Professional Documents
Culture Documents
Ganglan Hu
Fudan University
670 Guoshun Road, Shanghai 200433, China
071025001@fudan.edu.cn
Xianghua Lu
Fudan University
670 Guoshun Road, Shanghai 200433, China
lxhua@fudan.edu.cn
Abstract
The rapid growth of online consumers and e-business websites in China has attracted a large
number of organizations to participate in the e-business industry; many of them have gone
through several stages of evolution and aggregations. The purpose of this study is to apply the
business ecosystem theory as the theoretical lens to explore the phenomenon of e-business
growth in China. The Alibaba Group was chosen as a case to demonstrate the process by
which a typical e-business ecosystem got shaped, developed, and matured. Four stages in the
evolution path of Alibaba’s ecosystem and their respective characteristics are identified. The
findings are useful for understanding the development of e-business in china. Implications for
researchers and practitioners are discussed.
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 25
Published by AIS Electronic Library (AISeL), 2010 1
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
26 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 2
Lihua et al.: E-business Ecosystem and its Evolutionary Path: The Case of the A
E-business Ecosystem and its Evolutionary Path/ Huang et al.
alliance theory, the business ecosystem ecosystem than that from their own
theory considers more factors and competition (Nguyen, 2002). They are
components (e.g., rivals and government indispensable companies and
institutions), stresses more on the co- organizations in the e-business
existence between players, and gives more ecosystem, including logistics companies,
attention on its evolution process and the financial institutions, telecommunication
adaptation capacity to the environment suppliers, government agencies, and so
(Gossain and Kandiah, 1998; Iansiti and on.
Richard, 2006). The business ecosystem
Parasitic Species: These species are
theory can better explain the aggregation of
companies that must coexist with the e-
relevant companies and organizations in the
business ecosystem. They rely on the
Chinese e-business industry.
ecosystem for survival. Typical instances
Electronic business ecosystem are value-added service providers, such
as technology vendors, advertising and
Based on the business ecosystem theory, we
marketing service providers, training
can define the phenomenon of e-business
agencies and consulting firms.
aggregation (called the electronic business
ecosystem or e-business ecosystem in short) Figure 1 shows the relationship and
as ‘an organic ecosystem that is made of dependence of these species in an e-
enterprises and organizations with close business ecosystem.
relations, using the internet as a platform to
A typical business ecosystem can go through
make competition and communication
four evolutionary stages: birth, expansion,
through virtual alliance, sharing resources,
coordination and maturity, and death. At the
and making full use of their advantages
birth stage, e-business enterprises view
beyond geographic limits’. In a well-
certain specific group of customers as target,
developed e-business ecosystem, all
attracting participants via innovative operation
members have their functions to form a value
model and high value products or services,
network with the flow of materials, energy and
creating and emerging a new e-business
information.
ecosystem. Some ecosystems that capture
A typical e-business ecosystem is composed the needs of the customers will survive at this
of the following 4 different categories of stage and develop further into a larger scale.
companies and institutions:
At the expansion stage, as the development
Lead Species: This is the core e- of the Lead species, the number of key
business of the ecosystem. It provides species and supportive species keeps
the business platform and regulatory increasing and the parasitical species
services to serve the role of resource gradually emerge. While e-business
integration and coordination for the ecosystem expands to conquer broad new
ecosystem. territories at this stage, the competition with
other ecosystem becomes more intensified.
Key Species: They are the customers of At the coordination and maturity stage, the
the other species in the e-business relationships between various species
ecosystem and main players involved in become increasingly complicated due to the
e-business trading, including consumers, rapid growth of all the species at their
retailers, manufacturers, special expansion stage, especially, the competitions
suppliers, and etc.. and conflicts among key species and
Supportive Species: These species make parasitic species for the interests. To some
the ecosystem more efficient but are not extent, lead species need to regulate and
dependent on the e-business ecosystem perfect the system rules to maintain the
for their survival. They can gain more healthy development of the system at the
benefits from the optimized e-business maturity stage.
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 27
Published by AIS Electronic Library (AISeL), 2010 3
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
The evolution stage occurs when a mature market Figure 2 shows the evolutionary path
business ecosystem is threatened by rising graphically.
new ecosystems or external environment
Using the business ecosystem theory as the
changes. The ecosystem may either evolving
lens, this study attempts to answer two
into a new ecosystem by completely
research questions: “How have e-business
changing the original business model or
ecosystems in China been formed?” and
declining and fading away, as the eBay
“What characterize the e-business ecosystem
ecosystem decided to pull out the China
in China?”
