Introduction
Alibaba Group Holding Limited is the largest e-commerce company of China and one of the largest online business to business service providers in the world. The company started its operation in 1999 when Jack Ma started a web portal named Alibaba.com. This was a business to business portal to connect Chinese local manufacturers and suppliers with global buyers. The company currently accounts for about 80% of all online sales in China (Zhang). Alibaba has more than 350 million active users, which is more than the entire population in the United States (Zhang). Alibaba made the world record for maximum online one day sales when it sold $9.3 billion worth goods through its three online portals (Zhang). Alibaba first tried to list the company in Hong Kong Stock Exchange but failed to do so due to non-agreements on some terms with the stock exchange authorities. The company launched its Initial Public Offering (IPO) in 2014 in New York Stock Exchange (NYSE) with an IPO value of $25 billion, which is the largest IPO till date in the history of NYSE (Zhang). This essay will discuss the structure, products, business transformation and challenges of Alibaba.
Structure of the Company
Many people consider Alibaba to be an online retailer like Amazon. Although there are many similarities between the two online rivals, their business models are strikingly different. Amazon has its own warehouses from where it directly supplies products to its customers. Alibaba, on the other hand, works as a pure middleman. Alibaba portals serve as a common platform for both sellers and buyers to come together for selling goods and services. Alibaba Group Holding Limited is the mother company. It has several small sub organizations within it. Alibaba.com is used as a business to business portal (Qing and Xu). Taobao works as consumer to consumer portal and Tmall works as business to customer portal. Alibaba also operates an online third party payment platform named Alipay. Alipay is the largest online payment method in China. Alimama is an online marketing platform that provides sellers with a range of advertising and marketing services (Qing and Xu). Recently, Alibaba has launched cloud computing and data management services named Aliyun (Qing and Xu).
Products and Programs
Alibaba has no formal products. Alibaba offers a platform to sellers and buyers to carry out business transaction. Three main products of Alibaba are Alibaba.com, taobao.com and Tmall.com.
Alibaba.com was launched in 1999 in Hangzhou by Jack Ma with a group of 17 friends (Zhang). Presently, the web portal connects manufacturers of China, India, Pakistan, the United States and Thailand with buyers from all over the world. Alibaba.com allows sellers and merchants to register at the web portal for free. If the merchants want to use additional benefits such as greater exposure to the international buyers and unlimited product listings, they can buy those additional services from Alibaba.com. Advertisement and additional services are the only revenues for Alibaba.com. To facilitate buying and selling in small quantities and for local buyers and sellers, Alibaba.com offers a service called 1688.com for the Chinese suppliers and buyers. Alibaba.com has presence in more countries than Amazon (Zhang).
Taobao Marketplace was launched in 2003. Taobao marketplace is China’s largest consumer to consumer online shopping portal. The basic structure of Taobao is similar to that of ebay.com. Registration is free in Taobao, and same like ebay and other consumer to consumer portals, it does not charge any commission (Qing and Xu). This was one of the main reasons for Taobao’s phenomenal growth. Taobao marketplace registered sales worth 1 trillion Yuan (USD 160 billion). Almost all of Taobao’s income comes from advertising. Taobao’s profitability is one of the lowest in the industry and stands at 0.4% mainly because of its commission free structure (Zhang).
Tmall.com was launched in 2008 as a business to consumer portal. Taobao caters to small businesses and individual sellers. Tmall.com wanted to connect large businesses with the end consumers. Tmall.com was the pioneer for “Singles Day” when Alibaba created the record for maximum one-day sale through its portal (Qing and Xu). Tmall.com follows the same model as Amazon. Tmall charges merchants a deposit, commission from each sale and an annual fee. Unlike Taobao or Alibaba.com, sellers in Tmall.com have access to analytics tools to understand the customers buying pattern. To get an access to better analytics, merchants can pay and get access to customer reviews, page views, and the number of visitors (Qing and Xu).
Alibaba offers other products such as Alipay and Alimama to complement its online retail portals. However, in recent quarters, Alibaba is not growing significantly in the Chinese market as it already has more than 80% online market share (Qing and Xu). To expand horizontally, Alibaba has started expanding geographically. It has purchased an online pay service in India name PayTm similar to its Alipay service in China (Li et. al.). The product is already doing well in the Indian market. Alibaba is also expanding its business into new categories. It has acquired 60% stake in China Vision Media Group to capture the ever growing Chinese film market overseas (Zhang). The company is further launching online video content service similar to video on demand service of Amazon.
Timeline of E-Business Transformation
Alibaba started in 1999 as a web portal and connected business buyers with business sellers. However, after initial success of its online web portal, in 2003 Alibaba launched its second portal for the end customers and small sellers, which was a market untapped by Alibaba till that time (Li et. al.). Taobao was a huge success as a customer to customer portal. Alibaba also saw an opportunity in web based payment service. Alipay was strategically placed in Alibaba and Taobao portals and soon this service also became the most popular online payment method. The only segment missing from Alibaba’s web portal portfolio was business to customer. To cater to that segment, it launched Tmall.com in 2008 (Zhang). Till 2008, the company was mainly focused towards vertical expansion of its services. However, after 2010, when it was successful in capturing the majority of Chinese customers, it started expanding horizontally by launching new services such as cloud data services and on-demand video services (Qing and Xu). The company has also started its operation in other countries aggressively.
