Menu

How Alibaba is able to capture nearly all Chinese shoppers

July 25, 2016 - Strategy
How Alibaba is able to capture nearly all Chinese shoppers

Alibaba’s growth history

Alibaba Group was founded in 1999 by Jack Ma, a former English teacher from Hangzhou (China), and started out as an online marketplace enabling small enterprises to compete on a national and global scale (Alibaba group, 2015). Through Alibaba.com, companies seeking products are enabled to connect with manufacturers all over the world to source from. However, Alibaba Group today has grown from a B2B marketplace to a B2C retailing enabler to even C2C e-commerce. Besides their dominance in e-commerce, it is very active in acquisitions and developing business models in anything internet-related.     Alibaba1

 

In figure 1, we see the growth in shoppers through Alibaba Group companies from 2012 to 2015. With a year-on-year growth of 34 percent, Alibaba has been able to grow its user base by more than twofold over the course of three years. Moreover, in terms of market penetration, Alibaba is used by 98 percent of active online Chinese shoppers in 2015. Not only is Alibaba able to reach virtually all Chinese online shoppers, it also has grown average revenue per user (ARPU) by 16 percent year-on-year from 2012 until 2014 (see figure 2). With the increasing average revenues from users, Alibaba sales increased by 63 percent year-on-year between 2010 and 2015 (a staggering 1042 percent total increase) and increased net margins from -8 percent in 2010 to 32 percent in 2014 (see figure 3).

Alibaba2

Alibaba3Value proposition

Defining what the driving benefits are to Alibaba’s value proposition is more complicated compared to the previous cases; there are too many value propositions to dive into. Figure 4 shows Alibaba’s annual revenues by segment. At first sight, China commerce as a segment clearly is the dominant revenue stream for Alibaba with a more than healthy looking growth trajectory. However, taking a closer look at the growth rates for the remaining three segments shows a different dynamic (see figure 5); The ‘Other’ segment shows a year-on-year growth rate of 96 percent for the past 6 years.

Six years and every year revenues in the ‘Others’ segment nearly doubled, but not all organically. A closer view of Alibaba’s acquisition activities in 2014 alone shows investments in 14 different companies each active in different end markets in terms of purpose of use and with very different value propositions (see figure 6). The only thing in common though; the internet. Alibaba’s vision is that their customers meet, work and live at Alibaba (Alibaba Group, 2015), essentially meaning that Alibaba and its companies would become central to people’s lives.

To illustrate the versatility of Alibaba’s portfolio of companies, see figure 7, in which some of Alibaba’s companies are compared to, to Western standards, more familiar equivalent. Not only does the list include Uber, Spotify, Netflix, which have been previously discussed in this chapter, it ranges from PayPal to Groupon, from WhatsApp to eBay. Business models of companies that have had paradigm-shifting impact on the way we live our lives all found a place in Alibaba’s portfolio.

Alibaba4

 

Alibaba5Alibaba6

Future of Alibaba

Alibaba’s wide range of brands with equally versatile value propositions shows how a company is able to combine older and new revolutionary business models. Whether continued success is guaranteed taking into account the management complexities of a broad portfolio is something that only time can tell. Nevertheless, the intense growth trajectory of Alibaba, that shows no evidence of slowing down anytime soon, is impressive to say the least.

Alibaba7Sources:

Alibaba Group (2015), Company overview. Available: http://www.alibabagroup.com/en/about/overview. Online.

Alibaba Group (2015), History and milestones. Available: http://www.alibabagroup.com/en/about/history. Online.

Alibaba Group (2015). Available: http://www.alibabagroup.com/en. Online.

Crook & Escher (2015), A brief history of Airbnb. Available: http://techcrunch.com/gallery/a-brief-history-of-airbnb/. Online.

Leave a Reply

Your email address will not be published. Required fields are marked *