If you have ever ordered anything online, you must have heard about Alibaba. Alibaba is one of the leading e-commerce giant globally. After adding the turnover of various e-commerce company, still there will be a big difference between the revenues of Alibaba and other companies. Let’s see what is Alibaba business model.
So, let’s understand what strategy did they used to gain a big market share globally.
In brief, they acted according to the fragmented market condition of China which made them a big player. They initially worked on Free is Powerful strategy and connected with every local vendor which allowed them to lead the industry.
Table Of Contents
- About Founder and CEO
- How they captured a large market share in the global market?
- How do they earn?
- Investment, Acquisition and Future Aim.
- FAQ’s related to Alibaba.
For understanding it in brief let’s see more about them.
About Alibaba, its Founder and CEO.
Alibaba was founded on 4 April 1999 in Hangzhou, Zhejiang, China by its founders Cathy Zhang, Changwei Ma, Eddie Wu, Jack Ma, James Sheng, Jane Jiang, Jianhang Jin, Joseph Tsai, Lucy Peng, Min Han, Simon Xie, Tony Yiu, Toto Sun, Trudy Dai, Wensheng Lou, Yuanying Jin, Yuehong Zhou and Yufeng Shi.
Until September, 2019, Jack Ma was the chairman of the company but he officially stepped down as chairman. The current chairman of company is Daniel Zhang.
Jack Ma and his 17 friends started Alibaba.com in 1999, which late became an largest B2B and B2C platform. Jack Ma founded this company, as he wanted to improve the global e-commerce industry, so he introduced Taobao, AliExpress, TMall, Ali Mama, Lynx. After successful rapid rise of Taobao, eBay offered to purchase the company.
History of Alibaba
Jack Ma co-founded the company with his 17 friends from an investment of $5 million raised by consortium of investors from US. Later, in 2002, it became profitable for the first time and for making perfect e-commerce market place for Small and Medium Enterprise (SMEs), they launched Taobao, AliExpress, Alipay, Ali Mama.com and Lynx.
In the year of 2003, eBay had given the offer of purchasing Taobao, a subsidiary of the Group, but the offer was rejected by the Group and later which lead to suspend the eBay business in China.
Then in 2005, Yahoo invested $1 Billion.
On September, 2014, they issued an Initial Public Offering and listed its company in US Stock Market. The initial share price of the company was $68, and the company raised US $21.8 Billion from the Initial Public Offering(IPO).
It was biggest US IPO in history, bigger than Google, Facebook and Twitter. Later, the company’s underwriter announced the sale of 15% more share then originally planned which boosted the total amount of IPO up to $25 Billion.
In January, 2017, the company and International Olympic Committee announced a deal in which company will sponsor the Olympic games until 2028.
Finally in 2018, Jack Ma announced that he would step down as a CEO of the company and on 10 September, 2019, Jack Ma officially stepped down as chairman and Daniel Zhang succeeded him.
Have a look on this video which will help you get to know more about them.
Services Alibaba Provide
Alibaba has diversified business model. They are working on so many services and had diversified their business. Their primary business is of e-commerce which help them grow in their initial years.
Let’s understand every source of revenue they have.
Alibaba.com and 1688.com
The first business from which Alibaba started, was e-commerce. They have e-commerce focused business model They have mainly 3 portals, first is Alibaba.com which manages sales between B2B importers and exporters. Second is, 1688.com which manages B2B sales in China.
Furthermore In 2003, they launched Taobao Marketplace which offers variety of products for retail sale. It was a Customer to Customer (C2C) business platform in which any customer can directly sell to customer. According to Alexa Internet, Taobao Marketplace is the most visited website in China and second most visited website globally.
Taobao Mall and Juhuasuan
Likewise in April 2008, Taobao launched Taobao Mall (which changed to Tianmao in 2012) which offers the branded products and it was a Business to Customer (B2C) platform which had given a huge Chinese customer base to the company.
