Running head: BUSINESS MODEL GENERATION – ALIBABA 1

Business Model Generation – Alibaba

Name
Institution Affiliation
BUSINESS MODEL GENERATION - ALIBABA 2

Introduction
Alibaba is an online business that connects commercial entities with the counterparts. The
business model embraced by Alibaba differs from Amazon and eBay because the two engage
create a platform for interaction between the customers and the businesses. Since its inception in
1999, Alibaba continually focuses on building relationships between the suppliers and the
distributors of various products and services. The Chinese based firm introduced by Jack Ma and
17 other co-founders is the most profitable e-commercial entity since April 2016. Currently, its
value exceeds Wal-Mart because of the multiple services offered by the company, as the business
canvas will detail in the subsequent section.
The Business Model
Alibaba was designed to meet the needs of business-to-business interactions. Its greatest
objective was to link the Chinese business community with the customers. The company later
diversified to the provision of consumer-to-consumer and business-to-consumer products later,
which it decided to offer business-to-business services. All the business activities are initiated
through online platforms even though some require deliveries, which mean that offline
techniques are equally significant to the company. With over 200 countries to serve, Alibaba
earns most revenue from the electronic payment system, data centric cloud computing, and
marketplace (Schepp & Schepp, 2013). Each service targets a unique set of customers based on
their demographic and psychographic placement. Based on the business model and the products
offered by Alibaba, it will be critical to develop a comprehensive business canvas.
The model details movement from one part of the business to the next. The movement of
products and services within the model determines the relationship between the buyers and the
wholesalers. Each part of the business model exhibits the interdependence between the
consumers and suppliers of the various products and services at Alibaba. Schepp & Schepp
(2013) describes the online store as a market place or rather, a one-stop-shop that meets the
needs of several people at the same time. Apparently, all customers would like to receive services
from the same store without hoping from one shop to another. However, it raises several
confusions mostly to the retailers and suppliers. For instance, a customer from a country such as
Kenya has to pay money through the local mobile transfer system before the transactions are
later conducted using the Alipay system. By the time the transactions are verified, it takes 7-14
business days for the item to arrive in the destined country. The use of a simple business model
would make work easy. Instead of conducting all operations in China, it would be critical to set
up warehouses in various countries to facilitate quick and timely deliveries.
New vs. Old Business Model Canvas
Old Model
BUSINESS MODEL GENERATION - ALIBABA 3

Key Partners Key Activities Value Customer Customer

proposition Relationships Segments
Offline event
organizers Business 3rd party Instant Customers in
Development buyer consuming markets of
product/servi abundance
ce
Offline-pop-up
commerce Conversation One-off Instant
engagement experience contributing
Experience
Online seeking
retailers Key Resources Channels customers

Software Offline event

platform organizers

Cost structure Revenue Screams

Hosting costs Online presence Commissions Commissions

and findability pop-up commerce instant online
costs retail

Figure 1 Alibaba old business model canvas (Bhowmik, 2012)

Greeven (2017) posits that business models should offer guidance to companies. At
Alibaba, the model meets the needs of the consumers, suppliers, and the investors. Irrespective of
its helful nature, it becomes difficult even for the same suppliers to monitor the right positioning
of products and services within the model. For instance, the small and branded sellers both go
through 1688.com. Alibaba.com combines the different activities of 1688 and AliExpress. The
two subsidiaries do not perform different functions except that they handle international and
domestic orders even though both of them deal with small packages. The greatest challenge lies
with the managers of Alibaba.com accounts. Instead of a huge entity handling two subsidiaries,
the two should be left to operate independently. From a critical point of view, Khare et al (2016)
argue that the role of every business plan is to offer directions and to facilitate the smooth flow
of products and services. In return, the exercise becomes cost-effective and efficient, but in the
old business model, Alibaba has to pay the administrators of Alibaba.com and offer other account
managers from 1688 and AliExpress different packages. The company would save several
resources by dealing with the two entities directly instead of hiring a team of supervisors that
would earn for doing nothing.
The old business model was created to meet the needs of the technocrats. It takes an
intellectual to understand the different aspects of the complicated business plan. Greeven (2017)
describes the way companies operate within a competitive business environment. From his point
of view, businesses thrive because of several factors including marketing. One of the greatest
BUSINESS MODEL GENERATION - ALIBABA 4

