2008 Second International Conference on Future Generation Communication and Networking Symposia

A Model for Value-added e-Market Provisioning: Case Study from Alibaba.com

Honghong Qing College of Computer Science and Information Engineering, Chongqing Technology & Business University, Chongqing, P.R.China, 400067
[email protected]

Abstract
Alibaba.com is one of the leading B2B e-Commerce companies in China. It provides an e-Marketplace connecting small and medium-sized buyers and suppliers both in China and around the world. Alibaba.com has grown admirably from its initial beginning as a general e-Market to a giant e-Marketplace. During its rapid growth, it has incurred challenges and becomes more expose to a greater competition. Currently the quality of its services and achieving profitability remain Alibaba's greatest challenges. In this paper we examine the key factors of Alibabas success, including strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale.

From a launch in 1999 the marketplaces have a community of more than 24 million registered users and over 255,000 paying members In November 2007, Alibaba launched on the Hong Kong stock exchange and raised HK$13.1 billion (US$1.7 billion) in gross proceeds before offering expenses, making it the largest Internet IPO in Asia and the second largest globally. Jack Ma, the founder of Alibaba, chose Alibaba as the name since the name was easy to spell and associated with "Open, Sesame," the command that Ali Baba used to open doors to hidden treasures in One Thousand and One Nights. During the dot-com bubble, there were layoffs, such that by 2002 there was only enough cash to survive for 18 months. Alibaba had a lot of free members using alibaba.com, and Alibaba didn't know how they'd make money. But they then developed a product for China exporters to meet U.S. buyers online, which saved the company. Alibaba made $1 in profits in 2002 revenue. By the end of 2004, Alibaba made $1 million a day profit. Each year since it has improved in profitability to the position where it was launched on the stock market. Today, Jack Ma's vision is to build an e-commerce ecosystem that allows consumers and businesses to do all aspects of business online. They are partnering with Yahoo and have launched online auction and payment businesses. His vision is expansive, he says: I want to create one million jobs,
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1. Introduction
Alibaba.com, a member of the Alibaba Group of companies, is the world's leading B2B e-commerce company. Alibaba.com runs an international marketplace (www.alibaba.com) focusing on global importers and exporters, and a Chinese marketplace (www.alibaba.com.cn) focusing on suppliers and buyers trading domestically in China. Together, its marketplaces form a community of around 30 million registered users from over 240 countries and regions. In China, Alibaba.com runs a C2C and B2C marketplace (www.taobao.com), its register users has reached 62 million.
978-0-7695-3546-3/08 $25.00 2008 IEEE DOI 10.1109/FGCNS.2008.93

change

China's

social

and

economic

environment, and make it the largest Internet market in the world [1]. Building a model for value-added e-Market provision is one of the key elements of successful e-Market. The speed and strategy of the customer frontline change have placed the focus on the process and a possible need for a closer integration between e-Market and customer-close activities. The present study considers the strategies of model of Alibabas e-Market, focusing on the e-Market development proceses and the effective operation. The target groups are the companies within the Alibaba e-Market, mainly SMEs. Most SMEs use new technology and multiple channels extensively to do business with the customers, and are in general, Alibaba.com with many new business model. Thus they can provide an interesting comparison with other models. The purpose of the present study is to find Alibaba.com success factors, good examples and areas of improvement for the co-ordination of the business and e-Market development processes, by investigating: 1. 2. 3. 4. the development process, with a focus on strategies stages of e-Market. problems problems, with, and solutions for,across products and services, solutions and co-ordination of purchaser-supplier relations, and the possible effects of customer front-line changes with reference to the co-ordination of

