Group Leader: Lim Yi Jie (SN: 10070636)

Class Code: L43-2014

Business Model of AliBaba

Introduction

AliBaba Group, founded by 18 people and led by Jack Ma, is a privately owned Hangzhou based group of internet-based business. These entities include online marketplaces which facilitate business-to-business international and domestic trade, retail and payment platforms, shopping search engine and data-centric cloud computing services.

In its list of vast affiliates, the company’s international platform in English language, AliBaba.com, was launched in 1999 and it serves as a one-stop sourcing platform for domestic suppliers to easily reach out to global audiences. The China Marketplace, 1688.com, is developed for domestic business to business in China. In addition, an online shopping website, Taobao Marketplace, is founded in May 2003.

Alibaba owns stakes in many aspects, but operates essentially through three sites: Taobao Marketplace, China’s biggest shopping site; Tmall (formerly known as Taobao Mall), which specialises on online sales of branded goods and focuses on China’s fast-growing middle class; and Alibaba.com, which connects Chinese exporters with companies elsewhere in the world. Between them they host millions of merchants and businesses, and have hundreds of millions of users; in terms of the amount of business handled, one can argue that Alibaba is actually the world’s biggest online commerce company, not just China’s. On top of its core sites it owns alipay.com, a Chinese equivalent of Paypal; and has large stakes in Sina Weibo, China’s version of Twitter; and Youku Tudou, the closest Chinese equivalent to YouTube. Lately, it’s gone a bit scatty in its acquisitions, buying a film business and half of the Chinese football club Guangzhou Evergrande. It has even talked about entering the banking industry, and already has a remarkably popular mutual fund called Yu’e Bao.

Business Model

The online value proposition of AliBaba Group would be “to make it easy to do business anywhere”. Ghosh proposed that one of the key elements of a business-model would be the value proposition, that is, the promise of value to be delivered. This can be seen in AliBaba.com as it provides internet-based business to business (B2B) platform where sellers (i.e. suppliers/manufacturers) can meet buyers (i.e. outsourcers/wholesalers) on a global basis. Alibaba.com claims that it can bring hundreds of millions of products in over 40 different major categories, including consumer electronics, machinery and apparel, and the buyers for these products are located in 190+ countries and regions, and exchange hundreds of thousands of messages with suppliers on the platform each day. Through such accessibility and connectivity between buyers and suppliers on Alibaba.com, global reach/convenience/connection (Chaffey 6Cs/Laudon 8UFs) can be achieved on an international level.

Revenue Model

AliBaba does not earn its revenue through buying and selling of products like Amazon. Instead, Alibaba connects customers and businesses and facilitate transactions between them, acting a role of a middleman like eBay. Hence, although Alibaba lets businesses list for free, it charges for advertising. For example, Taobao, Alibaba's biggest website, has about 760 million product listings from 7 million sellers and these merchants need not pay a fee 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 advertisements from merchants appear with Taobao's product-search results. According to its latest filing with US regulators, 279 million active buyers and 8.5 million active sellers use Alibaba's online services every year and 14.5 billion annual orders are made. So it's not hard to see why advertisers find the websites so appealing.

Thus, in contrast to eBay, Alibaba does not charge listing fees. Instead it makes most of its revenue from advertising on its various sites. Furthermore, it does not need huge amounts of infrastructure to make the system work.

Market Opportunity

Alibaba's growth from a start-up employing 18 people in 1999 to a worldwide company employing 22,000 is down to its ability to harness the world of internet commerce. It accounts for 80% of all online retail sales in China.

China now has over 600 million internet users, out of a population of 1.3 billion people, which compares with 277 million internet users in the US and 546 million in Europe.

Alibaba has used that rapidly increasing online market, in its launch of the mobile Taobao application in 2010, to pioneer smartphone technology in the country, and now controls over 75% of all mobile retail in China. The research firm Forrester estimates that the number of smartphones in China will grow to 740 million by 2017. And the good news for Alibaba is that consumers are increasingly choosing to shop with their phones. According to the Internet Society of China, online mobile payment transactions are expected to exceed $1.45 trillion (£800bn) by 2015.

