E-Commerce Fundamentals and Development Case

Study: Alibaba
Author: Jeff Chan
Section A Basic Questions
1. What is the Vision (Statement) of Alibaba (Group)?
Alibabas vision statement1:
OUR VISION
We aim to build the future infrastructure of commerce. We envision
that our customers will meet, work and live at Alibaba, and that we
will be a company that lasts at least 102 years.
Alibaba (Group) was established in 1999 and now is developed as
one of the biggest E-commerce companies among the world. The
group now is seeking for new engine to boost its profit growth.
Alibaba was originally set up as a B2B online platform and helped
mostly smaller sized enterprises to find suppliers and customers.
Most importantly, to strike deals and make profits in an easier way.
After 16 years of development, it grows dramatically with the
burgeoning China Internet industry. Now it is encountering its
bottleneck of growth. The group is now hindered by the incomplete
physical infrastructures of E-commerce in China. In order to enhance
the popularity of E-commerce, the groups biggest vision is to build
the future infrastructures of commerce. This great vision enables the
buyers and sellers of Alibaba to connect together more closely.
Moreover, it facilitates the process of E-commerce as well as brings
more rural population into the economy.
Alibaba also envisions their customers will meet, work and live at
them and they plan to be a company that lasts at least 102 years
which across two centuries. Making use of some cutting-edge data
technologies, the company can benefits its ecosystem participants
to create more precious values on their businesses. Alibaba strive to
expand their services to make them and their business models to
sustain in severe internet competition environment nowadays. Their
dedicated vision to lasts for at least 102 years will much rely on
the corporation of its employees and clients.

E-Commerce Fundamentals and Development Case

Study: Alibaba
Reference:
1. Alibabas overview
http://www.alibabagroup.com/en/about/overview

2. What is (/are) the Business Model(s) of Alibaba (Group)?

Alibaba (Group) is now much more sophisticated with the
development over a decade. Besides its original role of B2B and C2C
market creator, the company has stepped in different aspects of
Internet services. The Alibaba Group is hence, becoming a parent
company of several affiliates. The diagram below illustrates the
structure of Alibaba.

The business models of the affiliates are different. So actually

Alibaba (Group) is a corporation that involved in a number of
business models. The Alibaba online platform is a B2B online
platform. It helps business buyers and sellers to source and sell raw
materials, wholesale products, etc. The websites 1688.com and
Alibaba.com act as a market creator for business users which brings
buyers and sellers together. They are not only presence as an online
platform for Personal Computer, but also a mobile app. So they are

E-Commerce Fundamentals and Development Case

Study: Alibaba
also M-commerce platforms. On the other hand, the website and
mobile platform Taobao.com creates a C2C market for customer
users to buy and sell products. The sellers of Taobao are mostly
owners of personal business and individuals instead of companies.
Taobao is the biggest C2C market creator in China and its
businesses cover Hong Kong and Taiwan. For compliment, AliExpress
is set up to serve the C2C global market. The business model of
AliExpress is similar to Taobao, but their difference lies in targeting
clients living area and background.
T-mall is an online marketplace in which enterprise sellers can sell
their products to customers. Unlike Alibaba and Taobao, all sellers in
T-mall passed through a more demanding application process. T-mall
will assess the revenue and scale of the applicants before offering
approval for them to sell on the marketplace. T-mall is well known as
a B2C market creator and customers are more confident in buying in
T-mall.
Alibaba (Group) has created its own payment platform Alipay, which
parent company is Ant Financial Services. They aim to settle the
payments on their marketplaces. Alipay is an online payment
service provider which also acts as an intermediary of buyers and
sellers. When a buyer needs to pay, he pays to Alipay first and the
payment will send to sellers account after the product has been
delivered. Alipays business does not only cover online payments
but also include mobile payments.
Juhuansuan.com is an online group buying marketplace which
provides discounts for the group buyers. Aliyun is a cloud computing
and data management service provider. It is a platform which
targets business clients. Alimama is an online marketing technology
platform which helps online sellers to generate traffic, design and
carry out e-marketing plans.
Reference: What is Alibaba
http://alibabagroup.com/assets2/pdf/Alibaba_Group_Corporate_Overview_E
ng.pdf