Unlike Amazon that owns its own warehouses, Alibaba just works as a middleman. Alibaba acts as a software company rather than a retail company. Because of e-business model, Alibaba can add suppliers to its portfolio quickly and expand its business. The e-business model makes it easy for Alibaba to expand into new territories in no time, something Amazon cannot do because of its warehouse based model. Additionally, the pure software based e-business model made Alibaba the most profitable e-tailer in the whole world. At a time when Amazon is struggling to post profit, Alibaba is able to generate more than $3 billion profit over the last four consecutive years (Zhang).
How Alibaba Attracts Visitors
Alibaba has a unique model to attract and track its visitors. Baidu is the most popular search engine in China and Alibaba pays Baidu so that the listing of Baidu is given higher indexing in searches. However, Baidu searches provide basic information and services of a product on the search portal. Thus, by providing snapshot of a product or service, Alibaba piques the curiosity of customers and forces them to visit its website to shop or search for a product more comprehensively (Qing and Xu). Once a user is on Alibaba website, Alibaba gets better understanding of the customer through the customer’s clicks, shopping pattern and searching behavior. This data is either sold to the sellers and merchants or Alibaba devises effective ways to advertise products and services for the sellers if they pay advertising fees (Qing and Xu). Alibaba by using this strategy has been able to capture the actual online shopping patterns of Chinese customers without depending on the search engines.
How Alibaba Tackles Business Challenges
Over the years, Alibaba has faced many challenges and it has come out on top every time. One of the most common problems being faced by Alibaba currently is the counterfeit product problem. Many counterfeit products of the established brands are being sold through the web portal of Alibaba at a cheaper price. Over the years, many Chinese suppliers have lodged complaints to Alibaba for the removal of counterfeit suppliers. This problem took a bigger shape when Alibaba started expanding into international markets. Alibaba has been able to operate without much problem in the Chinese market because of its less stringent Intellectual property (IP) laws. However, in the last few years, Alibaba is facing issues of lawsuits from suppliers and buyers of Western European countries, such as France, Germany, and the USA where IP laws are stricter. The most recent lawsuits causing the company some heartburn are lawsuits filed by French luxury group Kering SA, Alexander McQueen, Brioni, Gucci, Puma, Balenciaga and Volcom (Friesen). Some of these lawsuits claim that Alibaba is knowingly allowing companies to sell counterfeit products. Alibaba is also facing similar lawsuits in the US Chamber of Commerce (Friesen).
However, if Alibaba wants to expand internationally, then it is absolutely essential to prevent suppliers from selling counterfeit products through its portal. This will not only improve its reputation and reduce the chances of getting into legal fights, but it will also improve the image of the company in the global market. Alibaba has already started a supplier certification program known as the ‘Gold Supplier membership”. Sellers get gold supplier status when they pass a stringent background check by Alibaba and do business with the company for a few years. Alibaba has also become transparent with the supplier verification status. It publishes the status, rating and historical delivery performance summary of the supplier to the customers. To ensure that high quality is maintained and counterfeit suppliers are not making it to the Alibaba portal, the company has started surprise audit programs. Suppliers from outside China need to go through even stricter background checks to achieve gold status (Friesen). Upon launching the Gold Program again last year with renewed criteria, more than 2,000 Chinese dealers were found to have defrauded the customers and they were subsequently removed from the Alibaba portal (Friesen). During the investigation, Alibaba found that more than 20 employees were involved in this process (Friesen). Alibaba immediately took measures to change its verification structure so that no employee can register and verify a company. Alibaba also reviewed its flawed Gold Certification program and took measures to improve on it.
Conclusion
Alibaba is the largest e-tailer in the world. Main products of the company are its very successful web portals Alibaba.com, Taobao and Tmail.com. Additionally, Alibaba is expanding into new businesses such as film production, online payment service and cloud based data management services. Although it is an e-tailer but Alibaba’s operates like a software company. This is the primary reason for its huge profitability over rivals such as Amazon and ebay. It is facing some challenges of counterfeit products sold through its portal. It has relaunched its “Gold Supplier’ program once again to counter the problem and restore its reputation.
Works Cited
Zhang, J.X. (2014). Alibaba Group: Case Study. McIntire Investment Institute. Web. 29 Feb. 2016. < https://collab.itc.virginia.edu/access/content/group/dff17973-f012-465d-9e73-a05fa4456644/Research/Analyst%20Presentations/Fall%202014/Alibaba%20Presentation%20-%20Copy%20-%20Copy.pdf>
Qing, H. and Xu, Z. (2014). A Model for Value Added E-Marketplace provisioning: Case Study from Alibaba.com. Chongqing Technology & Business University. Web. 29 Feb. 2016. <http://dl.ifip.org/db/conf/i3e/i3e2009/QingX09.pdf>
Li, X. et. al. (2015). E-commerce in China: Taobao. Web. 29 Feb. 2016. <http://dl.ifip.org/db/conf/i3e/i3e2009/QingX09.pdf>
Friesen, D. (2015). Alibaba’s massive IP protection challenge. Founding Fuel. Web. 29 Feb. 2016. < http://www.foundingfuel.com/article/alibabas-massive-ip-protection-challenge/>