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 reinforce its e-commerce capabilities, Tencent announced in March this year, a deal to buy a 15% stake in JD.com Inc., China's second-largest e-commerce firm. Similar to Alibaba, JD.com Inc offers wholesale buying in a vast variety of products, domestic and international trading as well as services such as buyer protection, through brand buying and refunds of items that are not as described on the website.

(Image credit to Tenpay)

As the target audience and products offered are similar, the competition Alibaba Group faces from Tencent Holdings is greater. However, in Dec 2004, on top of Alibaba Group core sites, it owns alipay.com, a Chinese equivalent of Paypal. In contrast, Tencent only launched Tenpay in 2005. Tenpay, an integrated payment platform launched by Tencent to meet the needs of its 1.1 billion QQ users, has grown into one of China’s leading online payment platform. Tenpay commits to provide airlines, logistics, insurance, games, B2C business and other industries with professional and secure online payment solutions. At the end of 2011, the registered Tenpay users’ accounts amounted to 190 million. Notably, Tenpay is a direct rival to Alipay which the company says has 550 million users compared to Tenpay’s 200 million plus. The fear for Alibaba is that because of QQ’s wide reach in China and WeChat’s presence abroad, users will use Tenpay as they have access to it. It has sparked a fierce battle amongst the two Internet giants in China. To combat this, Alipay has partnered up with Sina Weibo, the microblogging platform often called “China’s Twitter,” to launch a new payment platform called Weibo Payment. Fan Zhiming, the head of Alifinance (Alibaba’s SME financial services provider) in China, said that Weibo Payment was launched to compete directly with WeChat‘s payment services. These users of Sina Weibo’s iOS application can now access Weibo Payment, which is an important part of the strategic partnership between Sina and Alibaba. In addition to Weibo Payment, Sina Weibo has also added new features that not only facilitate offline payments, but also turn the microblogging service into a CRM platform that allows merchants to manage marketing campaigns and accept payments. Potential users include the 400,000 business accounts currently on Sina Weibo. Though Sina Weibo has played a highly influential role in public discourse within China (and other Chinese-speaking countries), it faces strong competition from WeChat, the messaging application created by competitor Tencent. Unlike Twitter, however, Sina Weibo will monetize through e-commerce, not advertising revenue, as Alibaba’s CTO told Kim-mai last year after the company took a 18% stake worth $586 million in the microblogging service.

Alibaba Group Holding Ltd. has fought back with a string of deals, including its offer to acquire AutoNavi (AMAP) Holdings Ltd. in a deal that values the Chinese company at $1.5 billion, bolstering its Internet mapping tools. This is significant to Alibaba as AutoNavi will give the group control of China’s most popular mobile mapping service. Alibaba is trying to win a big portion of China’s 618 million Internet users with more services, and AutoNavi lets it compete directly with Baidu Inc.’s Baidu Maps and with Tencent Holdings Ltd. for taxi and restaurant recommendation services.

Online marketplaces use a metric called gross merchandise volume (GMV), that is, sale price charged to the customer multiplied by the number of items sold. GMV is a good indicator of the growth of the company, as this measures the volume and value of merchandise sold or the number of transactions handled. In Alibaba’s case, its most recent figure (accurate for the year to June 30 2014) was $296 billion, which is estimated to be more than Ebay and Amazon combined. Alibaba’s revenue over the same period was $8.5 billion, compared to $74.5 billion for Amazon, which is scarcely even comparable. Alibaba's revenues are a fraction of Amazon's because it does not actually sell the products on its site. Nevertheless, the Chinese company is far more profitable. In the three months through September, the most recent numbers available, Alibaba's revenue rose 51% to $1.776 billion from a year earlier. Net profit stood at $792 million, giving the company a net profit margin of 44.6%, according to shareholder Yahoo Inc., which owns a 24% stake in Alibaba. In the same quarter, Amazon posted a loss of $41 million on revenue of $17.09 billion. Clearly, it is evident that Alibaba is rising to compete against foreign business in e-tailing despite the differences in culture.