E-Commerce Fundamentals and Development Case

Study: Alibaba

3. What is(/are) the Revenue Model(s) of Alibaba (Group)?

Alibaba (Group) earns money in different ways since it provides a
wide variety of services. By 2015, its primarily revenue mainly
generated from its several marketplaces. The biggest revenue
comes from advertising fee of its merchants. The advertising
revenue model of the company can also be divided into several
categories P4P, display marketing and other marketing services.
For P4P, or pay-for-performance services, sellers bid for keywords
that match their products or services on the Alibabas search engine
on a CPC basis. When buyers type the keywords to search for
products and then the successful bidders will appear on the top in
the search result. For display marketing services, sellers bid for
display positions on the relevant marketplaces on a CPM basis.
Other marketing services include Taobaoke program, placement
services, data analytics tools, marketing campaigns, traffic
generation platforms to sellers.
Instead of advertising revenue model, Alibaba also has subscription
and transaction fee revenue model. In the subscription revenue
model, part of sales is generated from the sale of China TrustPass
memberships and subscription fees for Wangpu. With the
subscription of the membership, sellers have the right to host
premium storefronts, access to business analytic applications and
upgraded storefronts management tools.
Wangpu is Alibabas storefronts application that helps sellers to
decorate and manage their storefronts. Besides, Alibaba (Group)
also earns subscription fee by providing cloud computing services
by Aliyun. In the transaction revenue model, sellers are required to
pay a commission-based fee for their transactions. When the
payments are settled with Alipay in the respective marketplaces,
transaction fees are paid automatically.

E-Commerce Fundamentals and Development Case

Study: Alibaba

Reference: How Alibaba makes money?

http://revenuesandprofits.com/how-alibaba-makes-money/
4. What are the Two (2) major Unique Features out of Eight
(8) Unique Features of E-Commerce Technology that Alibaba
(Group) has used to create its competitive advantages?
Alibaba (Group) has its own competitive advantage which makes it
success. In the development process, the company had made use of
two major unique features of E-Commerce Technology to build the
empire today.
i) Global reach
Unlike its two major competitors, Tecent and Baidu, Alibaba was
oriented as an international company when it was set up. Both local
and global B2B platforms were launched together at the very
beginning. The 1688.com focuses in the mainland market and
Alibaba.com targets the global market. The marketing strategy of
Alibaba make it becomes more successful to enter global market
than its peers. B2B commerce is enabled across the cultural and
national boundary with Alibabas platform. Marketplaces of Alibaba
has become potentially millions of businesses worldwide.
ii) Interactivity
Back in 2003, Ebay China dominated the online C2C market in

E-Commerce Fundamentals and Development Case

Study: Alibaba
China. By 2006, Taobao overtook Ebay China and forcing Ebay
virtually exit Chinese market. What made Taobao different from
Ebay China and beat the first mover advantage? One of the
difference was Taobao developed its own instant messenger
Aliwangwang to let buyers and sellers to communicate with each
other before making any transactions. With the help of the
messenger, sellers could deliver better pre-sales services and
answer buyers questions. Also, buyers were able to ask for more
details on the products they interested. Aliwangwang made
remarkable contributions on propelling the transactions making and
built a community between buyers and sellers.
Reference: Movie Crocodile in the Yangtze - The Alibaba Story
Section B Study Questions
1. Briefly describe the strategies that Alibaba (Group) has
adopted for their future development. Discuss, with your
own view and opinion, on the appropriateness of the
strategies with some support in the materials given or
with other supports.
Alibaba (Group) has adopted several strategies for their future
development. First of all, the company is pushing into rural areas to
find new growth with the slower growth in Chinas big cities. Alibaba
is investing 10 billion yuan to build 1000 country-level distribution
centers and 100000 village level drop off points over the next three
to five years. Second, the company plans to invest in bricks and
mortars. It is going to further invest in logistics capabilities through
Cianiao Logistics. The main purposes are to increase capacity
significantly, cost efficiency and shorten average delivery time.
Moreover, the company has invested in Yonghui Supermarket to
boost its O2O offering. Also, there is another 4.6 billion investment
in one of the Chinas largest electronics retailers, Suning electronics
to expand another O2O market. Suning electronics will open an
online store in T-mall to synergize both parties. Third, the company
has recently entered into agreements to make strategic
investments, acquisitions and alliances. The activities are involved

