Go into the Alibaba World and say “Open Sesame”

Feature Picture: Alibaba smashes 11.11 records once again with over $30bn in sales by Charlotte McEleny

Alibaba Group is a Chinese multinational conglomerate that has the innovative transformation in the Chinese internet industry. It provides digital payment service, shopping search engines and cloud computing service. Alibaba Group enables businesses to transform the way of sellers sell products, operate businesses and improve the efficiencies (Alibaba Group, 2018).

Alibaba Group is leading the e-commerce industry in China which connect the small and medium business companies to the globe. It simulates the economic and social development of China through its transformative technologies and business model. This article is going to analyse the business model, and the ecosystem of Alibaba Group with understanding its history, products and services, users, competitors, and regulators.

 

UNDERSTAND THE LARGEST E-COMMERCE COMPANY IN CHINA – ALIBABA GROUP

What is Alibaba Group?

According to the company overview of Alibaba Group, Alibaba Group is an internet technology and online commerce company which comprised of e-commerce, retail, artificial intelligent (AI), cloud computing, digital media and entertainment. It helps merchants, brands and other small business to reach and engage with a wide range customer who is the internet users and operate in a more efficient way through the new technologies (Alibaba Group, 2018).

Picture 1. Alibaba.com ecosystem on Brown Tape by Zeba Shaikh

The main sites which are generating a profitable revenue for Alibaba Group are Taobao, Tmall and Alibaba.com. In addition, Alibaba Group has created an ecosystem unlike other online shopping sites, its platforms “consist of consumers, merchants, brands, retailers, other businesses, third-party service providers and strategic alliance partners (ibid.).” In this ecosystem, the services used by consumers are all the software developed by Alibaba Group such as Alipay and Alibaba Cloud which is providing consumers with one-stop services.

Picture 2. Video about Taobao in China online marketplace

The History

Alibaba Group was founded on 9th September 1999 by eighteen people led by Jack Ma – a former English teacher from Hangzhou, China. Before Jack Ma established his working team, there is a remarkable story between Jack Ma and an Australian family, the Morley’s. Ken Morley inspired Jack to found his internet career and provided a lot of help to Jack in the early stage before Alibaba Group succussed, he even contributed USD$22,000 to the purchase of newlywed Jack’s first home (Ram, 2017), and in the meanwhile, it was the early working studio of Alibaba Group.

Picture 3. The early Alibaba team working out of Jack Ma’s apartment in 1999 on Alibaba Group.com
Picture 4. Jack Ma with Ken Morley and his family in China on South China Morning Post 

Alibaba Group focused on software developments in the early days (See Picture 5). From 1999 to 2004, Alibaba Group has developed and established Alibaba.com – an English language global wholesale marketplace, Taobao – an online shopping website, Aliwangwang – a personal computer-based instant messaging tool that facilitates text, audio and video communication between buyers and sellers, and Alipay – a third-party online payment platform (Alibaba Group, 2018). These significant milestones have laid the foundation for the future of Alibaba Group that set the direction for the development of Alibaba Group.

After that, Alibaba Group expanded into different industries such as media, education, logistics, finance and insurance through established the strategic partnerships and acquirement. In these recent years, Alibaba Group also implemented various programs to promote the new technology in different places and aim to help the poverty in China such as Alibaba Poverty Relief Fund and Alibaba DAMO Academy that is an innovative global research program (Alibaba Group, 2018).

Picture 5. Historical timeline of Alibaba Group by Katherine Wong. Source from History and Millstones on Alibaba Group

Business Model

The belief of Alibaba Group is “To make it easy to do business anywhere.” Alibaba Group wants to be a platform for small businesses to operate and sell their products in an efficient way. The business model of Alibaba Group can be divided into three types which are B2B (Alibaba.com), B2C (Tmall), and C2C (Taobao) (Wang & Lim, 2011, p. 2295), those platforms make profits primarily from deposits, subscription fees, and sales commissions charged to retailers utilizing the site  (Wang & Lim, 2011, p. 2297).

Picture 6. YouTube video:  The business of Alibaba and compare with Amazon by Curious Elephant

Alibaba.com is a B2B (Business-to-Business) trading platform linking Chinese companies to international companies that need Chinese inventories or manufacturers (Zucchi, How Does Alibaba Make Money? A Cheat Sheet, 2018). It earns profits by receiving a commission fee of each transaction and charging a subscription fee from the sellers on the website (ibid.). Taobao, the largest business in Alibaba Group, has another business model apart from Alibaba.com, it is a C2C (Consumer-to-Consumer) marketplace for merchants to sell the product to the customer directly, and it gains profits via the merchants pay for advertising.

