Alibaba, E-Commerce legend in China

Can anyone imaging that a company who generates 2% of total China’s GDP and whose transaction volume is one-third larger than that of Ebay and Amazon’s last year combined, is created in a small apartment by this small, thin man?

Jack Ma started Alibaba.com in his apartment in 1990, and vowed to build Alibaba into the greatest Chinese-made company in the world.  The 49-year-old Mr. Ma is a tenacious, charismatic leader, and he keep his words. His Alibaba now handles roughly 80% of all online shopping in China, which some analysts say is already the world’s largest market for e-commerce. Tmall, a website under the name of Alibaba, has about 800 million product listings from seven million sellers who pay Alibaba for advertising and other services.  Although its profit is not comparable to Amazon, its deserve the name of the most busy online market in the world.  It is also of growing potentials, given that hundreds of millions of Chinese still haven’t shopped online. Yahoo reported late Tuesday that Alibaba’s revenue jumped 66% from a year earlier to $3.06 billion, and profits more than doubled to $1.35 billion.

What’s the story behind this success?

Alibaba has never been a market changer as Apple or Google. Rather than inventing revolutionary products, Alibaba often adapts existing technology to serve China’s fast-growing e-commerce market. Taobao (now known as Tmall ), which means “searching for treasure,” was created to sell directly to consumers as the Internet emerged in China.

Alibaba doesn’t own the merchandise it sells. The company is a middleman, making most of its money from charging merchants for marketing and ad services so they can stand out in the crowded marketplace. Sellers on Tmall and Alibaba.com pay annual fees. Alibaba is tiny in revenue compared with Amazon because the Seattle company sells products to consumers.

Taobao allowed sellers to list their products free rather than pay a fee. He said Taobao wouldn’t try to turn a profit for three years. “I know the Chinese user market and users better than Meg Whitman, ” Mr. Ma said about eBay’s chief executive at the time.The company was in business for three years before it posted its first annual profit: $1 in 2002.”Alibaba has played the scale game really, really well,” says Paul McKenzie, an analyst at Hong Kong brokerage firm CLSA in Hong Kong. “They created a virtuous circle of more merchants attracting more shoppers, which in turn brings in more merchants.”

Taobao, the online version of a raucous Chinese street market, quickly leapfrogged eBay in China. But Alibaba executives worried that the site would be a turnoff for big, brand-name companies because they wouldn’t want to be associated with tiny, unknown sellers. Mr. Ma sent a team of about 30 engineers back to his old apartment to develop a site that would win over the big names. “Jack’s apartment was reserved only for the most important projects,” says Wang Yulei, an Alibaba vice president who was one of the engineers on the team. “It’s a spiritually important place.” Officials at companies that Alibaba hoped to attract often visited to tell the engineers what they wanted. “When they walked into the apartment and saw our messy rooms, they looked very curious,” Mr. Wang recalls.

Even after stepping down as chief executive, Mr. Ma exerts his influence at Alibaba’s headquarters campus in Hangzhou, designed with a Silicon Valley feel that includes brightly colored cafeterias, gyms and recreational areas with pool tables.

No one lives in his old apartment, but Alibaba uses it occasionally to work on new projects. Mr. Ma has said he wants to turn it into a museum someday.

4 thoughts on “Alibaba, E-Commerce legend in China

  1. josimon

    As a dominant player, Alibaba has found a niche way of taking over this market in China. The funny thing is, they have so much room to grow aside from what they currently do. Amazon is taking the steps of going in different directions, something Alibaba could think about in the future.

  2. gaochen

    Good post on introducing the electronic commercial giant in China. The strategy of Alibaba was very successful and generated enormous reputation and fortune for the company. Many investments like Weibo also lead the company to success.

  3. wyna

    Considering that Alibaba also allows sales of industrial goods between producers, it has a wide market that is somewhat untouched by other giants like Amazon. China especially being the factory of the world, Alibaba has a definite advantage on its foot holding for e-commerce market in China.

  4. ajsanna

    The size and success of Alibaba is amazing to me. They are the first company, that to me, has fully capitalized on the scale of China’s population. American based firms can penetrate the Chinese market to boost their growth, but only a truly Chinese country can dominate the entire market like Alibaba.

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