E-Commerce Fundamentals and Development Case

Study: Alibaba
in different industries which can diversify Alibabas service offerings.
The overall investment activities can be summarized in following
table:
Industry

Company

Mobile

UCWeb
AutoNavi
Weibo
Meizu Technology Corporation Limited

Office Commerce

Intime
Koubei

Entertainment

Youku Toudu
Alibaba Pictures
Wasu

Pharmaceuticals

Alibaba Health

Logistics

Zhejiang Cianiao Supply Chain Management

Co, Ltd
Haier
Singapore Post Limited

Alibaba (Group) is not the only E-commerce company that is

pushing into rural areas. One of its major competitors, JD.com, also
has this kind of action. It is quite obvious that profit growth in rural
areas is the next driver to the total profit growth for E-commerce
companies. The several big cities in China has a ceiling effect on Ecommerce growth now since near most of the population are online.
On the other hand, E-commerce provides an opportunity for many
Chinese consumers in rural area to access different kinds of goods
that they previously would not have been able to. Recent studies
show that lower tiered market has become major segment of Ecommerce. Despite lower disposable income of rural people, they
are spending similar amounts online as their counterparts in higher
tiered cities. Also, the rise of smartphones penetration boosts the Ecommerce in rural areas. Because of the more difficult to access
Internet, E-commerce in rural areas wasnt as popular as that in
urban areas before. And the situation has changed dramatically with

E-Commerce Fundamentals and Development Case

Study: Alibaba
the help of smart phones and mobile networks. With more advanced
logistics which Alibaba is building now, E-commerce in rural should
be prosperous in the foreseeable future.
From clicks to bricks is a major strategy that can benefit Alibabas
future development. The logistic challenge is one of the biggest
hurdles for the growth of E-commerce. The growth of domestic
express delivery is lagging the exponential growth of E-commerce in
China. It shows that the logistic system nowadays is not adequate to
handle the growth of online shopping nowadays. Building the logistic
infrastructure requires longer time, but it is a crucial part of Ecommerce .Cianiao Logistics play an important role on it, investing
in logistic capacities will benefits Alibaba for long term
development.
Yonghui supermarket is well-developed grocery chain in China. It has
381 physical stores so far and plan to expand to 552 physical stores.
With the support of Alibabas networks and technologies, Yonghui
will be hugely benefited by the O2O market. The investment from
Alibaba is going to attain a win-win situation for both companies.
Suning electronics is a famous home appliances distributor in China.
Recent researches demonstrate the electronics appliances sector is
one the biggest sector in B2C E-commerce market. The cooperation
of Suning and Alibaba will result in a synergy effect. The Tmall
storefront of Suning will become a new contribution to Sunings
profit.
Alibabas investments and acquisitions strategy is industry
diversified. It is common that an Internet titan has diversified
investments on different companies. Alphabet, Googles parent
company and Baidu also enthusiastic in these kind of investments. It
is hard to predict the return of these kinds of investment. Most of
these investments will suffer a loss while rare of them may be
succeeded and results in a huge return.