Similarly in March 2010, Taobao launched a website Juhuasuan, which was a group shopping website offers flash sale for a limited period of time.
Taobao also launched a website namely eTao in October 2010, which allows user to compare a product in another websites like Amazon, Nike etc.
In 2010, they launched AliExpress which is online retail service especially for small Chinese business, so that they can offer products to international buyers. This enables small Chinese businesses to target and sell their products in global markets.
11main.com and Hema
In June 2014, they launched 11main.com which hosts many merchants which provide clothing, fashion, Interior good, jewelry, art and craft and many. But in June 2015, they sold 11main.com to the OpenSky which was New York based online-marketplace.
To enumerate, in 2017, they started a new chain store named Hema, as a part of ‘new market strategy’ which provide delivery in 30 minutes. Products can be ordered using its mobile application.
Above all was a brief description of the e-commerce which they has. Now let’s move on to the other things which helped in diversification of the company.
AI and Cloud Computing
In contrast with their e-commerce business and also to diversify their business model, Alibaba launched its first cloud service Alibaba Cloud in September 2009. Their aim was to build a cloud computing service platform including e-commerce data mining, data processing and data customization.
Later, AlibabaCloud formed a partnership deal with Inspur and became the largest cloud computing service provider in China.
In July 2011, they released AliOS, which was a linux designed for mobile devices.
In July 2019, they unveiled a 64-bit RISC-V processor called the XuanTie910.
On 25 September 2019, they announced an AI accelerator called the Hanguang 800.
FinTech and Online Payment
Further, Alibaba had added Fintech in their business model and launched an application for ease in Online payment. It was Alipay. Alipay was one of the reasons because of which the e-commerce business of Alibaba was in boost.
Alipay provided a feature in which customer buy product from them and transfer money to Alipay, and Alipay holds the payment until the product is not received to the customer. Customers find this so reliable and this consequently increased the sale of Alibaba.
Later in October 2014, Alipay was renamed to Ant Financial. Ant Financial is the highest valued fintech company in the world, and the world’s most valuable start-up, with a valuation of US$150 Billion.
Above all, they acquired a controlling stake in ChinaVision Media Group for $804 million. In March, they launched AliMusic as its division. Xiami Music and TianTian Music are two music streaming application owned by AliMusic.
They also launched a platform, Damai, which focuses on ticketing, content creation and live experiences.
They also provide online distribution service like 9Apps, which hosts downloadable content and applications.
They launched an Instant Messaging application Aliwangwang and also launched Shenma, a mobile-only search engine which was launched in a joint venture with UCWebs.
In June, they acquired UCWebs which includes UC Browser, 9Apps, UC News.
In October 2005, they acquired Yahoo China.
In 2014, they had also launched AliHealth in partnership with Yunfeng Capital which was a pharmaceutical e-commerce company.
In 2014, they acquired a map supplier AutoNavi which provide map data to Google maps and also to Apple Maps.
In fact, they launched AliSports in 2015 which focuses on operations encompass television and digital sports rights, event operation, venue commercialization, copyright, media, business development, gaming, and ticketing.
How Alibaba captured a large market share in the global market?
When Alibaba Group was new in market, they adopted some strategies to capture market.
- First Mover Advantage– Chinese market was so fragmented that there was no chain store and the retail sales account more in China. They tapped the undiscovered chain of retail and online store, which gave them first mover advantage in China.
- Free Strategy– There were some online market place exist in China like eBay, but they charge fees to the sellers for selling their products. But the company provided free platform to all the sellers.
- Connecting Customers– They launched so many platforms to connect to the customers of every kind, like B2B, B2C, C2C which helped them grow tremendously.
- Safety in Transactions– They launched Alipay for security and safety purpose and to limit the frauds which can lead to the customer dissatisfaction.
- Provided Platform for Every e-Commerce field– They provided so many platforms for all kind of buyers and sellers like those who wish to trade internationally or in domestic country or those who are small businesses, which helped them in its expansion.
How does Alibaba earn?
