Alibaba’s business model – how the eCommerce giant makes money
Jack Ma launched Alibaba in 1999. It is the world’s largest eCommerce company and is a mashup of Amazon, PayPal and ebay with an even broader scope. It has 617 million monthly active users and generated $23 billion in revenues in 2017. Alibaba is so large it can be hard to keep track of all of its moving parts. Here is an overview of three of its core businesses: alibaba.com, tmall.com and taobao.com.
Alibaba.com is the company’s business to business website which launched in 1999. It is a wholesale marketplace designed for global trade. Buyers and suppliers from over 200 countries around the world use the site. Alibaba.com’s mission is to help buyers find products and suppliers quickly and efficiently. Most of the users of Alibaba.com are manufacturers, trading companies and resellers who trade goods in large quantities. Alibaba.com generates revenues through commissions on transactions as well as by charging fees to sellers who have a storefront on the website.
Taobao.com is Alibaba’s largest website. Taobao.com is a consumer to consumer platform where small businesses and individuals sell items to consumers. It launched in 2003 and provided an opportunity for China’s entrepreneurial class to reach China’s increasingly affluent consumer market. It is similar to ebay except that merchants do not pay a fee per transaction. Instead merchants pay for advertising placements. It is the largest online shopping marketplace in China.
Tmall.com spun off from taobao.com in 2008 to connect higher-end brands with consumers. In 2017, 75% of the consumer brands on Forbes’ Top 100 World’s Most Valuable brands had a presence on tmall.com. Tmall.com generates revenue for Alibaba through annual user fees (which are returned if certain performance metrics are met), sales commissions and advertising. In 2017, tmall.com had the largest retail ecommerce market share in China at 51.3%. JD.com came in second place with a 32.9% share.
Historically Alibaba has had an asset light business model. Alibaba provided the eCommerce platform and sellers shipped directly to customers via third party logistics providers. Within the last several years, however, Alibaba has ventured into bricks and mortar retail with its New Retail Strategy which you can read more about here. It has also increased its stake in logistics firm Cainiao. While Amazon only has a tiny advertising business, Alibaba generates the majority (60%) of revenues from advertising.
Some of Alibaba’s other businesses include:
Alipay – China’s most popular online wallet was created in 2003 to resolve issues of trust in the payment process between buyers and sellers. It is now owned by Alibaba affiliated company, Ant Financial.
AliExpress – Launched in 2010 is a global retail marketplace. It offers products at wholesale prices and targets consumers worldwide, many of which live in Russia, Brazil and the the United States.
Hema Supermarkets – Alibaba owns and operates 25 supermarkets with plans to open several more.
Cloud computing – Alibaba provides a number of services including networking, security, analytics and big data.
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