Shri Mata Vaishno Devi University,Katra

Case Study of Alibaba.com

Submitted To:­ Submitted By:­ Mrs. Sonika Gupta Akshay Pratap Singh (2011ECS01) Faculty of CSE Rishabh Shukla (2011ECS13)

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Table of Contents

S.No Topic Page Number

1. Introduction 3

2. History 4

3. Business Model 5

4. Products and Services 7

5. Target Users 8

6. Payment Methods 9

7. Comparison of Alibaba with other Tech­Giants

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9. References 15

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Alibaba

A marketplace, a search engine and a bank, all in one.

Alibaba is China’s and by some measures, the world’s biggest online commerce company. Its

three main sites — Taobao, Tmall and Alibaba.com— have hundreds of millions of users, and

host millions of merchants and businesses. Alibaba handles more business than any other

e­commerce company.

One can think of it as a mix of Amazon.com, eBay and Paypal. Customers use Alibaba to shop

online, sell unwanted goods and make online payments. Alibaba has two retail sites: Taobao,

which features thousands of non­brand name products sold by smaller merchants; and Tmall,

which offers brand­name products sold by big merchants.

Unlike Amazon, which buys goods from suppliers and sells them to customers, Alibaba has

always acted as a middleman, connecting buyers and sellers and facilitating transactions between

them.

This Chinese B2B trading platform connects buyers in North America and Europe with suppliers

from China. Alibaba follows an aggregation of supply model (similar to other early B2B

players), helping to solve the pain of global sourcing.

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History Alibaba Group was established in 1999 by 18 people led by Jack Ma, a former English teacher

from Hangzhou, China. From the outset, the company’s founders shared a belief that the Internet

would level the playing field by enabling small enterprises to leverage innovation and

technology to grow and compete more effectively in the domestic and global economies.

Jack Ma named his company on “Alibaba ­ Open Sesame”. Alibaba is a kind, smart business

person, and he helped the village. Alibaba opens sesame for small­ to medium­sized companies.

During Late 90’s, Alibaba Group raised a total of US$25 million from SoftBank, Goldman

Sachs, Fidelity and some other institutions.

After Alibaba achieved profitability in 2001, it’s sister organization Taobao was founded as a

consumer e­commerce platform. Which further established TMall (TMall.com), a retail website,

to complement its C2C marketplace.

After about a decade since its inception Alibaba group also beta­launched eTao as a shopping

search engine.

Alibaba raised $21.8 billion in its debut, making it the biggest U.S.­listed IPO in history after the

IPO of credit card processing company Visa in 2008.

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Business Model The initial business model of Alibaba was simple ; a facilitate a 24/7 meeting platform for

suppliers and buyers around the world. From the start Alibaba did not just connect Chinese

suppliers with international buyers, but it had the goal of connecting all importers and exporters

around the world to each other. Although other B2B websites have always said “You cannot have

a global company out of china , it makes no sense.”. From the very beginning Alibaba was , “the

first global Internet emerging from china.”

In more technical terms three of the most prominent business models employed by Alibaba are:

B2B, C2C and B2C.

B2B:

Alibaba.com Limited the primary company of Alibaba, is the world’s largest online

business­to­business trading platform for small businesses.

Founded in Hangzhou in eastern China, Alibaba.com has three main services. The company’s

English language portal Alibaba.com handles sales between importers and exporters from more

than 240 countries and regions. The Chinese portal 1688.com was developed for domestic

business­to­business trade in China. In addition, Alibaba.com offers a transaction­based retail

website, AliExpress.com, which allows smaller buyers to buy small quantities of goods at

wholesale prices.

According to some e­commerce analysts. Alibaba is probably the one organization in the world,

which has been able to successfully provide a hassle free platform to small to medium sized

businesses to carry on over the internet.

C2C:

Taobao, is Alibaba’s yet another portal, which utilizes consumer­to­consumer model similar to

eBay. Taobao.com is China's largest shopping website, and tmall.com, which offers a wide

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selection of branded goods to China's emerging middle class. It features thousands of non­brand

name products sold by smaller merchants

With around 760 million product listings as of March 2013, Taobao Marketplace is one of the

world’s top 10 most visited websites according to Alexa.

B2C:

In 2008, Alibaba Group also established another online website Tmall, to compliment it’s C2C

market. Although Tmall is mainly a business­to­consumer platform is known for offering

brand­name products. The two sites (Taobao.com and Tmall) are hugely popular, and

collectively account for more than half of all parcel deliveries in China. According to The Wall

Street Journal, their combined transaction volume in 2012 topped one trillion yuan ($163

billion), more than Amazon and eBay's revenue combined.

Tmall marketplace is China’s largest business­to­consumer (B2C) online­shopping venue. The

site allows visitors to quickly view vendor fees, required deposits and other factors associated

with operating a Tmall storefront.