E-Commerce Fundamentals and Development Case

Study: Alibaba

Yonghui supermarkets distribution in China:

B2C E-commerce Market Breakdown by Category (2012):

E-Commerce Fundamentals and Development Case

Study: Alibaba

2. Make One (1) comment/suggestion to Alibaba (Group) ECommerce Development.

Alibaba (Group) should make more efforts to increase its influencing
power and market shares on Indian E-commerce market.
Obviously, India will become the most rapid growing area in IT
industry as well as E-commerce Development after China. The
enormous number of population and sufficient supply of IT skills
labors makes India a perfect place to nurture E-commerce. In this
discussion, we will have a look on Alibabas progress in entering
Indias market and foresee the future step it probably will make on
E-commerce Development in India.
Recently, Alibaba has made several investments in India which are
extremely important for it to enter Indias E-commerce market. First,
Alibaba with Softbank and Foxconn confirmed 500M funding to
Snapdeal, one of the biggest Indias largest E-commerce companies.
Secondly, Alibaba and Ant Financials invested about 680 million in
Alipay of India Paytm. Thirdly, Alibaba has made a 1.2B stake in
India phone maker Micromax.
The business models of Snapdeal and Paytm are similar to that of

E-Commerce Fundamentals and Development Case

Study: Alibaba
Taobao and Alipay in China. The successful experience of Alibaba in
China surely can help Snapdeal and Paytm to develop in India. The
two companies can have a synergy effect and help each other to
boost profits. Snapdeal.com shares 27% of India E-commerce
market, prevailing to its two major competitors Dealsandyou.com
and Mydala.com. Paytm can act as one of the major payment
systems to finish transaction in Snapdeal. Moreover, the Reserve
Bank decided to grant Paytm a bank status. In other words, Paytm is
permitted to offer banking services in India. It mays be a disruptive
change in India banking environment and Alibaba is one of the
biggest winners.
Indias situation now is quite similar to China rural area. Most of the
Indian are not middle class but lower class people and their internet
accesses are mostly rely on mobile phones. So M-commerce is
probably to become the most significant part of E-commerce.
Samsung is now the leader of Indian mobile market, Micromax is the
first runner up trailing Samsung. Instead of the two manufacturers,
some Chinese manufacturers are stepping in the Indian mobile
market. Micromax can still take the advantages because it is a pure
local company. Alibaba will be benefits from Micromaxs market
share in Indian mobile market by rolling out package services on the
cell phones.
In conclusion, India has native advantages in E-commerce
development and it has become new battlefield of local IT
companies and also invaders from global. Alibaba has a good start
in India, it has made several appropriate investments in there which
can help it to enter the future biggest market of E-commerce. If
Alibaba dominates this markets, it will reinforce the E-commerce
leader position of the company.
India population is growing to 13 billion:

E-Commerce Fundamentals and Development Case

Study: Alibaba

Indian E-commerce market share in 2015:

Smartphone vendor share in India in Quarter 2 2015:

E-Commerce Fundamentals and Development Case

Study: Alibaba

References:
1. Alibaba: Clicks to bricks, The Economist, 2015 AUG 15-21, pp.
59-60.
2. Alibaba Defined, URL:
http://ar.alibabagroup.com/2015/index.html
3. Alibaba, JD.com Target Rural China for E-Commerce Growth
URL: http://www.wsj.com/articles/alibaba-jd-com-target-rural-china-for-e-commercegrowth-1440980597

4. Online Shopping Spree in China 2014 Alberta Canada

URL: https://albertacanada.com/hongkong/documents/OnLineShoppingSpreeChina2014.pdf

5. China's E-Commerce Market in 2014: The Logistics Challenges

https://www.atkearney.com/documents/10192/5274810/Chinas+E-commerce+market+The+Logistics+Challenges.pdf/76119ca8-ce91-464e-b8da-b9ad301586a3

6. Yonghui superstores official website, URL:

http://www.yonghui.com.cn/
7. Is the Indian E-commerce space large enough to accommodate
3 large players?
URL: https://dhotedhulwate.wordpress.com/tag/snapdeal/
8. Indian smartphone shipments rebound due to sub $100
handsets
URL: http://www.androidauthority.com/india-smartphone-shipmentsrebound-63289

E-Commerce Fundamentals and Development Case

Study: Alibaba