marketing tools used in the recent past is public relations. At Alibaba, it would be difficult for the
founder to create the requisite appeal through public relations. For instance, the investors,
donors, and the beneficiaries would always like to know the different operations of the business.
Osterwalder et al (2010) explains that some business models are resource driven, while others
thrive due to financial factors. A business department at Alibaba that is finance driven would like
to gain from a CSR or public relations initiative. It becomes easy for various organizations and
communities to work with the Amazon and Wal-Mart models because of their simplicity.
However, it takes a technological investor similar levels of belief in Alibaba for him or her to
perform any public relations activities with the company. Arguably, China is the technology hub
of the world, but the respective marketers should understand that people would like to deal with
business models whose past and futures they can predict. Further, the company deals with
various human demographics and psychographics. Inability to design a simple business model
means that only a small section of the society will be capable of performing the complicated
transactions at the firm. Hence, the older populations might never get an opportunity to work for
Alibaba or purchase from the firm.
The old business model offers several services to the different consumers. Alibaba
customers are sure of getting almost everything within the click of button as Pahwa (2017)
reinforces. However, the customers face a huge challenge because they deal with an institution
that does not focus on a specific product or service. Chances that future transactions and
customer requests with be handled haphazardly are high. For instance, customers can get
banking services through Yuebao, which deals with investment or personal financing. On the
other hand, Alipay offers an opportunity for electronic money transfers particularly for the
foreign consumers. An integration of Yuebao and Liawang would solve both customer problems
within a short time. Similarly, the dismantlement of Alibaba.com would have a negligible effect
on the structure of the business. Products such as Tmall would cover up for the same coupled
with AliExpress and 1688.com (Pahwa, 2017). In essence, the provision of several services
within the same umbrella offers diversity, which is very good. However, some components of the
business model are not important. Most of them only require human resources that would be
costly to pay since a new business model would still accommodate such services in a simple
way. In summary, the problems of the old model include costliness, time wasting, complexity,
and inability to accommodate certain demographics such as the older populations.
New Model Variables
The New business model should be simple and easy to understand. Consumers come
from different parts of the world, and they would appreciate the speedy facilitation of
transactions. Some of them do not understand why shipment takes 7-14 days while other
products take up to 3 days for delivery to occur. Even though Alibaba offers an array of products
and services, it should be easy for the consumer to differentiate the categories in which each
product or service falls. In the business canvas recommended in the following section, it is easy
for a customer to link the e-commercial services with the advantages or disadvantages Alibaba
offers.
The New/one-ff Canvas Model
BUSINESS MODEL GENERATION - ALIBABA 5

Key Partners Key Activities Value Customer Customer

Chinese proposition Relationships Segments
consumers Alibaba.com
1688.com and Affordability Communication Online customers
Global Tmall: Business : solved by and feedback communicate
consumers to business-B2B reducing the through Mobile through Laiwang
supplier chat App-
bargaining power Laiwang
Global wholesale Taobaba.com: and production
buyers Customer to costs
customer C2C
Efficiency: e-
Juhuasuan: marketing, Contact support Offline
Group buying shipping, and and search items customers
computer through directly visit
mediated Stao.com suppliers
communication
Alipay.com
(online payment)
Key Resources Channels
Direct shipping
Taobao, Alibaba, and data storage
and Tmall through
Aliyun.com
(cloud
computing
Cost structure Revenue Screams

Hosting the three platforms might cost Alibaba Yuebao: Investment fund/personal finance
at least 1/8 of the annual revenue stream services