business through the Internet because of this technology innovation. This resulted in various and widely sales of products in the Internet business. Online purchasing grows at an amazing rate. Therefore, companies that carry out online business have great opportunities to achieve success. Conversely, there are great competition and threats as well among them when the companies entered online business [2]. e-Business is one of the flourishing industries. Barriers to entry into this industry are quite high, and suppliers have modest influence over suppliers. The introduction of the Internet has brought about many changes to this industry because it has increased rivalry, purchasing capability of buyers and substitutes. The Chinese suppliers offer the largest products market. Chinese suppliers on Internet are still fragment, most of Chinese suppliers conduct their business through the traditional exporters. With development of Internet, buyers and sellers use the Internet as a quick and timely communication channel, and switch to conduct business online. Thus, more and more business companies favor to do business on e-Market. From the mid-1990s, The Chinese government advocates formation of industry website. There are some websites to offer B2B of import and export Company.e.g. http://www.iexportcn.com/, http://www.gjtrade.net/. etc. Since these e-Market can reduce intermediates like wholesalers, business companies can sell their products at a discounted price. Because of this strategy, the volume of B2B transactions reached RMB1.25 trillion in 2007, growth rate raised to 25.5% than in 2006. In addition, according to their self-report, they are growing almost 25 to 35 percent a month. Many independent stores have gone out of business because of this happening. Such scenarios are the influence to the success of Alibaba.com [3]. Real opportunity of Alibaba.com is its own unique Web site management methods. Jack Ma led his team to implement their e-Marketing strategies to meet the

processes
management

between

the

business

and

This paper is only a first presentation of the results, with an initial analysis and categorization of factors.

2. Overview of the online market

The population of the Internet and World Wide Web has raised fast since 1990s with the development and advancement of computer technologies. Many firms have launched their

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needs of a group of SMEs, and they have got great benefits from its e-Market [4]. It is necessary to understand the e-Marketplace industry as a whole and the competitors in e-Marketplace as well in order to remain competitive in the market. One of the Alibaba.com largest competitors are vertical e-Market, i.e. industry enterprise website, which wakes up the fact that Alibaba should build an e-Commerce ecosystem that allows consumers and businesses to do all aspects of business online. e-Market to win customer is credibility, rather than financial or technical. Due to the lack of Internet laws, web-based transactions have to face a serious credibility crisis. Alibaba announced the establishment of an open Internet site integrity of the business community in 2002, on it is a the credibility-scheme, TrustPass membership. based

3.1. Trust

confidence-building mechanisms. It is called China Similar to the corporate version, entrepreneurs need to pass a third-party authentication and verification process before they become a China TrustPass member. As part of this process applicants need to provide their identity card and bank information. Once they become an authorized China TrustPass member, Alibaba.com will maintain an online trust rating for individuals to build confidence and credibility with potential buyers. Alibaba.com launched its original China TrustPass membership in 2002 and as of March 31, 2008 had more than 280,000 paying members. Alibaba.com's China marketplace has close to 25 million registered users and is growing at over 36% year-on-year. The price of the new product will be RMB2,300 per year, slightly lower than the corporate RMB2,800. June 10, 2008, Alibaba.com announced the launch of a new product called "China TrustPass for Individuals" trading on its Chinese-language in China. Until online now, marketplace, which connects suppliers and buyers domestically
Search

3. Alibaba.com strategies analysis

The present study is based on the study of a series of reports from Alibaba. The paper aims at understanding experiences of alibaba.com processes, strategies. A qualitative research method has been employed in this study. e-Business has been expanding at a phenomenal rate during 2000's. New on-line business were opening and growing into firms on e-Markets previously not served by any website. The number of new products each year grew because new suppliers increasingly found their way into export and import market. Similarly, the profit for sellers rose in robust percentages, and B2B industry began evolving into the maturity stage of the industry life cycle in the mid of 2000s. Jack Ma, CEO of Alibaba Group, predicts that Internet product purchases will grow exponentially over the next few years, and he proposes the strategic framework to enhance the competitiveness of Alibaba (figure1).
Trust

version

which

currently

sells

at

Market
Value-added e-Market

Alibaba.com's China TrustPass membership had only been available to corporate users [5][6].

3.2. Market
Tool Pay

Avoiding the most popular portal model, Alibaba adhere to B2B and C2C for SMEs and help them to Figure 1. Alibaba.com Company Strategies

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quickly find business opportunities in a global market. Three websites were launched from 1999 to 2003: Global import and export enterprises and enterprises enterprises consumers and and in enterprises retailers the Domestic in of the the Terminal e-market trade e-market between e-market (www.alibaba.com,1999), (www.alibaba.com.cn,2000)

volume is. Many of the businessmen who sell on eBay, every year on Google for ads to fight for PPC. At present, Alibaba have made a series of adjustments to yahoo.com.cn with powerful search technology, E-mail, IM tools, and PPC advertising business, though its future business model has not yet been determined, but no doubt it will be the practice of the theory of Jack Ma "e-Commerce search is the electronic search business".