Environmental threats
Evolution failure
Birth Expansion Maturity Evolution Death
Be substituted
28 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 4
Lihua et al.: E-business Ecosystem and its Evolutionary Path: The Case of the A
E-business Ecosystem and its Evolutionary Path/ Huang et al.
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 29
Published by AIS Electronic Library (AISeL), 2010 5
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
Alibaba Group is officially established by its 18 founders, led by Jack Ma, working out of a
1999
Hangzhou apartment.
Alibaba Group raises US$25 million from Softbank, Goldman Sachs, Fidelity, and other
1999-2000
institutions.
2003 Consumer e-commerce website Taobao is founded, again in Jack Ma's apartment.
2004 Online payment system Alipay is launched.
Alibaba Group forms a strategic partnership with Yahoo! Inc. and takes over the operation of
2005
China Yahoo!.
Alibaba Group creates a cross-business team comprising senior managers from Taobao, Alipay,
Alibaba Cloud Computing and China Yahoo! to execute a full-scale roll-out of the "Big Taobao"
strategy. (March)
2010
Alibaba Group announces that it will begin in 2010 to earmark 0.3 percent of annual revenues to
fund efforts designed to spur environmental awareness and conservation in China and around the
world. (May)
30 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 6
Lihua et al.: E-business Ecosystem and its Evolutionary Path: The Case of the A
E-business Ecosystem and its Evolutionary Path/ Huang et al.
to reduce the cost of marketing and either. The ecosystem’s high updating
information search for SMEs. Therefore, the frequency and the character of vague
major environmental driver for the formation boundary began to appear up. One senior
of the company was the rapid growth of manager indicated as follows:
SMEs in China and their strong need for a
“We began to expand since 2003,
trading channel to access the world.
starting from moving into online personal
At this stage, the ecosystem had a very trading (C2C). In the following 4 years,
simple structure, including Alibaba.com as our service extended from ordinary
the core, users as the key participants, and goods trading to online software and
some other essential supportive species. The advertisement business, and from goods
core Alibaba Group also had to perform trading market to life service
functions which should have been provided community… Our strategies were to try
by supportive and parasitic species. A and change. Ideas did not need to fully
manager described the status of the mature before trying to implement.
ecosystem around 2000: Environmental change was too fast, we
had to update before competitors and
“Internet in China was not fully
environmental changes… Changes
developed at that time. Not many people
happened everyday.”
are willing to trade online… Door-to-door
marketing was required. Besides, the Meanwhile, the competition between Alibaba
technical facilities were not complete and other business ecosystems became
enough to support safe and convenient fierce when it entered different markets. The
e-business… Many necessary functions most well-known was the competition with the
were provided by our own.” eBay China ecosystem in the online auction
market. The war ended with Ebay.com’s
Yet, through the large-scale updating, trial-to-
withdrawal from the China market, which
errors, and improvement, Alibaba Ecosystem
resulted in Alibaba Group’s C2C business to
had transitioned from a single functional
be the Number 1 leader in China.
trading forum to a trading platform offering
spirited new products and services, including There are many reasons that have caused
China Suppliers and Trust Pass. The the success of Alibaba (or the failure of eBay).
ecosystem successfully survived the major A major one is the lack of cultural sensitivity
threat of Internet bubble burst. The major of eBay. As indicated by an interviewee, eBay
reason that Alibaba was able to survive the copied the whole western model from its
Internet bubble burst was the rich resource headquarter to its acquired subsidiary
provided by the environment – many western company (which was the largest auction
companies were looking for inexpensive website in China before the acquisition).
suppliers in China. The economic recession Unfortunately, the key species of ebay
might have further boosted that need. ecosystem forced other members to follow its
culture which did not fit the business
Expansion stage (2003 - 2007) environment in China. For example, eBay
In fact, the increasing need in Developed didn’t allow buyers and sellers to
countries for outsourcing their manufacturing communicate before the transaction, which
to China helped Alibaba not only survived the was quite common in western countries. This
Internet bubble but also started its expansion rule was not acceptable in Chins. As an old
afterward. The boundary of the ecosystem Chinese proverb says, “friendship first,
was broadened rapidly, and the participants business follows,” communication and
had been continuously and dramatically emotional involvement were critical to
increasing. Many new ideas were adopted successful trading in China at least in the
and implemented quickly. They might online market at that time when trust among
disappear quickly after proven to be no value trading partners was pretty weak. Additionally,
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 31
Published by AIS Electronic Library (AISeL), 2010 7
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
buyers in China are used to bargaining with technological infrastructure to meet new
the sellers before the purchase. Unwilling to trends. From the strategic side, it changed
follow the local culture and adapting its the previous sub-company strategy to the
strategy accordingly had costed the eBay “Big Taobao Strategy”, that will switch the
ecosystem its market share in China and core species of the ecosystem from the
eventually gave the market to Alibaba’s original e-business service provider to a new
Taobao.com (the Chinese meaning of “finding e-business infrastructure operator. The core
treasury”). A senior manager of Taobao.com species will serve as an independent platform
elaborated that: operator that does not engage in any specific
e-business trading any more. The ultimate
“The competition with eBay could not be
goal of this strategic transformation is to
avoided. We had similar target markets
strengthen the openness of the ecosystem, to
and customers… The reason we won
standardize various services, in order to
the battle is due to two main magic
attract more environmental resources and to
weapons: Tool and Service. We
achieve sustainable development of the
provided communication tools between
whole ecosystem. This opening strategy may
buyers and sellers and a better third-
also reduce the conflict among different
party payment intermediary service…
species in the ecosystem.