Competitive Advantage

Alipay, Tenpay and UnionPay are the top three in China’s mobile internet payment market holding 80% market share between them. With over 300 million users, Alipay remains the market leader in China’s third party payment market by total transactions. What gives Alibaba Group an edge over other e-commerce businesses is that they have their own third-party payment platform that was launched in 2004. Alipay, controlled by Jack Ma and other Alibaba executives, the PayPal-like company processed $519 billion worth of digital payments in 2013 (Paypal processed $180 billion).

Apart from Taobao Marketplace and Tmall.com, Alipay provides payment solutions to merchants in a wide range of industries including online retail, virtual gaming, digital communications, commercial services, air ticketing and utilities. It also offers an online payment solution to help merchants worldwide sell directly to consumers in China and supports transactions in 14 major foreign currencies. What makes it unique is its third party status. Money is only transferred to the seller once the customer has accepted, and is satisfied with, the purchased product. Hence, Alipay offers whole lot more than easy e-commerce payments. An in depth Wall Street Journal piece outlines how the Alibaba’s payment platform is morphing into all-in-one banking tool: a savings bank, wire service and investment house. Most importantly, it’s all done via mobile device. Load cash into your Alipay app and you can buy things online and in brick and mortar stores, send money to friends, make cross-border transactions, invest in stocks, and earn a healthy interest on your balance (at 17 times more than the going bank rate).

The vast majority of Chinese online shoppers are intimately familiar with the Alipay system and, most importantly, have learned to trust it. As the image above shows, in Q1 2014, Alipay ranked first with 51% GMV of China’s third party online payment market. With impeccable trust from its Chinese counterparts, Alipay definitely gives the group leverage against other competitors like Tenpay.

Furthermore, to add on to their competitive advantage, in 2006, Alibaba Group introduced The Taobao University program, providing e-commerce training and education to buyers and sellers. It is through this program that students are able to enforce what they have learnt into the business world, which in turn can further enhance and enlarge the number of sellers on their affiliate marketplaces.

Market Strategy

Alibaba Group has rich growth strategies, which are to

Increase the number of active buyers on their marketplaces and the wallet share of their existing buyers

- The vast size and diversity of Alibaba marketplaces, e.g Taobao Marketplace, Tmall (platform for third party brands and retailers), Juhuasuan (online group market buying place) attracts buyers and sellers. Additionally, sellers and third-party service providers have built their business in this ecosystem and thus are invested in their continued growth and success.

- Their ecosystem of hundreds of millions of buyers, sellers, service providers and other partners creates a network effect that gets stronger every day.

Develop and promote additional product and service categories and offerings

-As mentioned earlier, Alibaba group has enjoyed high GMV at $296 billion (accurate as at 30 June 2014)

Extend their mobile leadership to become central to the everyday lives of their customers

-Introduction of Aliwangwang (a personal computer-based instant messaging tool that facilitates text, audio and video communication between buyers and sellers, is launched on Taobao Marketplace.) in Jul 2004

Enhance the success of a broad base of sellers on our marketplaces

-1688.com: domestic trading in China

-alibaba.com: enhancing trade with countries on a global basis, further reaching out to more clients for domestic suppliers and extending their reach to global consumers.

Enhance their data and cloud computing technologies

-Alipay, currently a related company of Alibaba Group, is launched as a third-party online payment platform.

-Alibaba Cloud Computing in 2009

Develop cross-border commerce opportunities - http://www.alibaba.com/jp

-Promoting trade between China and Japan

Organisational Development

Initially, Alibaba group comprised of 5 subsidiaries that includes B2B Operations (Alibaba.com), Taobao, Alipay, Alibaba Cloud Computing and Yahoo! China. Since 2011, Alibaba group has made three foremost changes to restructure its organization.

In 2011, Alibaba Group restructured Taobao into three separate companies, Tmall, Taobao Marketplace and eTao, so as to get accustomed to China’s fast-growing B2C market for e-commerce.

