Alibaba Group Analysis

Started from a small apartment in Hangzhou 15 years ago, Alibaba group went public in the U.S. in what may be one of the biggest initial public offerings in American history—$25billion, surpassed the 2010 offering from the Agricultural Bank of China and Facebook. This was really a startling number that catches the world’s eyes. Yes, just from start-up capital of 500thousand RMB to today’s $231 billion (September 2014) market value, Alibaba is expanding with incredible speed. And, this passage will prove that this kind of improvement won’t stop by now, and Alibaba group is and will continue to earn abnormally high returns on its activities.

Alibaba Group is a Chinese e-commerce company that provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals. It also provides electronic payment services, a shopping search engine and data-centric cloud computing services. Its affiliated entities including Alibab.com, the world’s largest online business-to-business trading platform for small businesses; Taobao, China's largest consumer-to-consumer online shopping platform; Tmall.com, China’s leading business-to-consumer online market place for quality, brand name goods; eTao, a comparison shopping website or a shopping search engine, where online shoppers can use the site to compare prices from different sellers like Amazon China and Nike China; Alipay, a third-party online payment platform with no transaction fees, and it also provide a financial product called Yu’ebao since 2013; China Yahoo!, a Chinese portal that focuses on Internet services like news, email, and search; Alibaba Cloud Computing, a developer of advanced data-centric cloud computing service; and some other small companies. Alibaba group is like a huge empire that not only has an enormous influence in Chinese e-commerce market but also in the world.

E-commerce is a burgeoning business mode. It can overcome geographical limitations, at the same time eliminate travel time and cost. It can also gain new customers with search engine visibility, instead of only branding and relationships as physical retail. Without too many personal and real-state, e-commerce is probably the most cost-effective way of doing business. Alibaba.com and Taobao also took the advantage of e-commerce that it smartly chose another role in e-commerce—not the seller, but the medium, or the rechargeable platform, where sellers and consumers make transactions as they wish; Meanwhile, it also plays the role as a superintendent over these transactions and guarantee the consumers’ rights and interests. And that’s the way of how it making profit. For example, Alibaba.com is an international market place that has 25.5 million registered users. The sellers, typically SMEs, cover more than 5000 product categories in over 30 industries; and the buyers across more 240 countries and regions, include companies of all sizes.

Obviously, e-commerce is an industry where the firm operates conducive to abnormally high rates of return on assets, investment and equity, because the tangible assets actually are not required. Some intangible assets like technology and commercial channels are the most important one. According to Alibaba financial results, its revenues are keeping thriving through all these years and the cost of revenue only accounts for 33% of revenue, a comparatively low one.

If seen from Porter’s five forces model, Alibaba can be analyzed from these five forces—new entrants, supplier’s power, power of customers, substitute and rivalry. As for new entrants, competition is welcome since it can make the whole market more dynamic; rivalry are everywhere like Amazon or eBay, and the customers means everything. Jack Ma said in a speech that when Taobao first launched in China, its sales revenue was less than five percent of eBay in China, and Ebay looked quite down on them; but now, things get different, because of its flexible way of selling Chinese and import goods appeals to most of Chinese, eBay can only accounts for less than five percent of its sales revenue. Customers are the biggest competitive advantage Alibaba owns.

Apart from customers, there were other two business activities that contributed to Alibaba’s bright future. The first is its acquisition of Yahoo! China. As an extraordinary web portals and search engine, Yahoo! brought Alibaba with advanced search technique, which was quite required in e-commerce, and a large amount of elite users that once belonged to Yahoo. Another activity is the mad shopping day “double 11”—Novemver 11, which just past. On this day, every shop on Taobao would offer huge discounts as Black Friday. It created an unbelievable 57.1 billion RMB volume sales on that one day this year, and also another new highest record in the 6 consecutive years. Alibaba also registered this day as its special “double 11” shopping day.

So in conclusion of all these advantages of e-commerce and Alibaba’s sensible financial decision, Alibaba has become a new benchmarking for modern enterprises. Though every year there were someone who predicted that “double 11” in this year could never be as high as last year, but the fact is the sales revenue is growing without any stagnation and so will next year. Once a commercial empire has been established, it’s time to expand stably and wait for harvest.

Works Cited
"Alibaba Group." Alibaba Group. Web. 15 Nov. 2014. http://www.alibabagroup.com/en/global/home
"Our Businesses." Alibaba Group. Web. 15 Nov. 2014. <http://www.alibabagroup.com/en/about/businesses>.


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