Receive funds through Alipay.com

Figure 2 Alibaba new business canvas model

In the business model canvas, it remains evident that Alibaba has several functions.
Alibaba combines the functions of the other e-commercial platforms with the banking industry.
Through B2B, C2C, and B2C business approaches, the company is capable of attracting the
attention of inexhaustible numbers of consumers. Both domestic and international business
ventures are represented because the Alipay system creates room for electronic money transfers
across long distances (Schepp & Schepp, 2013). Each aspect of the business canvas is very
important in the construction of the entire model. The aspects are interdependent as depicted in
the business canvas. According to the business canvas, the colors correspond to the models and
functions at the end of the image. The epicenters of the business model innovation include
finance and resource driven approaches (Osterwalder et al. 2010). In the model, reduced costs
BUSINESS MODEL GENERATION - ALIBABA 6

structures and the need for expansion characterize the movement of most activities from left to
right and down to up.
Alibaba can achieve simplicity by categorizing products in the four different sections of
the proposed business canvas. B2B, C2C, and B2C should be the three most critical sub
categories of the business model while online, offline, and market sections became the major
parts of the same model. Apparently, the cost-effective business platform addresses the needs of
the low, middle, and high-class consumers, and the company makes money through the
continued interactions of the various parties (Osterwalder et al. 2010). By concentrating on the
three main business portals (Taobaba, Alibaba.com, and Tmall), it would be easy for customers
to know what to expect. Already, Alibaba operates using different subsidiaries including
Alimama, AliExpress, 1688.com, Ant Financial, and Cainiao. The proper integration of each
category would enable the consumers to track their orders easily instead of dealing with
confusions within the business canvas (Pahwa, 2017). For instance, a computer literate consumer
might never have a problem dealing with the multiple transaction platforms. A new and illiterate
customer that would like to access the online services will have a huge challenge. Hence, the
simplification of the business model would go an extra mile in increasing consumer interest in
the company.
In the new business model, the organization can handle complexities related to the
deployment of older populations. Further, the company is capable of dealing with the same
demographics when offering products and services. First, customers will need the highest level
of support particularly when dealing with the financially motivated models as (Osterwalder et al.
2010) affirms. It means that Alibaba has to strive at improving customer relationship
management in the various outlets. Instead of investing in two different entities operating under
Alibaba.com, it would be crucial to use 1688 and AliExpress as independent channels with
excellent customer service. The new business canvas openly describes the way Aliyun.com
assists with the cloud computing services while Laiwang facilitates the mobile chat App
functionality. Everybody can understand the simplicity of the exercises both of which are cost-
effective. According to Pahwa (2017), customers would always prefer such services to the costly
counterparts. With a simple model, it becomes very easy to attract older customers. Further, the
deployment of such people would be an excellent CSR project for the firm. The growth rate of
Alibaba is very high especially after 2016. However, the growth curve should be monitored by
introducing sustainable initiatives such as CSR projects that employ a section of the society that
is not considered computer savvy.
Another unique feature of the new business model is the ability to create an
understanding between the investors and suppliers. According to Greeven (2017), most
businesses in China often aim at creating long-term orientation between the stakeholders. With a
simple business plan, it becomes very easy for all the stakeholders to interact easily. However,
complications arise when none of the players knows how to navigate the structure unless the IT
team intervenes. Businesses should be about people, and they must learn to appreciate the simple
nature of communication in making them successful. Otherwise, one will only develop a niche
within the local region and miss several interest groups that might grow the firm in other
countries. Liu & Avery (2009) discusses the history of Jack Ma before starting Alibaba. He asked
for employment opportunities in several companies including KFC. According to the business
mogul and a motivational speaker, multiple institutions declined him. They preferred working
with intellectuals even when seeking employees for low cadre jobs. Alongside a team of 17
BUSINESS MODEL GENERATION - ALIBABA 7

