
international exporters and importers and the China marketplaces whose aim is to focus on suppliers and buyers
trading locally in China. China is by far the largest Internet marketplace in the world with double the size of U.S
market. There are 560 million Internet users spending 20 hours a week online. Notably, China is skipping with
the traditional retailing and in favor of the e-retailing. These two marketplaces are
collectively the most- visited B2B website on the Internet. Alibaba also target on small and medium-sized private
enterprises and individual businessmen, which have great potential in succeeding in the e-trade. In order to get a
huge portion of market share, Alibaba has localized the e-trade services by developing websites that locate to
different languages and modify their design and layouts, which suits the local cultural in overseas. For example,
English website is target to buyers from oversea in general while Chinese website targets China traders and
Japanese website aims at the Japanese market. Alibaba has also creates Korean and Spanish language website in
order to expand its market in different regions and to achieve highest profit and goals. All these play an
important role in Alibaba’s global success
6. organisation development
Alibaba Business Model is based on a chain of e-commerce platforms to facilitate its business, like Alipay – a third-party online payment platform without any transaction costs. Alimama – an online platform to provide sellers of Alibaba group marketing services.China Smart Logistics – a platform to provide information to the buyers and sellers regarding package delivery. Aliyun – a cloud computing and data management platform to facilitate Alibaba’s e-commerce business. The success of Alibaba Business Model lies in the fact that it has adopted the best practices of some of the already well-known e-commerce leaders to build a unique concept, not simply copied them.
7. key management team
Jack Ma the founder, Daniel Zhang the CEO and Joseph Tsai the executive vice-chairman.