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Products and Services Alibaba provides a wide variety of products and services through its various online portals. Some

of these are:

Apparel, Textiles & Accessories

Auto & Transportation

Electronics

Electrical Equipment , Components & Telecom

Gift, Sports & Toys

Health & Beauty

Home , Lights & Construction

Jewelry, Bags & Shoes

Machinery, Hardware & Tool

Metallurgy, Chemicals, Rubber & Plastics

Packaging, Advertising & Office

Online marketing

Cloud Computing

Logistics Operations

Electronic Payment Services

Alibaba is one of those online resources which claims a “Get everything and anything”

availability. A consumer can literally buy products ranging to simple toys to automobiles. Hence,

Alibaba is proving to be a one­stop platform where a consumer can choose among a wide variety

of options.

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Target Users Alibaba Group primarily operated within China, where e­commerce is synonyms to Alibaba. But

within last decade Alibaba has expanded to almost all the corners of the world, consisting its user

base from about 190 odd countries.

Alibaba has been turned into a global organization but still holding China as it’s major focus.

Almost 75% of China’s e­commerce market is dominated by Alibaba. China has 560 million

internet users ­ twice as many as the U.S. ­ who spend an average of 20 hours a week online.

Although to get a hold on other emerging markets Alibaba Group has also established offices in

the U.S., U.K., India, Japan and Korea.

Apart from small­to­medium businesses Alibaba group also provides online platform to

individual customers through its parent websites Tmall.com and Taobao.com.

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Payment Methods Actually Alibaba Group has it’s own payment solution named as Alipay, is a third­party online

payment platform with no transaction fees. Other than that, Alibaba also offers many ways to

pay suppliers. Six most commonly used ways are Telegraphic Transfer(TT)/Bank Transfer ,

Letter of Credit, DA/DP, Western Union, PayPal and Escrow. Buyers are advised to consider

each option carefully before committing to one.

S.NO Methods Conditions Description

1. 30% Upfront TT For buyers: 2.5 out of 5 stars For suppliers: 4.5 out of 5 stars

Since many factories need money in advance to buy material for production, 30% Upfront TT is a common payment term for suppliers, especially when dealing with an unknown buyer.

2. 100% Upfront TT For buyers: 1 out of 5 stars For suppliers: 5 out of 5 stars

The supplier gets full payment before production starts. This payment method bears the same risk as Western Union and is not recommended when dealing with an unknown supplier.

3. 100% Backward TT For buyers: 4.5 out of 5 stars For suppliers: 2 out of 5 stars

If being paid after pre­shipment inspections, it is suggested to use trade terms of FOB. If being paid after receipt of merchandise, it is nearly 100% reliable for buyer cause buyer can cover the whole risk, however, on the opposite, suppliers are not willing to accept this way due to big potential risk of dispute or fraud.

4. Letter of Credit For buyers: 4 out of 5 stars For suppliers: 4 out of 5 stars

Highly recommended for transactions that are US $20,000 and above because the bank guarantees the transaction. But complex procedures and high threshold of registered finance may prevent some SMEs from being involved.

5. Western Union For buyers: 0 out of 5 stars

Not recommended when it comes to paying suppliers if the payment is not protected by

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For suppliers: 5 out of 5 stars

escrow on a transaction made online through AliExpress. However, it's useful when transferring money to known individuals such as family members.

6. Paypal For buyers: 5 out of 5 stars For suppliers: 3 out of 5 stars

A popular payment method for buyers as it presents a much lower risk to them. However, it is less popular with suppliers due to difficulties in money withdrawal, high tax rates and uncertain claim of charge back from some notorious importers

7. Escrow For buyers: 5 out of 5 stars For suppliers: 3 out of 5 stars

Money is only paid to the supplier after the buyer confirms satisfactory delivery of his/her order. A safe way to buying and selling online because Escrow protects both the buyer and supplier.

In terms of innovation, Alibaba is introducing a new secure mobile payment method as it gets

ready for its IPO.The Chinese e­commerce giant will get ahead of its competitors Amazon,

Google and Paypal with an innovative and secure method of payment using fingerprints instead

of passwords.

“The biometric technology, including encryption and authentication managed by Huawei, will

allow mobile users to confirm payments for a wide variety of goods and services with their

smartphones simply by swiping a digit instead of entering a lengthy code,” the company says on

its blog.

Huawei, the world’s third­largest smartphone vendor by shipment volume , will also employ

high­level encryption and verification to ensure only approved third­party applications, such as

Alipay Wallet, are allowed to access the fingerprint information for transactions.

