Tag Archives: e-commerce

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.

Alibaba: Countdown to U.S. IPO

Alibaba Group Holding Ltd, China’s Internet giant, has decided to launch its IPO in the U.S. rather than in Hong Kong. The company is expected to raise as much as $15 billion in the listing, making it one of the largest ever in the U.S.

Currently, the two major U.S. stock exchanges, NYSE and Nasdaq, are competing for the high-profile listing by offering discounts on certain fees and increasing visibility. It is widely believed that the exchange that “wins Alibaba will have bragging rights and momentum” for other technology IPOs, leading to greater financial impact and trading revenues.

So here comes the question: Who is Alibaba?

The company is like as a mix of Amazon, eBay and PayPal, with a dash of Google thrown in, all with some uniquely Chinese characteristics.

Phase 1 – The Legendary Inception

Alibaba was created in 1999 by Jack Ma, an English teacher in the eastern Chinese city of Hangzhou. Internet was like a UFO to most Chinese at that time, so when Jack tried to promote Alibaba.com, a trading website that connected Chinese manufacturers with overseas buyers, many people considered him as a fraud. “How can you sell things in the virtual world of Internet? That is impossible!” Jack was rejected repeatedly. Instead of giving up, he was persistent and embraced a breakthrough by obtaining funds from Softbank, a major angel investor in Japan. Through Jack’s continuous concept pitch of Internet and online business, the company achieved profitability in late 2001.

Phase 2 – The Era of E-Commerce

Initially, Alibaba was focused on the B2B marketplace (Businesses to Businesses). Starting 2003, the company began to diversify its portfolio by creating Taobao.com, a C2C marketplace (Consumers to Consumers), and Tmall.com, a B2C marketplace (Businesses to Consumers).

Taobao is mostly for small businesses, on which they don’t pay to sell products. Instead, they pay Alibaba for advertising and other services to allow them to stand out from the crowd. Comparatively, Tmall was designed for bigger merchants, including many well-known brands such as Nike and Apple, on which they have to pay a deposit and an annual fee, as well as a commission on each transaction, for sales.

In 2012, the combined transaction volume of Taobao and Tmall topped one trillion yuan ($163 billion), more than Amazon and eBay combined.

Phase 3 – Go Beyond: A Conglomerate across Various Sectors

Alibaba’s huge success in e-commerce allowed it to break into sectors other than Internet for even larger impact on China’s economy.

1) Logistics

The company claimed that Taobao and Tmall account for more than half of all parcel deliveries in China. Following that, Jack has integrated the company’s advantage in transaction volume, data mining, and extensive networks to create a logistics firm called Cainiao. The vision is to facilitate infrastructure development by teaming up with other major players in the private sector as well as the Chinese government for more efficient online orderings and parcel deliveries.

2) Finance

One of the key determinants for the company’s success is the initiative of Alipay, an electronic payment system that protects buyers if sellers don’t deliver. This effective tool has been leveraged for the development of lending and financial products. On one hand, the company created an affiliate called Small and Micro Lending Group to address the financing problem facing China’s small and medium businesses. On the other hand, it launched a money-market fund for the general public, which became one of the world’s largest in just eight months. Furthermore, Alibaba was selected as one of the five private banks in a pilot program aimed at breaking the state-dominated banking monopoly in the country. As a result, the Internet giant will be capable of running businesses of corporate finance, investment management, venture capital, and even more.

Probably no one can accurately predict the size of Alibaba in the future, but what we can say for sure is, its magic will continue.

Alibaba: The Tech Company to Rule them All?

A recent article on canadianbusiness.com, “Why Alibaba’s IPO will make it the next global tech powerhouse,” discusses the strong potential of an online Chinese tech giant I had not heard of up until now- Alibaba. After reading the article, I couldn’t believe I had never heard of it before. Get this:

  • In 2012, two of Alibaba’s platforms processed more than US$160-billion worth of goods, more than Amazon and eBay combined.”
  • “Mark Mahaney, a tech analyst for RBC Capital Markets, recently pegged its worth at $150 billion. That makes it the third-most-valuable Internet company in the world, after Google and Amazon.”
  • “Consider that total U.S. sales on Cyber Monday in 2012 reached $1.5 billion, according to data from Bloomberg. Alibaba’s sales on Singles’ Day, a modern Chinese celebration held around the same time as Cyber Monday, totaled $3 billion.”