(www.taobao.com,2003). SMEs have got a huge profit from Alibaba e-Market. As of June 30, 2008, Alibaba.coms international mrketplace had 29,766 Gold Supplier members, a net increase of 7,748 from 22,018 as of June 30, 2007. The number of International TrustPass members reached 13,912 as of June 30, 2008, a net increase of 2,953 from 10,959 as of June 30, 2007. Alibaba.com's China marketplace had 324,328 China trustPass members as of June 30, 2008, a net increase of 101,752 from 222,576 as of June 30, 2007. The strong growth in China TrustPass members is due to both external and internal factors. Externally, the increased Internet penetration in China and a continued strong domestic economy is benefiting Alibaba.coms business. Internally, it is seen that improvements in customer acquisitions through Alibabas sales force and their network of resellers. The sales of value-added services such as keyword bidding and premium placements also recorded healthy growth. In addition, the launch of China TrustPass for Individuals in the seconquarter added over 10,000 paying members as of June 30, 2008 [7][8].

3.4. Pay
Payment crisis of confidence is a sensitive issue. Alibaba.com create the third-party payment October platform (www.alipay.com). It is responsible for the funds between parties to the transaction. 2003, Alipay.com cooperate with the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank and China Merchants Bank, China Construction Bank, the International Organization of the VISA International. That means the International Organization of the VISA International, and other major financial institutions to establish strategic cooperation with Alipay.com, it has become the country's largest independent third-party electronic payment platform. As of December 2005 data, the daily average transaction volume through Alipay.com has been more than 20 million, but still rapid growth.

3.5. Tool
January 2007, Alibaba.com established

3.3. Search
August 2005, a strategic cooperation between Alibaba and China Yahoo, Alibaba has therefore become China's largest Internet company. Similarly, Yahoo Alibaba in the future of industrial layout also has important significance. While most people have never seen as the eBay search engine, but in fact it approximately deal with 130 million searches every day from all over the world, and Google search

Alisoft.com in order to improve the levels of SMEs management. Alisoft.com offer new SaaS (software as a service) model for the majority of SMEs to provide full life cycle of software services, and at the same time meet their e-Commerce and enterprise management needs. August 2, 2008, Alibaba.com announced the beta launch of Export-to-China, a new service which will enable international entrepreneurs and small and

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medium-size enterprises (SMEs) to to sell direct to Chinas growing number of buyers [9].

On one hand, the company has several key resources and capabilities to meet the challenges presented by opportunities and threats. These resources and capabilities have thus far allowed the company to be the world leader in the special e-Market of B2B and C2C industry. Jack.Ma, founder and chairman of Alibaba since 1999, is the driving force behind the company. He is a valuable resource that gives the company the competitive advantage with above-average return. Alibaba.com has also a very strong brand name presence in the e-market of B2B, B2C and C2C which is primarily due to their successful exploitation of their "first-mover" advantage. It would be able to leverage this brand name as it realizes its plans for expansion in the future. In addition, the technological infrastructure of Alibaba also gives its competitive advantage against the other rivals. It can open a new e-Market which has different products very easily because its core search technologies are easily re-usable. On one hand, its website is elegantly designed, easy to navigate and quick to load. It also has numerous proprietary inventions like the click shopping, personalized recommendations and user rating which make shopping more pleasurable [11]. Alibaba's compelling strategies, value, and such active as trust, market,search,pay and tool, strategic partnership, advertising implemented by the company have contributed to its success in sales growth and cost efficiency. However, transitioning the company culture is one of the problems and weaknesses may face by Alibaba.com. A lot of changes have to be made in for Alibaba to adjust to different situations especially since the rules of business keep changing rapidly. Alibaba was only a start-up few years ago but it grew rapidly and successfully in the e-Business. Thus, Alibaba is no longer be considered a start-up but a company moving from one culture to another because of its expansion and time in the industry [12].