It’s worth remembering that Alibaba is a pretty safe platform to purchase on. Not only do you

have the standard protection that your payment provide gives, but Alibaba hold mostly all

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payments in Escrow until the buyer confirms they’ve received the goods and they’re as expected.

Until the buyer confirms receipt the seller doesn’t receive the funds.

Alibaba also offers some tips for shipping methods:­

Using express companies such as FedEx or DHL

You can open the shipment in front of the delivery person. If the item is not what you

ordered or if the item is defective due to handling, you have the right to return it to the

delivery person.

Using sea freight shipping method

If the item that you received is not what you ordered, do not clear customs!

You can always request for a customs officer or a third­party inspection

company to conduct an onsite inspection before being issued a customs

clearance certificate. If you only inspect the delivery after customs

clearance, you might encounter legal hurdles should you decide to dispute

the delivery.

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Comparison of Alibaba with Other Tech­Giants

Alibaba is really a technology company that serves retail customers and controls 80% of the

Chinese e­commerce market.Alibaba will compete most directly with on­line retailers like

Amazon, EBay or Zalando in Europe, Rakuten in Japan, Kobo in India, Wuaki in Spain and

other major on­line providers with strong presence in their home and adjacent markets.

Take market capitalization, or the total value of available shares times the value of a

single share , Alibaba’s market capitalization value is estimated at $155 billion. That number

makes it look pretty small compared to the top three US tech giants: Apple ($593 billion),

Google ($400 billion), and Microsoft ($378 Billion). But it compares nicely to Amazon, which

also has a market cap in the $150­billion range. And it’s growing.

Fig : Revenues of various famous Tech­giants

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The comparison is not exactly apples­to­apples. Alibaba’s business model is similar to that of

Ebay, in that it is a middleman coordinating sellers and buyers. Alibaba doesn’t house and

manage any products itself.

“Gross Merchandise Volume (GMV), the metric the company likes to highlight, is the total sum

of goods and services transacted on all its sites.”

In 2013, Alibaba hosted GMV of $248 billion in transactions last year. That’s more than

Amazon and eBay managed to do — combined. And while Amazon takes home a lot more

revenue than Alibaba from its fewer transactions, Alibaba takes a much higher net income from

its revenue than Amazon. Alibaba now takes home 80 percent of its revenue as profit.

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Alibaba’s revenue is the cut it takes out of each sale. In comparison, Wal­Mart’s nearly $250

billion in revenue represents the total value of all the goods purchased along with its built­in

margins.This shows how complicated it is to value Alibaba.

To really understand how big a deal Alibaba is you’ve got to understand the growth of China’s

e­commerce economy and the stronghold that Alibaba has on it.

China has over 618 million internet users and they’re spending lots of money. That’s twice the

population of the United States, but only half China’s total population. So there’s lots of room

for growth in a sector that’s already exploding. In 2010, China’s e­commerce market was $74

billion dollars. In 2013, it was $295 billion. By 2017, it’s estimated to reach $713 billion.

And Alibaba is cashing in big time. It controls 80 percent of online sales. Even though it’s not

yet putting up the gross revenue numbers of Amazon and Apple, its 80 percent control of the

market and 80 percent profit take from its revenue adds up to a huge, massive, crazy, growing

amount of money.

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References 1. http://www.cnbc.com/id/101590855

2. http://projects.wsj.com/alibaba/

3. http://expandedramblings.com/index.php/alibaba­statistics/

4. http://www.quora.com/What­is­the­business­model­of­alibaba­com­how­do­they­ma

ke­money

5. http://www.marketwatch.com/story/how­to­understand­alibabas­business­model­20

14­03­15­94855847

6. http://www.forbes.com/sites/chriswright/2014/09/16/so­what­exactly­is­alibaba/

7. http://www.economist.com/news/briefing/21573980­alibaba­trailblazing­chinese­inte

rnet­giant­will­soon­go­public­worlds­greatest­bazaar

8. https://gigaom.com/2013/06/30/alibaba­is­just­the­beginning­how­b2b­marketplaces

/

9. https://www.techinasia.com/alibaba­amazon­infographic/

10. http://www.alizila.com/alipay­huawei­roll­out­biometric­security­mobile­payments 11. http://www.alibaba.com/help/safety_security/class/buying/pay_ship/002.html 12. http://fortune.com/2014/09/12/alibaba­is­on­track­to­become­the­biggest­u­s­ipo­eve

r­here­are­three­charts­you­need­to­see/ 13. http://www.dailynews.com/general­news/20140912/the­tech­story­of­the­week­isnt­a

pple­its­alibaba 14. http://www.alibaba.com/Products 15. http://www.infoworld.com/article/2607722/techology­business/alibaba­s­business­m

odel­and­the­chinese­market­make­its­ipo­hot.html 16. http://www.bbc.com/news/business­29077495

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