 

THE ECOLOGY OF ALIBABA GROUP

The Owners

The key founders of Alibaba Group are Jack Ma, Joseph C. Tsai, Peng Lei, and other 15 team members who contributed technologies to the setup of Alibaba.com. However, the top five shareholders of Alibaba in 2018 (See Figure 1) are Softbank (29.11%), Yahoo! (14.95%), Jack Ma – the Executive Chairman (7.0%), Joseph C. Tsai – the Executive Vice-chairman (2.5%), and T. Rowe Price (2.2%) (Zucchi, 2018). Softbank is a technology company based in Japan, it invested Alibaba Group in 2000 with US$20 million (Alibaba Group, 2018). Yahoo! Is also a technology company located in the U.S that well known for its search engine, mail and websites (ibid.).

Figure 1. The top five Alibaba Group Shareholders in 2018 by Katherine Wong. Source from Investopedia

The Partners

Alibaba Group has various strategic partnership agreements with numerous of companies and organisations in different industries. The aims of these partnerships are focusing on the development of retail opportunity, e-commerce, sustainable environment, logistics, international trading, communication service, and the use of big data. (The names of the partners will allocate in the diagram)

The Competitors

JD.com, Pinduoduo, and Suning are the national direct competitors of Alibaba Group, as they are all share the e-commerce retail market in China (See Figure 3) (Blazyte, 2018). Tencent starts being a competitor of Alibaba Group as the growth of the company, each inevitably has begun to encroach on the other’s advantageous field (Lashinsky, 2018). Alibaba Group also has to face the competition of Amazon.com and eBay.com who are the powerful competitors in the globe.

Figure 2. The top 10 e-commerce retailers in China as of June 2018 on Statista.com

The Suppliers

Alibaba.com, Taobao and Tmall are acted as a middleman between the buyers and sellers in an online platform, which is unlike Amazon.com, Alibaba never buys and then sells the product, but it provides a platform for the companies to do trading (Kim, 2015). Therefore, Alibaba Groups has no heavy reliance of suppliers because they are the one who supply the platform for merchants and consumers.

 

The regulators

The Chinese government is the largest regulator of Alibaba, Alipay and Ant Financial that are facing a tighter regulation that adopted by the Chinese regulators. They concern an over-rapid development of digital payment may cause the increase in e-commerce crime and the risk of users’ data collected (Wang Y. , 2018). The Chinese authorities also regulate the trademark violations, counterfeit and poor-quality products on Alibaba to create a healthy e-commerce environment (Rosemain, Rose, & Barzic, 2016).

The Users

Figure 3. The members’ profile of Alibaba Group on South China Morning Post

There are three main users of Alibaba Group which are consumers, merchants, and brands. Alibaba Group has a large number of active consumers (601 million with an increase of 25 million from the 12-month period ended June 30, 2018) on its platforms, these consumers spend a minimum of almost 15,000 USD annually, and more than 90 per cent of the total spending is generated online for over half of the members (See Figure) (Li, 2017).

Moreover, more merchants, the national and international brands, and high-end brands has become the users of Alibaba Group as they believe it is the best and efficient way to enter into the Chinese marketplace through the platforms of Alibaba Group.

 

ALIBABA TRANSFORMED OUR UNDERSTANDING OF THE INTERNET

The transformation

Alibaba Group plays a significant role in the economy and social ecology in China, it also keeps expanding the influence in the globe. Alibaba Group controls 58.2 per cent of all retail e-commerce sales in China in 2018, and its annual revenue amounted to 39.9 billion USD with a net income of 9.79 billion USD and a year-over-year increase of 58 per cent (Blazyte, 2018).

As the largest e-commerce company in China, Alibaba Group has an influential power to impact on the consumer behaviour and the industry with a huge amount (601 million) of active consumers on China retail marketplace  (Alibaba Group, 2018, p. 1) which can encourage sales through obtaining the big data to better target users with ads (Mosco, 2014, p. 148) and store ranking.

Figure 4. Three parties relationship between Alipay and online shopping platforms from the article: Research in China’s Alibaba’s Development by Wang and Lim

Also, the technology of the largest independent third-party electronic payment platform (Qing & Xue, 2009, p. 70), Alipay has strengthen the ecosystem of e-commerce that lessens the risk of the e-transaction and concerns of buyers (See Figure 4) (Wang & Lim, 2011, p. 2297). Therefore, Alibaba Group is accelerating the economic development of China in a more efficient way.

Alibaba Group has changed the way of retail operation and the society in China, and even in the globe. Alibaba accounts for more than one-tenth of China’s total retail sales which including 75 per cent of online sales (Liu, Bai, Jia, & Wang, 2017). Jack Ma advocated this is the “New Retail” since 2016, the business model of Alibaba Group is “the integration of online, offline, logistics and data across a single value chain (ibid.).”

Alibaba Group also becomes a successful reference for other internet platforms in the recent years. The Chinese consumers enjoy the unprecedented payment, fast delivery and east to buy diversified products on one platform when they are shopping online, it all credits to the creation of Alibaba.