More importantly, all these general
services were free.” Another change is that the group started a
cloud computing company to cope with new
In addition to the successful entry of the C2C
technological trends. The new technological
market, Alibaba also acquired China Yahoo!
platform may be able to facilitate the ‘Big
in 2005. Overall, the Alibaba ecosystem
Taobao” strategy and avoid potential new
expanded its coverage into different markets,
entrants who will take advantage of the cloud
including C2C online auction and e-payment
computing technology to invade into the
markets. It successfully defeated competitors
market.
in those markets through strategies that
better fitted the local environment – the Evolution in the future
trading behaviour of customers.
Although the Alibaba Group is in a healthy
Coordination and Maturity stage (2008 situation, any substantial external threat could
- 2009) subvert the stability of the ecosystem. The
VP of Alibaba Group indicated in the
With the fast growth of Alibaba ecosystem, its
interview that
members increase substantially in a short
time period, it is quickly entering the maturity “The company is aware of the potential
stage. Alibaba was listed in the Hong Kong crisis in our daily operation. To us,
Stock Exchange in 2007. Its strategies potential competitors could be someone
started to be under scrutiny of professional in a college dormitory right now, who
investors and the general public. would overthrow our current business
model and be involved in e-business
The growth of the ecosystem also needs with an incredibly new model.”
more coordination among its members. As
the members increase, the interests among Thus, Within the Alibaba Group, an important
these participants become more diversified business is to assess the value of its affiliated
and are conflicting sometimes. The ecological partners. Termination of business without
rules that have guided the growth of the eco- competitiveness and creation of new
family may not meet the present needs and initiatives are of high priority. They recognize
environmental challenges. The company that the best solution when facing fatal
started two major strategic moves: one was external threats is to withdraw from declining
to improve its coordination for high markets and capture new business
effectiveness and another was to enhance its opportunities in advance to ensure the
32 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 8
Lihua et al.: E-business Ecosystem and its Evolutionary Path: The Case of the A
E-business Ecosystem and its Evolutionary Path/ Huang et al.
sustainability of the ecosystem. The evolution communities, life service information, search
stage is ahead, which could result in death or engines, and so on. This may also due to the
a brand-new more competitive ecosystem. characteristics of the Internet, which include
the low cost of information sharing and no
Discussion geographical nor time restrictions in access.
From the interview and analysis of the The open access feature provides the e-
Alibaba case, we have found a few business ecosystem with the ability to derive
characteristics of e-business ecosystems, other trade-related services.
which makes it different from the traditional Fourth, the environmental threat is constantly
business ecosystem. high. For traditional business ecosystems,
First, a business ecosystem is highly dynamic. decline occurs only when mature business
Traditional business ecosystem only communities are threatened by rising new
experiences a large degree of member ecosystems and innovations at the stage of
changes in the last phase of the whole evolution. However, the Alibaba ecosystem
evolutionary path. In the Alibaba ecosystem, shows that the e-business ecosystem has
however, we found that member updates faced higher uncertainty and environmental
continued to occur throughout the process of threats throughout the whole development
birth, expansion and maturity. We believed process, due to lack of standard business
that the high updating rate in e-business models, and continuous changes in
ecosystem could be resulted from e- technology and government policies. For
business’s two essential principles: trial-to- example, imposing tax on online transactions
error and innovation. or prohibiting online imitation has direct
impact on the competition in the e-business
Second, the leadership of the core e- ecosystem. Therefore, decline and death
business enterprise is critical and stable. In a could happen more often in different stages
traditional business ecosystem, different of the evolution as compared with traditional
central companies could use their bargaining business ecosystems.