In July 2012, Alibaba altered its organizational structure into seven major business groups, part of an ongoing effort to improve efficiency and share resources within the company. Alibaba Group's flagship subsidiary, Alibaba.com will be divided into Alibaba International Business Operations and Alibaba Small Business Operations, catering for international and domestic clients respectively. The other five business groups are its existing online shopping marketplaces Taobao.com, eTao, Tmall.com, Juhuasuan and the Group's cloud computing and information technology group AliCloud. According to Jack Ma, the changes are being made to foster the development of an open, collaborative and prosperous e-commerce ecosystem. Ma said the structure will help to establish an underlying unified data, safety, risk management and technology foundation, indicating there will be more emphasis on breaking down internal corporate walls by implementing group-wide management and IT systems. "We must accelerate the implementation of the "OneCompany" strategy and effectively integrate B2B's SME system with Taobao's market system so as to truly create a mechanism for openness, synergy and sharing," Ma said in his statement to Alibaba Group's more than 23,000 employees.

In June 2014, Alibaba reveals 27-partner alliance. The Alibaba Partnership comprises 22 members of management, four members of the company's Small and Micro Financial Services Co and one management member of China Smart Logistics.

This is a full list of the 27 partners (in alphabetical order by surname), according to Alibaba's filing to the U.S. securities regulator:

Li Cheng, Chief Architect, Small and Micro Financial Services Company
Trudy Shan Dai, Chief Customer Officer
Luyuan Fan, President, China Business, Small and Micro Financial Services Company
Simon Xiaoming Hu, Risk Manager, SME Loan Business; Chief Risk Officer, Small and Micro Financial Services Company
Fang Jiang, Vice President, Corporate Integrity and Human Resources
Peng Jiang, President, Alibaba Cloud Computing, Yun OS and Digital Entertainment; Deputy Chief Technology Officer
Jianhang Jin, Senior Vice President, Corporate Affairs
Eric Xiandong Jing, Chief Financial Officer, Small and Micro Financial Services Company
Zhenfei Liu, Vice President, Infrastructure Operations
Jonathan Zhaoxi Lu, Chief Executive Officer
Jack Yun Ma, Executive Chairman
Lucy Lei Peng, Chief People Officer, Alibaba Group; Chief Executive Officer, Small and Micro Financial Services Company
Sabrina Yijie Peng, Vice President, International, Small and Micro Financial Services Company
Xiaofeng Shao, Chief Risk Officer
Timothy A. Steinert, General Counsel and Corporate Secretary
Judy Wenhong Tong, Chief Operating Officer, China Smart Logistics
Joseph C. Tsai, Executive Vice Chairman
Jian Wang, Chief Technology Officer
Shuai Wang, Senior Vice President, China Corporate Communications and Marketing
Sophie Minzhi Wu, President, Alibaba.com and 1688.com
Maggie Wei Wu, Chief Financial Officer
Eddie Yongming Wu, Senior Vice President, Corporate Development
Sara Siying Yu, Associate General Counsel, China
Ming Zeng, Senior Vice President, Corporate Strategy
Jeff Jianfeng Zhang, President, Taobao Marketplace
Daniel Yong Zhang, Chief Operating Officer
Yu Zhang, Vice President, Corporate Development

Management Team

1. JACK YUN MA - Executive Chairman, Alibaba Group

Jack Ma, lead founder and, since May 2013, has served as the executive chairman. From Alibaba’s founding in 1999 until May 2013, Jack served as the chairman and chief executive officer.

2. JOSEPH C. TSAI - Executive Vice Chairman, Alibaba Group

Joe Tsai joined Alibaba Group in 1999 as a member of the Alibaba founding team and has served as the executive vice chairman since May 2013. He previously served as the chief financial officer and has been a member of the board of directors since its formation.

3. JONATHAN ZHAOXI LU - Director and Chief Executive Officer, Alibaba Group

Jonathan Lu joined the company in 2000 and succeeded Jack Ma as chief executive officer in May 2013, and has at different points served as the top executive officer of almost all of its key business units.

4. DANIEL YONG ZHANG - Director and Chief Operating Officer, Alibaba Group

Daniel Zhang has been the chief operating officer since September 2013. He was appointed president of Tmall.com in June 2011, when Tmall.com became an independent platform. He was chief financial officer of Taobao from the time he joined Alibaba in August 2007 until June 2011, and also served as general manager of Tmall.com during the latter three years in this period.