The company hasn’t even gone public yet and is already posting revenues bigger than practically all well-established U.S. tech companies.

The natural question to ask after seeing such dramatic figures is what is Alibaba and what is making it so successful? In short, Alibaba is an online retailer based in China that offers numerous platforms that connect buyers and sellers. Some of its more notable platforms include alibaba.com (connects small and mid-sized Chinese and international producers to international buyers), taobao.com (ebay-like platform that connects individual sellers to individual buyers), tmall.com (allows well-established, brand-name producers to sell directly to consumers and is set to surpass Amazon in 2015 as the biggest online retailer). The platform that I think has some of the most potential, though, is Alibaba’s payment program called Alipay, which, as the article states, now accounts for roughly half of China’s online payments market. Alipay has expanded its efforts from just offering a safe environment for transactions, and now offers loans to budding entrepreneurs and startups that eventually sell their products on Alibaba’s platforms. Additionally, Alipay is the likely candidate to become the dominant online payment system in emerging economies in Africa and Latin America. In so doing, Alibaba is slowly growing its influence over production, marketing, and selling of consumer products.

Furthermore, practically all of the world’s production of consumer products is done in China and Alibaba already has a firm link to Chinese manufacturers and wholesalers. With its IPO looming, its influence will grow far past the Chinese market, allowing it to connect Chinese producers to consumers worldwide. It will be very interesting to observe the development of impact of Alibaba on world markets in the coming years. With connections to a vast amount of producers and the largest population of consumers, Alibaba is heading for the top spot in the tech-giant rankings.

Challenges and solutions for retailers

This winter has been tough to retailers.

J.C. Penney on Wednesday announced its decision to close 33 underperforming stores, eliminating around 2000 jobs for cost savings. The company was considered of having slow-coming turnaround, despite of its claim that it was “pleased with its holiday performance”.

In 2013, holiday retail sales advanced 3.8 percent compared to the 2012 holiday, which was below its forecast 3.9 percent gain.

Definitely, inefficient turnaround was not the only issue facing retailers.

First, the industry was under the shock of e-commerce, a trend that significantly outperformed growth in traditional physical store in 2013, based on more efficient online operations and cost-saving strategies. Apparently, higher cost associated with physical presence might be a burden for retailers, but such presence could be turned into a competitive advantage if retailers could work on in-store user experience to strengthen the bond between consumers and their brand.

For example, Intel’s booth displayed a full length “mirror” that allows shoppers to try on multiple outfits, then view, compare and share photos of the outfit with friends. Technology from Motorola scans what items consumers bring into the dressing room. Consumers can then tap a screen to order an out-of-stock item before they change back into their clothes.

Second, there has been an increasing privacy concern after the unprecedented data breach for Target. So retailers have to be more prudent in the future when it comes to data collection and payment process. Moreover, they have to show their respect to consumers by fully releasing their monitoring policy and detecting any prospective threat to consumer’s privacy.

Third, “price war” was intense as retailer tends to offer endless discount for promotion. Actually, they would be better off if they could innovate and diversify their product offerings.

From a long-term perspective, the rise of “click and collect” may prevalent since the concept highlighted the importance of the interaction between virtual space and physical space, as customers order online and pick up their items in store. It tends to be welcome by both e-commerce runners and retailers because of the great integration of online effectiveness and in-store experience. Nevertheless, the counter-parties still have to work on various issues, including display of items and sharing of profit .

In conclusion, the retail industry is going through a rapidly evolving period as increase in online consumption tends to be inevitable. Nevertheless, opportunities still await retailers if they could take advantage of its physical presence, work on privacy protection, and team up with online sales.

Sources:

http://www.cnbc.com/id/101338420

http://www.cnbc.com/id/101332279