Also, Alibaba Group is creating more job opportunities in Chinese society such as logistics, assembly, and more young people can start a business at Alibaba’s platform with a lower cost. The vision of Jack Ma is to build an e-commerce ecosystem that allows consumers and business to do all aspects of business online, he says “I want to create one million jobs, change China’s social and economic environment, and make it the largest Internet market in the world.” (Qing & Xue, 2009, p. 66).

 

A Conclusion

The circulation efficiency of the entire society has been improved by Alibaba Group. Last year, China’s retail platform Taobao, Tmall, and Juhuasuan reached 5 billion, accounting for 54% of the country’s total express delivery business. Thanks to the development of the Alibaba e-commerce platform, China’s express delivery business has grown by an average of 43.5% for five consecutive years, and its business scale has ranked second in the world, second only to the United States.

Lastly, Alibaba Group transformants the consumption habits of Chinese consumers, they can buy what you need without leaving home, and the changes only took ten years that achieved by Alibaba Group. This change in behaviour patterns has promoted the spontaneous transformation and upgrading of the Chinese economy.

 

Reference

Alibaba Group. (2018). Company overview. Retrieved from Alibaba Group: https://www.alibabagroup.com/en/about/overview

 

Alibaba Group. (2018). History and Milestones. Retrieved from Alibaba Group: https://www.alibabagroup.com/en/about/history?year=1999

 

Alibaba Group. (2018). September Quarter 2018 Results. Hangzhou, China: Alibaba Group.

 

Blazyte, A. (2018, July 17). Alibaba continues to lead retail e-commerce sales in China in 2018. Retrieved from Statista: https://www.statista.com/chart/14717/alibaba-continues-to-lead-retail-e-commerce-sales-in-china-in-2018/

 

Kim, E. (2015, November 11). Jack Ma on why Alibaba’s nothing like Amazon: ‘We believe every company can be an Amazon’. Retrieved from Business Insider: https://www.businessinsider.com/jack-ma-explains-why-alibaba-is-not-like-amazon-2015-11/?r=AU&IR=T

 

Lashinsky, A. (2018, June 21). Alibaba v. Tencent: The Battle for Supremacy in China. Retrieved from Fortune: http://fortune.com/longform/alibaba-tencent-china-internet/

 

Li, T. (2017, July 8). Hey big spender – Alibaba confers elite status on 100,000 super users of its Taobao, Tmall sites. Retrieved from South China Morning Post: Hey big spender – Alibaba confers elite status on 100,000 super users of its Taobao, Tmall sites

 

Liu, P., Bai, X. B., Jia, J., & Wang, E. (2017, June 26). The Accelerating Disruption of China’s Economy. Retrieved from Fortune: http://fortune.com/2017/06/26/china-alibaba-jack-ma-retail-ecommerce-e-commerce-new/

 

Mosco, V. (2014). To the cloud: big data in a turbulent world. Boulder: Paradigm Publishers, Routledge Ltd, Routledge, Taylor and Francis.

 

Qing, H., & Xue, Z. (2009, September). A model for value-added E-marketplace provisioning: Case study from Alibaba. com. Conference on e-Business, e-Services and e-Society, 65-72.

 

Ram, S. (2017, February 5). Jack Ma Honours His Late Australian Friend With USD20 Million Scholarship. Retrieved from Says.com: https://says.com/my/lifestyle/jack-ma-honours-his-late-friend-with-usd20-million-scholarship

 

Rosemain, M., Rose, M., & Barzic, G. (2016, May 10). Alibaba’s Taobao steps up measures to fight fake luxury goods. Retrieved from Reuters: https://www.reuters.com/article/us-alibaba-taobao-idUSKCN0Y10VH

 

Wang, G., & Lim, Y. T. (2011). Research in China’s Alibaba’s Development. Artificial Intelligence, Management Science and Electronic Commerce (AIMSEC), 2295-2301.

 

Wang, Y. (2018, January 3). China Tightens Regulation Over Mobile Payment Apps — What’s Next For Tencent and Ant Financial? Retrieved from Forbes: https://www.forbes.com/sites/ywang/2018/01/03/china-tightens-regulation-over-mobile-payment-apps-whats-next-for-tencent-and-ant-financial/#13de7a6b7f1d

 

Zucchi, K. (2018, November 1). How Does Alibaba Make Money? A Cheat Sheet. Retrieved from Investopedia: https://www.investopedia.com/articles/investing/121714/how-does-alibaba-make-money-simple-guide.asp

 

Zucchi, K. (2018, November 2). The Top 5 Alibaba Shareholders (BABA). Retrieved from Investopedia: https://www.investopedia.com/articles/investing/111114/top-five-alibaba-shareholders.asp

 

 

Katherine Wong
About Katherine Wong 3 Articles
A third-year MECO student at USYD who major in Digital Culture and Marketing. Currently studying Internet Transformation, Online Media, Researching Digital Culture and Issues in Global and Digital Media.

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