The Alibaba Group, commonly referred to as Alibaba, is a conglomerate consisting of multiple companies, which provide a variety of internet features. Alibaba is often seen as the combination of Amazon, eBay, and PayPal; however, it offers much more. Alibaba primarily focuses on its function as an e-commerce marketplace but is also involved in adjacent markets, such as cloud computing, mobile chatting, and personal financing. The journey of Alibaba, led by its founder Jack Ma is often celebrated as an example of how the vision of social inclusion can build a small startup into one of the highest valued companies of the globe. Recently Jack Ma has announced that he is going to retire as the Executive Chairman of Alibaba Group in exactly one year from now. This news has led to the speculation as to how the company will perform once its most influential personality takes a backseat and hands over the reins to a new individual, Mr.Daniel Zhang, Alibaba’s financial whiz.
This week’s Startup Sunday sheds light on the emergence of Alibaba as a conglomerate, discusses its business model and value proposition and speculates the future of the Group, with its charismatic leader making an exit from the role of the Executive Chairman.
The Rise of Alibaba Group
1999: Alibaba Group is established by its 18 founders, led by Jack Ma, working out of Jack Ma’s apartment in Hangzhou. Its first website is English-language Alibaba.com, a global wholesale marketplace.
2002: Alibaba Group successfully becomes a cash flow positive company for the year.
2003: Online shopping website Taobao Marketplace is founded, again in Jack Ma’s apartment.
2004: Alibaba Group organizes its first Entrepreneur Summit, a gathering of Internet entrepreneurs, and honours the first 10 Entrepreneurs of the Year.
2007: Alibaba.com completes its initial public offering on the Main Board of the Hong Kong Stock Exchange.
2008: Alibaba Group establishes an R&D institute, a big milestone that shows the growing size and operations of the company.
2009: Alibaba.com announces the acquisition of HiChina, China’s leading Internet infrastructure service provider.
2010: Alibaba.com announces the acquisition of One-Touch, a provider of one-stop services for exporters in China.
2011: Alibaba Group establishes the Alibaba Foundation with a sizeable fund dedicated to social causes.
2013: Alibaba Group officially launches its mobile social networking app, Laiwang (currently known as DianDianChong).
2014: Alibaba Group starts offering mobile virtual network operators (MVNO) services in China under the Ali Telecom brand.
2015: Alibaba Group and Suning enter a strategic alliance to build on synergies in e-commerce, logistics and O2O Initiatives.
2016: Alibaba Group announces the formal establishment of the Alibaba Digital Media & Entertainment Group.
2017: Alibaba Group officially launches Tmall World, an initiative to serve the 100 million-strong overseas Chinese market worldwide.
2018: Jack Ma announces retirement. In the letter entitled “Happy Teachers’ Day,” Ma said he would retire as the chairman of the board on Sept. 10, 2019, Alibaba’s 20th anniversary.
It is a business-to-business trading platform, connecting manufacturers from countries such as China, India, Pakistan, the United States, and Thailand with international buyers. Merchants can list their products for free on Alibaba.com but also have the option to pay for a range of benefits such as greater exposure on the site and unlimited product listings.
In Chinese, Taobao means “search for treasure.” Taobao.com has grown to become China’s largest shopping website and is ranked the ninth most popular website in the world by Alexa.com. Launched in 2003, Taobao lists hundreds of millions of products and services from millions of sellers. Taobao doesn’t charge transaction fees and the site is free to join for merchants, a policy which helped the site gain its enormous user base in China.
While Alibaba.com is business-to-business, Taobao is business-to-consumer or consumer-to-consumer focused, enabling small businesses and individuals to open online stores.
Merchants have the option to buy advertising and other services to help them stand out on the website and boost sales. Advertisers can choose between pay-for-performance and display marketing. These ads are the primary means through which Alibaba makes money from Taobao.
Tmall.com, launched in 2008, offers a wide selection of branded products oriented towards China’s growing middle class. Tmall is focused on larger companies, including multinational brands such as Nike, Inc. (NKE) Apple Inc. (AAPL). Tmall has grown to host over 50,000 merchants selling to over 180 million active users.
Tmall charges merchants a deposit, an annual fee, and a commission fee on transactions. In this way, it bears some resemblance to eBay Inc. (EBAY) and Amazon, which also collect transaction fees from third-party merchants. Sellers on Tmall have access to analytic tools showing the number of visitors, page views, and customer ratings, which serve to help guide their business decisions.
Software vs. Warehouses
Unlike Amazon, Alibaba Group holds no inventory. Rather, Alibaba has created software platforms that facilitate the exchange of goods and services. While Alibaba’s revenues are only a fraction of Amazon’s, it has higher operating margins and profit margins. The reason for this at large is that Amazon has to manage the expensive and complex logistics of developing and maintaining a network of warehouses to ship products directly to shoppers. In short, software is easier to scale than warehouses.
Alibaba Group has made major investments in Sina Weibo, a Chinese micro-blogging website similar to Twitter Inc. (TWTR), and YoukuTudou, China’s answer to YouTube. Alibaba has also invested in several US startups, including video messaging application Snapchat and Lyft, a peer-to-peer ridesharing application. In 2014 it even bought a 50 per cent share of Guangzhou Evergrande Football Club for $192 million.
Alibaba provides a platform for buyers and sellers, proposes news, analysis and timely price lists, development team works on the research of new technologies and functions to support their website which helps to enhance their services and reduce operating costs and gain large profits.
Its business model aims to create an efficient, flexible and responsive structure in front of a demanding customer and information society opportunities. Its business model entails its network of partners for creating, marketing and delivering value and relationship capital to one or several segments of customers under B2B to generate profitable and sustainable revenue streams.
The Future, without Jack Ma?
The founder, Jack Ma, has been a charismatic leader for the company and a champion for Chinese industry, connecting businesses and consumers at home and abroad with merchants of all sizes through Alibaba’s different e-commerce marketplaces, including Taobao, Tmall and Aliexpress. The company’s stock has risen 87% over his tenure and Alibaba now has a market value of about $420 billion, eclipsing WeChat operator Tencent Holdings Ltd.
Mr.Ma said in the open letter that he wants to return to education, which gives him excitement and blessings. He said he has prepared a 10-year succession plan to develop a system of corporate governance based on culture and mechanism for developing consistent talent and successors.
Alibaba and Mr.Ma portrayed the succession plan as a sign that the company isn’t dependent on one person. Mr.Ma’s involvement in the company isn’t likely to end with his resignation. He has a stake of more than 6 per cent in the company’s shares. Crucially, he will also have considerable sway in the company and its affiliates.
Much remains unclear about the structure in the new era. Alibaba was unable to say, for example, if Mr Ma has or will retain control of Ant Financial, the payments affiliate which is undergoing an ownership restructuring that will see Alibaba swap its profit-sharing agreement for a 33 per cent stake in the company.
All this being said, we look forward as to how things really shape up after Jack Ma retires next year and hands over the reins of Alibaba to his successor, Mr.Daniel Zhang, in a business environment that is very much different from what it was 20 years ago. Only time will bear witness to the journey of the Chinese business giant in the years to come.