Alibaba is one of the largest tech company in the world. It enjoys the prominence for its famous online marketplace which is known for delivering all kinds of products throughout the world. The e-commerce giant from China has a great share of business around the globe. Alibaba business model comprises of different activities of the leading B2B marketplace.
Jack Ma is one of the founders of the Alibaba Group of companies. It is crazy when you get to know that Alibaba was founded out of an apartment with the help of 18 friends. Jack decided to start a website when he got exposed to internet on his visit to USA. During his travel to USA in early 1995, he realized that there were no pages online that had any information about China. This caused a chain of events which led to the inception of the business-to-business e-commerce platform, Alibaba.
Jack Ma’s success story is all about working hard and never giving up. He bore the fruits of his labor later in his life. As of now, he is the richest man in China. Moreover, Alibaba went onto raise $25 billion in an initial public offering on the NYSE. The $25 billion IPO is the largest ever initial public offering in US fiscal history. Furthermore, this IPO made Alibaba one of the most valuable tech companies in the world. Let’s learn how Jack Ma built the lucrative Alibaba business model.
How Did Alibaba Come About?
The e-commerce website was started in 1999 by Jack Ma and his group of 17 friends. The idea of Alibaba was to create a platform that would allow Chinese manufacturers to sell their goods to international buyers. Moreover, the plan was to give more exposure the Chinese small and medium scale businesses.
These were the initial plans for Alibaba. However, with time, Alibaba expanded and grew into one of the largest companies in China. They have increased the services that they provide. Furthermore, Alibaba is now a group of companies. The e-commerce website provides a platform for consumer-to-consumer, business-to-consumer and business-to-business sales. It also has an electronic payment method and data-centric cloud computing that contributes to the revenue of the company.
The name ‘Alibaba’ of the company is inspired of a character in the Persian literature, One Thousand and One Nights. Jack explained why he chose such a name for the company. He talked about the name in an interview:
“People from India, people from Germany, people from Tokyo and China, they all knew about Alibaba. Alibaba – open sesame. Alibaba is a kind, smart business person, and he helped the village. So … easy to spell, and globally known. Alibaba opens sesame for small- to medium-sized companies.”– Jack Ma
The company has seen great growth since its operation. It has operations in over 200 countries. In addition to that, it took the crown of the largest retailer in the world from Walmart in April 2016.
How Does The Alibaba Business Model Work?
While Alibaba is known for being an online marketplace like Amazon and eBay, it’s mode of operation is slightly different from its competition. Alibaba focuses on businesses to use their platform to sell goods and services. Moreover, they want suppliers to use their e-commerce website to sell their goods in bulk at wholesale rates to other international businesses. Furthermore, this helped the small and medium scale businesses in China to grow extensively.
The founders of Alibaba realized the potential of a trading platform for business to consumer and consumer to consumer. Hence, they created the likes of Taobao and Tmall to increase the value they provide to its users. This in return helped to increase their profits.
Alibaba Business Model: Revenue Generation
Alibaba has transformed into a group of companies. Their continued success in the tech sector allow them to create more solutions for the market. They have a total of 8 subsidiaries that are part of the Alibaba business model. These subsidiaries include Taobao, Tmall, AliExpress, Alimama, Alibaba Cloud, 1688, Ant Financial and Cainiao Network. We will cover all the major sources of revenue of the company.
The most important part of Alibaba business model: Alibaba.com
Alibaba.com has grown into the largest online marketplace for wholesale goods. It has single handedly provided a platform to different businesses in China to get in touch with international resellers who wish to sell Chinese goods in their domestic markets.
In addition to that, Alibaba offers services such as custom clearance, trade financing, VAT refund and logistics to its customers. They make money through supplier memberships and commissions from the transactions. Moreover, there are two kinds of memberships: Free and Premium Gold. Moreover, suppliers pay the website for more exposure on the platform and unlimited product listings.
Taobao was created with the sole idea to provide B2C and C2C trade for small scale businesses and entrepreneurs. Hence, businesses and individuals can list their products on the website for sale. The website was started in 2003 and it quickly picked up traction.
It became so famous that it forced eBay to close its operations in China. In addition to that, it is the largest shopping website in China. It makes money through commission and marketing provided to sellers.
Tmall has a similar operating model to Amazon. It was founded in 2010 with the idea to sell branded products in the Chinese market. The entity makes money through commissions, service fees, and marketing services.
Alimama is the Adsense of China. It acts as an open marketing platform for companies around China. They provide PPC advertising plans, ad banners, impressions and ad space etc. to advertisers.
Consequently, advertisers pay to put up their ads. Alimama pays a certain percentage of the revenue to the websites that host those ads.
AliExpress is similar to Taobao and Tmall. It serves as a global retail marketplace that allows the consumers to buy goods directly from manufacturers in China.
Hence, they make money through commissions and charging a fixed fee to start a store on the platform.