powers to seek the leadership in the
ecosystem at the maturity stage. But, in the To summarize, the development of Alibaba
Alibaba case, we found that the dominance of ecosystem has indicated key characteristics
Alibaba Group is quite immune to the in different stages of the e-business
challenge of other core companies. It is ecosystem. Alibaba Group, as the lead
believed that the network effect could account species of the e-business ecosystem, has
for the steady leadership of the core played an irreplaceable role at every
enterprise in the e-business ecosystem. The evolutionary stage. According to the case, we
Internet promises an exponential increase in summarize in Table 2 the features of the e-
value for core enterprises that are connecting business ecosystem at each stage, and the
with a large number of clients, which will in roles played and strategies taken by lead
turn appeal more potential customers. As a species at corresponding stage.
result, the network effect will drive the power Because the development of e-business is
to be even stronger, and win the high loyalty still relatively young and unstable, an e-
of customers, due to their habituation to the business ecosystem could suffer from the
products and services offered by the lead sudden change of its external environment,
enterprises. no matter at its birth, expansion, or
Third, the boundary of the ecosystem is coordination stage, and directly enter into its
vague. Traditional business ecosystems are evolution stage. Or, we may argue that the
usually restricted to one specific area, while evolutionary path of an e-business ecosystem
the Alibaba ecosystem has continuously is much shorter that that of a traditional
extended its boundaries to various areas, ecosystem.
including product review, forums and virtual
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 33
Published by AIS Electronic Library (AISeL), 2010 9
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
34 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 10
Lihua et al.: E-business Ecosystem and its Evolutionary Path: The Case of the A
E-business Ecosystem and its Evolutionary Path/ Huang et al.
References
information systems research”,
Alibaba Group, (2009), “Company overview”,
Information System Research, Vol.14,
http://news.alibaba.com/specials/about
No.3, pp.221-243
alibaba/aligroup/index.html, sited on
Nov., 16, 2009 Moore, J.F., (2006), “Business Ecosystems
and the View from the Firm”, Antitrust
Carver J., (2004), “Using Qualitative Methods
Bulletin, 51 (1), pp.31-75
in Software Engineering”. Presented at
International Advanced School of Moore, J.F., (1993), “Predator and Prey: A
Empirical Software Engineering New Ecology of Competition”, Harvard
(IASESE), 18 August, Los Angeles, Business Review, 71 (3), pp.75-86.
CA.
Nguyen, T.N., (2002), “The Ecology of
Dobson, P.W., (2006), “Competing, Software: A Framework for the
Countervailing and Coalescing Forces: Investigation of Business-IT
the Economics of Intra- and Inter- Integration”, Journal of American
business System Competition”, Academy of Business, 2 (1), pp.7-11.
Antitrust Bulletin, 51 (1), pp.175-193.
Peltoniemi, M., and E. Vuori, (2004),
Eisenhardt, K.M. (1989), “Building theories “Business Ecosystem as the New
from case study research,” Academy Approach to Complex Adaptive
Manage Review, 14 (4), pp. 532-550 Business Environments”, Frontiers of
E-business Research, pp.267-281
Gossain, S., and G. Kandiah, (1998),
“Reinventing Value: the New Business Raven, P.V., Huang, X.Q., and Kim B.B.,
Ecosystem”, Strategy & Leadership, 2004, “E-business in Developing
26 (5), pp.28-33. Countries: A Comparison of China and
India”, International Journal of E-
Iansiti, M., and G.L. Richard, (2006), “The
Business Research, 3 (1), pp.91-108.
Information Technology Ecosystem:
Structure, Health and Performance”, Walsham G., (1995), “Interpretive case
Antitrust Bulletin, 51 (1), pp.77-110. studies in IS research: Nature and
method,” European Journal of
iResearch, (2008), “2007-2008 China Online
Information System, 4 (2), pp. 74-81.
Shopping Research Report”,
http://down.iresearch.cn/Reports/Char Walsham G., (2006), “Doing interpretive
ge/1161.html,sited on Nov.10, 2008 research,” European Journal of
Information System, 15 (3), pp. 320-
Lee, A.S. and Baskerville R.L., (2003), 330
“Generalizing generalizability in
Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 /December 2009 35
Published by AIS Electronic Library (AISeL), 2010 11
Pacific Asia Journal of the Association for Information Systems, Vol. 1, Iss. 4 [2010], Art. 3
E-business Ecosystem and its Evolutionary Path/ Huang et al.
36 Pacific Asia Journal of the Association for Information Systems Vol. 1 No. 4, pp. 25-36 / December 2009
https://aisel.aisnet.org/pajais/vol1/iss4/3
DOI: 10.17705/1pais.01402 12