A Chinese eCommerce juggernaut, Alibaba has become a household name ever since it filed a $25bn initial public offering (IPO) in 2014. Following a $25m investment from Goldman Sachs and Softbank in 1999, Alibaba now stands alone as the chief rival to Amazon, controlling around two-thirds of China's vast online retail market.
When trying to comprehend Alibaba's enormous size, experts typically refer to two key statistics. The first is that it has more than 755m active users – around double the entire US population; the second is that its Black Friday equivalent – "Singles Day" – generates approximately $30bn in sales every year.
So, how did this happen? How did Alibaba take the leap from a small Hangzhou apartment – with a founder who couldn't even get a job at KFC – to receiving a multi-million-dollar cash injection? To find out, we've taken a closer look at Alibaba's business strategy – as well as what you, as a business owner - can learn from it.
Vital Information
- Founded: April 1999
- Founder: Jack Ma
- Headquarters: Hangzhou, China
- Current CEO: Daniel Zhang
- Global Employees: 117,600 (March 2020)
- Type: Public (Floated September 2014)
- Key Products / Services: eCommerce, cloud computing, entertainment, mobile commerce, retail, mobile media
To make it easy to do business anywhere. We enable businesses to transform the way they market, sell and operate and improve their efficiencies.
We do not pursue size or power; we aspire to be a good company that will last for 102 years. We aim to build the future infrastructure of commerce. We envision that our customers will meet, work and live at Alibaba.
The Alibaba Business Model
Ultimately, Alibaba serves as a middleman between buyers and sellers within a vast online ecosystem. The website facilitates the exchange of goods between both parties, charging commissions as a percentage of the transaction value of final goods sold, which typically ranges between 5% and 8%. The sales take place on its three platforms:
- Alibaba: A B2B outfit that connects manufacturers to buyers worldwide.
- Taobao: A website similar to Amazon or eBay that allows transactions between vendors and consumers.
- Tmall: A marketplace that caters to China's ballooning middle-class by selling multi-national brands.
So, what could a multi-billion-dollar company in the world's second-largest company teach a young startup?
Value
The Alibaba ecosystem maintains a suite of tools and services that provide value to customers, and is able to enhance this value by investing heavily in big data and analytical programmes. Like many modern successful organisations, it leverages the full power of information to the point where these processes have become central to the company's wider strategy.
So, how do these processes extend value to users? The first point to note is that Alibaba has established a user-friendly purchasing environment and built an effective online customer service department. From instant communication on the platform, to reimbursing any product within seven days, the company has been able to report higher user engagement rates.
It has also explored new ways to innovate by challenging conventional transaction trends, focusing on two processes in particular:
- A Consumer-to-Business Transaction Model: This model reduces costs in the supply chain, reducing the overall time for product turnover. This, in turn, cuts consumer prices and speeds up the ordering process.
- An Online-to-Offline Strategy: Also known as an O2O service, Alibaba enables customers to buy a product, or receive targeted advertisements, by scanning a two-dimensional code. This is a state-of-the-art strategy that even many US companies have failed to adopt.
Moreover, Alibaba has embraced mobile payment technology through its Alipay Wallet; the company has collaborated with major financial institutions for cash transfer services and code scanning applications for payment. Indeed, as these elements illustrate, the Alibaba ecosystem is enormous, extending far beyond simply selling goods. For example, it has even delved into the microfinance industry, providing microloan deposits to small businesses that cannot obtain loans from traditional banks.
Therefore, the entire Alibaba business model is about value, and when you are as large as Alibaba, it is easy to offer goods and services on such a sliding scale.
Key People
Jack Ma might be the face of Alibaba, but its success has been built upon the visionary talent and dedication of a whole team of professionals.
Jack Ma (1998-2019)
Jack Ma's ascent to industrial tycoon started with famously humble beginnings; rejected on ten separate occasions by Harvard Business School, Ma finally caught his break when, during a trip to the US to see friends, he was introduced to the potential of the Internet. After overseeing several moderately successful online ventures, Ma returned to China, where the seeds of the Alibaba empire were sown.
Despite stepping down as chairman of the Alibaba Group in 2019 to focus on his philanthropic endeavours, Ma's initial vision remains entrenched within the company. During his tenure, he co-founded the company, secured huge investment, and oversaw what was, until December 2019, the largest IPO in history.
Joseph C Tsai (1998-Present)
The company's executive vice-chairman, Tsai was arguably also its most important co-founder, as he was the only Western-educated member of the startup at the time – and the only stakeholder with any experience of venture capital and law. He was responsible for establishing Alibaba's financial and legal structure, and remains the second-largest individual shareholder in the company.
Daniel Zhang (2015-Present)
Promoted to CEO of the Alibaba Group as a reward for his successes with Taobao and Tmall, Zhang has taken over strategic responsibility of the company following Ma's resignation. He has successfully navigated Alibaba through the economic storm clouds of the COVID-19 pandemic, and has been described as a fierce workaholic.
zhu difeng - stock.adobe.comReception area of the Alibaba Group headquarters in Hangzhou, China
Alibaba's Company Culture
A company's identity is based on its values and principles, and every entity needs to develop a list of core tenets that define what the business is and how it aims to balance profit and ethics. In this regard, Alibaba is progressive; it maintains an active and vocal internal feedback system so that employees can help the corporation change and adapt. It is the frontline workers of Alibaba who understand what works and what doesn't, and Zhang – as with Ma before him – realises this.
A key characteristic of Alibaba's workplace culture is being ready to improve. As previously noted, an important principle for the corporation is leaning on staff to inform management on what is working and what is not. If senior staff agree, then it is time for Alibaba to take it to the next step, adapt and improve operations. In today's global economy and hyper-connected marketplace, it is crucial to be prepared for improvement and to refrain from stagnating, which is the death knell for any firm.
You cannot always rely on what worked in the past; times change, and so, too, must your corporate strategy.
Key Takeaways
- Find the Right Business Plan: Jack Ma understood the marketplace of today and the economy of tomorrow. Your overall corporate strategy needs to be more than just optimistic projections and reliable calculations; it needs to have a brand, a personality, and a unique perspective on the challenges that consumers and other businesses face every day.
- A Collaborative Corporate Culture: Alibaba takes a different approach to company culture than, say, Amazon. It utilises the power of a collaborative down-up business strategy that can adapt to changing landscapes.
- Seek Inspiration: Sometimes, when you are stuck, it is prudent to find inspiration in others. Alibaba is a great example of a company that spots opportunities, overcomes obstacles (such as the regulatory red tape of Chinese commerce), and has become one of the most successful corporations in the world.
- Understand Your Business: If your entity – whether large or small – is entirely dependent on the power of technology, then ensure that you are leveraging the latest advancements and incorporating them into your business model.
Was this article helpful? What are your thoughts on Alibaba's extreme success? Join the conversation and let us know your views in the comment section below!