competent individuals, they built a business empire that employs people from various
backgrounds.
His story might be motivational, but the history of Alibaba informs the complexities
experienced today. At least 17 different opinions caused the development of the business empire.
It means that the democratic approach to information representation was bound to cause
problems for the customers and suppliers in the future. The company is over a decade old now,
and various changes are paramount to ensure that the model does not benefit the investors only,
but also makes it easy for the customers and suppliers to interact. Businesses that give priority to
B2C interactions are often successful and sustainable in the end. With the new business model,
the company is likely to create room for effective communication between the internal and
external publics. Greeven (2017) reinforces that the adoption of better communication channels
between the stakeholders would make businesses in China sustainable. The only problem is that
most businesses thrive on computer-mediated communication, which is terrible in handling
return policies, and consultations due to the internet “time-out” experienced when the customer
or support unit takes long to respond to a question.
Ideation Process/Industry Analysis/Overall Environmental Scan
In the industry analysis, Alibaba should consider the components of SWOT (strengths
weaknesses, opportunities, threats).
Strengths
Alibaba trades publicly as BABA and its share value is 183.77 based on the findings from
the Sponsored American Deposition share representation. Its value appreciated by 0.35% in the
recent past, and the information is one of the most complicated data included in the business
model (Pahwa, 2017). With its value appreciating over Wal-Mart and Amazon since 2016,
Alibaba stands an excellent chance at attracting several investors. Consequently, financial
stability boosts its position within the global space enabling the company to earn recognition
easily. Thus, Alibaba spends little on marketing or advertisement ventures. Further, the internet is
an affordable platform for the company to conduct CSR, public Relations, advertising, and direct
marketing. Thirdly, Alibaba holds a good reputation for employing and retaining a pool of
talented employees. So far, no reports of ILO (international labor laws) violations have occurred
in the company. Its reputation cannot compare to Apple Inc., which reportedly mistreated
underage workers in its production sites in China between 2010 and 2011. Such violations of
human rights are known to affect the reputation of a company for a very long time.
Weaknesses
One notable fact is the complexity of the old model making it difficult for new customers
to adjust easily to the system. A lot of back and forth between the buyers and wholesalers could
confuse the customers. A clear disparity exists between the international and domestic
distribution platforms, but a new customer requires several explanations to understand the
movements within the business canvas (Osterwalder et al. 2010). Hence, only an investor with
certain levels of bias in economics is capable of understanding the significance of such
provisions in the success of a company. Another factor that complicates the business model is the
provision of several services to a multitude of consumers. Therefore, no unique feature stands
out to distinguish Alibaba from its competitors. Instead, the provision of almost all the services
offered by the competitors such as Amazon and eBay influence the position held by Alibaba in
the business environment. It would be easy for such an organizational structure to fail in case
Jack Ma retires from the firm since he holds an excellent grip of the business activities at the
company. It would be difficult for anyone else to fill the position and understand all the aspects
BUSINESS MODEL GENERATION - ALIBABA 8