5. MAGGIE WU - Chief Financial Officer, Alibaba Group

Maggie Wu has been its chief financial officer since May 2013. She served as the deputy chief financial officer from October 2011 to May 2013.

Maggie joined Alibaba in July 2007 as chief financial officer of Alibaba.com and was responsible for instituting Alibaba.com's financial systems and organization leading up to its initial public offering in Hong Kong in November of that year, as well as co-leading the privatization of Alibaba.com in 2012. She was voted best CFO in Finance Asia's annual poll for Asia's Best Managed Companies in 2010.

6. JIAN WANG - Chief Technology Officer, Alibaba Group

Jian Wang has served as its chief technology officer since August 2012. Prior to his current position, he was the chief architect from the time he joined the company in September 2008. He also served as president of Alibaba Cloud Computing from its inception in September 2009 until September 2013.

7. PENG JIANG - Deputy Chief Technology Officer, Alibaba Group

Peng Jiang joined in 2000 and has been the president of Alibaba Cloud Computing, YunOS and Digital Entertainment and our deputy chief technology officer since September 2013.

Peng is responsible for overseeing various technology teams as well as the data business group, supporting Jian Wang, its chief technology officer. He oversaw its shared-services business from January to September 2013 and served as president of Taobao Marketplace from July 2012 to January 2013. Prior to that, Peng was vice president of Taobao's consumer business department from August 2009 to July 2012. He served in various management roles in Taobao's technology development from 2005 to 2009 and held senior positions in the Alibaba.com technology development department from 2000 to 2003, when he joined the team that later established Taobao.

8. LUCY PENG - Chief People Officer, Alibaba Group

Lucy Peng joined in 1999 as a member of its founding team and was reappointed as chief people officer in June 2014.

Lucy had served as chief people officer for most of the time since its founding, playing a leading role in formulating its human resources strategies. In March 2013, she was appointed as chief executive officer of Small and Micro Financial Services Company. From January 2010 to February 2013, she served as chief executive officer of Alipay.

9. XIAOFENG SHAO - Chief Risk Officer, Alibaba Group

Xiaofeng Shao joined Alibaba in 2005 and has been its chief risk officer since June 2012.

Xiaofeng has extensive experience in network security, e-commerce, online transactions and payments. From August 2010 to June 2011, he was general manager of Alibaba.com's China Business Unit. He served as Alipay's executive president and then president from January 2008 to March 2010. Prior to that, Xiaofeng was vice president of Taobao, responsible for Taobao's strategic development planning, overall marketing and business modeling.

10. TRUDY DAI - Chief Customer Officer, Alibaba Group

Trudy Dai joined in 1999 as a member of the founding team and has been our chief customer officer since June 2014.

Prior to her current position, Trudy served as senior vice president of human resources and administration of Taobao and Alibaba.com as well as our deputy chief people officer and chief people officer from 2009 to 2014. She was general manager of Alibaba.com's international operations from 2007 to 2008. Prior to that, she was vice president of human resources of China Yahoo! and the first general manager of Alibaba.com's Guangzhou branch, in charge of field and telephone sales, marketing and human resources in Guangdong Province. From 2002 to 2005, Trudy served as senior sales director of China TrustPass in Alibaba.com's China marketplace division.

11. TIM STEINERT - General Counsel and Corporate Secretary, Alibaba Group

Tim Steinert has been the general counsel since July 2007 and also serves as its corporate secretary.

12. JIANHANG JIN - President, Alibaba Group

Jianhang Jin joined in 1999 as a member of the founding team and has been appointed the president of the company in August 2014.

Prior to his current position, Jianhang served as senior vice president of corporate affairs from September 2009 to July 2014 and from March 2007 to December 2007. He also served as general manager of China Yahoo! (later Yahoo! Koubei) from January 2008 to August 2009 and was vice president of human resources and the CEO office from January 2006 to February 2007. As a founding member, he has served in a variety of other management roles at different times since our company's inception, including heading the marketing and website operations functions for one of its marketplaces.