Alibaba also generates revenue same as other e-commerce companies by charging merchants through the sale of a variety of marketing services, membership fees, customer management services, product sales, commissions on transactions, and software service fees.
The company generates revenue from local consumers through platform commissions and on-demand delivery service fees.
Company generates 85.8% of revenue from its core business which is e-commerce.
And Cloud computing is the second largest source of revenue for Alibaba Group which accounts for 6.6% of total revenue.
Entertainment service is the third largest source of revenue which accounts 6.4% of total revenue.
They had revenue from many sources like their investment and other petty services they provide.
Alibaba’s Investment, Acquisition and Future Aim
Here is a table given below about the company which was acquisition-ed by them in past 2 years: –
|Company Name||Year of Acquisition||Service company provide|
|Eleme||Feb,2018||Local lifestyle platform that mainly engaged in online take-out, new retail, instant delivery and catering supply chain.|
|C-Sky Microsystem||Apr2018||Integrated circuit design house|
|Daraz.pk||May,2018||Daraz is an online store that provides branded products for men and women across clothing, footwear, apparel, jewelry and accessories|
|Trendyol Group||June, 2018||Trendyol.com is the largest mobile commerce company in Turkey|
|OpenSky||Sept, 2018||OpenSky is a social shopping marketplace that helps people discover, buy and share unique goods that match their individual taste.|
|Veverica||Jan, 2019||Ververica provides Ververica Platform, with open source apache flink and application manager, to the enterprise.|
|Infinity Augmented Reality||March,2019||It is a software company that focuses on the development of an augmented reality software platform.|
|Teambition||March,2019||It is a team collaboration platform that is efficient , simple and elegant.|
|Kaola||Sept, 2019||It is an overseas genuine shopping website of NetEase.|
|Keruyun||Feb, 2020||It is one of the Top Global O2O & SaaS technology providers in the F&B, Retail and Services industry.|
*Note: This data is according to the crunchbase.com.
In 2016, Alibaba’s Taobao and Tmall, had a total transaction volume of US$478.6 billion. The company aims to double the transaction volume to 6 trillion yuan by 2020.
They had also announced that they will invest 100 billion yuan in over five years to build a global logistics network overseas expansion, and demonstrating Alibaba’s commitment to building the most efficient logistics network in China and around the world. They are investing further 5.3 billion yuan in Cainiao Logistics to boost its stake to 51 percent from 47 percent.
Here is a table which will help you understand the more about Alibaba Group: –
|Founded||4 April 1999|
|Headquarters||Hangzhou, Zhejiang, China|
|Chairman and CEO||Daniel Zhang|
|Services||Alibaba.com, Alibaba Cloud, AliExpress, AliOS, AliHealth, Juhuasuan, Aliwangwang, Hema, AliMusic, eTao, Ant Financial, Taobao, Tmall, 1688.com|
|Profit||US $54.5 Billions|
|Number of employees||101,958 (as onMarch 31, 2019)|
So, after knowing about the business model of the company, you get to know that it’s quite sure that Alibaba Group is one of largest global MNC and had diversified itself in so many things which make the chances of loss very less.
In initial years, Alibaba expanded its main e-commerce business and then invested the profits in diversifying its company in many product and services.
Finally this strategy of Alibaba made them the leading player among the world.
FAQ’s related to Alibaba
The company started as a e-commerce, comprising all kind of trade like B2B, B2C and many among foreign trade, import and export. It expanded itself in cloud computing and fintech too.
Alibaba provided everything which is required in e-commerce like wide variety of products, small local sellers, a secure mode of payments.
AliExpress is a subsidiary of Alibaba group. AliExpress is a platform for local vendors to sell their products around the globe.
On 4 April 1999, Jack Ma and his team of 17 friends founded Alibaba.com, a China-based B2B, B2C marketplace website, in his Hangzhou’s apartment
Alibaba acts as a middleman between buyers and sellers and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free marketplace where neither sellers nor buyers are assessed a fee for completing transactions.
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