of the business as the founder does. Hence, overdependence on the founding leader should
reduce over time to create room for a smooth transition as Liu & Avery (2009) mention. Alibaba
should do this by training personnel on leadership and development.
Opportunities
Alibaba has a great opportunity by investing in China. The cost of production in the
country is very low and the economy of China is highly competitive. The firm should take
advantage of the merits to ensure that its rivals and the new entrants do not replace it (Porter,
2008). Technological advancements often phase off traditional businesses in different parts of the
world. Alibaba embraced the virtual business framework, which enables it to serve customers
from several parts of the world. Technology influences business decisions, and Alibaba
understands the significance of appreciating the ubiquitous, cost-effective, and efficient
communication channel. Alibaba should develop a research and development center to ensure
that it remains updated with technological improvements. Secondly, legal restrictions rarely
affect online or e-commercial businesses. International business law and cyber law always
protect people from malicious activities online. However, no direct laws exist to deter people
from internet use. Hence, limited legal restrictions offer opportunities of expansion for the virtual
businesses (Osterwalder et al. 2010). Thirdly, Alibaba operates in a commercial space that
appreciates technology and understands its use. The company saves resources that would
otherwise be used for warehouses. Instead, it links the brick and mortar businesses with
customers making the exercise highly cost-effective (Pahwa, 2017). Finally, Alibaba should take
the opportunity of investing in the banking sector. Already, the firm has the electronic cash
payment system, which facilitates online transactions that are very common in overseas
purchases. The mobile banking system primarily applies within China. Irrespective, the banking
sector in several countries is facing a major setback. Alibaba should consider the failure as an
opportunity of creating an online application to cater for the needs of the pessimistic customers.
Consequently, the company should consider venturing into the real estate industry now that the
political climate is stable in China and that the communist party in the country promotes the
development of the local communities at the expense of the foreigners.
Threats
Following an extensive industry analysis, Alibaba has a long history and it took 17 years
for the company’s profit margin to surpass Wal-Mart. Recently, Amazon’s CEO Jeff Bezos was
announced the second richest person in the world with the possibility of exceeding the fortunes
of Microsoft. It means that Alibaba has to assess the activities in which Amazon engages or else,
the company might never be a leader in the e-commercial sector. Consequently, Amazon is
equally new in the e-commercial industry, but it does several things with a simple business
model, which accommodates the interests of multiple individuals. Cultural disparities in different
countries might equally affect Alibaba’s reception. With a simple and an accommodating
business model, it would be easy to integrate the needs of the various audiences to ensure that the
target consumers are comfortable and that their traditions are well represented or not insulted.
Finally, Alibaba should remain cautious about the overwhelming increase in the numbers of
small e-commercial firms offering B2B and B2C solutions to customers. They include Baidu,
Leeco, Xiaomi, and Tencent both of which are success in their own rights (Greenven, 2017). Any
form of laxity would affect business operations at Alibaba and draw consumer attention towards
a cost-effective and less complicated business model. Besides dealing with the new entrants,
Alibaba needs to assess the bargaining power of the buyers. Online platforms do not encourage
bargaining, but customers always compare the costs of products and service on different
BUSINESS MODEL GENERATION - ALIBABA 9

platforms. By assessing the costs of production and shipping, Alibaba needs to create a good
pricing schedule that impresses the company and its customers. Otherwise, it could lose the
human resources and competitors to the rival entities (Porter, 2008). However, the company
should increase or strengthen the bargaining power of the suppliers to ensure that it gets
commodities at affordable prices and gets returns on investment after selling the same products
or services.
Environmental Scan
Location
Alibaba’s strategic location in China gives the company an advantage over its
competitors such as Tencent and Leeco. China is currently the world’s technology nucleus. Any
company investing in the country has the strategic and financial advantage on spending less on
production and marketing (Alibaba Group, 2015). Alibaba is a leader in the provision of e-
commercial solutions that cut across the services offered by the competitors. Unlike the local
new entrants, Alibaba meets B2B and supplier-to-retailer platforms of interaction. The same
applies to the international e-commercial environment in which Amazon, eBay, and Wal-Mart are
known mostly for offering B2C business solutions.
Technology
Technological advancements offer the e-commercial business with an opportunity to
serve customers using the propriety technologies. It means that wholesale and retail businesses
can easily be accommodated within the business model. The intermediary model is a
replacement for the traditional retail counterparts, which rarely accommodated coordination of
businesses, and a smooth flow of transactions (Bhowmik, 2012). All the key stakeholders get an
opportunity to interact at the same level leaving room for negotiation and bargaining both of
which are significant with the Chinese. Through technology, Alibaba is capable of saving time
and resources that would be used in the establishment of warehouses.
Monopoly
Most businesses in China operate under monopolistic systems. Alibaba is by far one of
the most monopolistic e-commercial platforms following its capability to penetrate some of the
toughest markets (Alibaba Group, 2015). Even though the company talks about transparency and
ease in business transactions, it remains apparent that China’s communist state primarily operates
well under monopolies. It becomes almost impossible to know anything about the competitive
forces such as Xiaomi that strive to meet customer needs through the B2C platforms.
Suitability
The amount of smog experienced by the Chinese makes the country one of the most
environmentally polluted countries. Irrespective of the findings, several industries continue
dealing in CO2 among other greenhouse gasses. Alibaba’s business model erases the possibility
of CO2 use because of the internet-based transactions. Further, the use of paperless banking
systems assist the company in engaging in environment-friendly initiatives. Such approaches
would protect China against climate change in the future.
Industry Analysis
Traditional retail commerce models used by Amazon and eBay rarely incorporate a
platform through which businesses can interaction. Alibaba gains global prominence following
the use of a unique model that sustains B2B business activities. Its ability to trade under the
NYSE since 2014 and its Initial Public Offering are all initiatives that sustain the company’s
image in a completive industry. Shareholders acquire the depository stock at $68 each, and the
IPO increased its value by 35% from 2014 (Forbes, 2014). In 2013, the company acquired US$
BUSINESS MODEL GENERATION - ALIBABA 10

7.8 billion from 11.3 billion processed orders. With over 350 users actively engaged on the
online and offline sites, the company is very active. Alibaba dispatches orders exceeding $9.3
billion almost daily. The business environment at Alibaba is very busy because of the exhaustible
services offered by the institution (Pahwa, 2017). Through the online retail store, different
suppliers and business owners can meet to share ideas, products and services. The complexity of
the business model cannot compare to Amazon or eBay in any way. Alibaba Group Holding
Limited combines the business model of the banking sector, e-commercial outlets, and the brick
and mortar industries. Hence, it takes an interested party to know the logistics of business
operations. Some people have to adjust to delays because of the natures of transactions while
others get services quickly. It all depends on the platforms used through the major web portals
including Taobao, Alibaba, and Tmall all of which appreciate the intervention of Alibaba.
However, the customer might not understand such complicated logistics, but interest groups find
the model very complicated, and Alibaba should find a replacement to facilitate ease in
understanding the different activities.
Conclusion
Each business always embraces a model that meets its objectives and attracts the
customers. The business model embraced by Alibaba is very complicated even though the
transaction process is very easy. Through its R&D and IT departments, the company should
reduce the provisions of the model to four comprehensible characters that would attract the
attention of any new user to the operations and not purchases only.
BUSINESS MODEL GENERATION - ALIBABA 11

References
Alibaba Group. (2015). Company Website. Retrieved from
http://www.alibabagroup.com/en/global/home
Bhowmik, R. (2012). Analysis on the Business Model of Alibaba.Com. Retrieved from
http://www.slideshare.net/ronibhowmik/analysis-on-the-business-model
Forbes. (2014). Alibaba Claims Title For Largest Global IPO Ever With Extra Share Sales.
Retrieved from http://www.forbes.com/sites/ryanmac/2014/09/22/alibaba-claims-title-for-
largest-global-ipo-ever-with-extra-share-sales/.
Greeven, M. J. (2017). Business ecosystems in china: Alibaba and competing baidu, tencent,
xiaomi and leeco. Routledge.
Khare, A., Stewart, B., & Schatz, R. (2017). Phantom ex machina: Digital disruption's role in
business model transformation. Cham: Springer.
Liu, S., & Avery, M. (2009). Alibaba: The inside story behind Jack Ma and the creation of the
world's biggest online marketplace. New York: Collins Business.
Osterwalder, A., Pigneur, Y., In Clark, T., & Smith, A. (2010). Business model generation: A
handbook for visionaries, game changers, and challengers /.
Pahwa, A. (2017). “Alibaba Business Model | How Does Alibaba Make Money?” Available
https://www.feedough.com/alibaba-business-model-how-does-alibaba-make-money/
Porter, M.E. (2008). Competitive Strategy: Techniques for Analyzing Industries and
Competitions. New York: The Free Press.
Schepp, B., & Schepp, D. (2013). The official alibaba.com success guide: Insider tips and
strategies for sourcing products from the world's largest b2b marketplace. Hoboken, N.J:
Wiley.