4. Alibaba.com industry analysis and discussion

Alibaba.com identifies the key success factors in its business model such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale. Alibaba.com is the only e-Marketplace which include B2B,B2C,C2C. Alibaba is the world's No.1 international trade and domestic trade e-Market in China according to Forbes Statistics. Additionally, according to Chinese Academy of Social Sciences "2005 Report on the e-Commerce Analyst Report", Alibaba.com is estimated to have over 72 percent of the C2C market and 50 percent of the B2B market in China [10]. However, Jack.Ma' vision, founder of Alibaba, has evolved much further than just being the earth's biggest e-Marketplace. The vision is to be the world's biggest one e-Marketplace for online shoppers and to become a premier general e-Business by leveraging its existing brand and business model. Alibaba.com has several core values which play a crucial part in the success of the company. The first one is excellent customer service based on extraordinary technology. The company provides various services such as product search and safe payment. In addition, many business information contained descriptions, snippets of reviews and interview posted by sellers and buyers. Convenience and price is the second core value of the company. It manage the e-Market through Internet and has its own distribution system. Similarly, Alibaba does not have to spend too much money on real state and other operation because it is pursuing Internet-based business. Thus, it can reduce SMEs inventory expenses.

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Another is the financial difficulties brought about by its international exposure. The fluctuation of exchange rates from different currencies into RMB may affect Alibaba's money market. The success of Alibaba's international expansion also depends on local economic and political conditions .

marketplace in China. http://www.davechaffey.com/ [2] Ming Zeng, The Future Internet will be e-Commerce, http://aliresearch.com/, Feb 29,2008 [3] The E-Businessmen Conference Organizing Committee, 2008 Report on the Development of e-Market in China, 1-18, Jul 2008 [4] Dongxing Fang, The Arrival of Third Wave of China's Internet, Peking University Business Review, Peking University Press, Apr 2008, http://aliresearch.com/, Apr 25,2008 [5] Alibaba.com Launches New China TrustPass Product for Individuals, http://www.ir.alibaba.com/, Jun 10, 2008 [6] Yang Xiao, Alibaba.com Announces 2008 Interim Results, www.aliresearch.com., Jul 16,2008 [7] Chunxiao Liang and Fei Song, Businessmen on the Internet will Win the World, 43-59, CHINA CITIC PRESS, Jun 2008 [8] Alibaba.com Announces 2008 Interim Results, http://ir.alibaba.com/, Aug 27, 2008 [9] Alibaba.com Helps Small and Medium Businesses Sell Direct To China, http://ir.alibaba.com/, 2008 [10] China's Social Science Research Institute, 2005 Report on the e-Commerce, 184-265, Dec,2005 [11] Chunxiao Liang and Fei Song, Businessmen on the Internet will Win the World, 15-23,CHINA CITIC PRESS, Jun 2008 [12] Linbo Jing, Alibaba further expansion of the value Aug 2,

5. Conclusion
Alibaba.com has grown admirably from its initial beginnings as a small e-Market to a giant e-Marketplace. During this process of rapid growth, it has becomes more expose to a greater competition. China's role in the global market is evolving from a top manufacturing hub and exporter into a powerful global buyer as well. China's growng demand for imported goods is being fueled by a booming economy, an emerging middle class, the rising Chinese Yuan and favorable government measures promoting imports. Cutting costs and achieving profitability remain Alibaba's greatest challenges. However, there are key factors such as a strong brand, providing customers with value-added e-Market, outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale which contribute a lot to the success of this company. These factors and the people around the company help Alibaba.com to face the threats pose by other e-Marketplace. Essentially, the company should aim to maintain its gross margins in its existing business and in future product lines such as TrustPass system,AliPay system,powerful search technology, E-mail, IM tools, and PPC advertising etc. In order to do this, Alibaba.com should develop strategic partnerships with all of its main suppliers and its customers to build an e-commerce ecosystem that allows consumers and businesses to do all aspects of business online.

6. Reference
[1] Dave Chaffey, Alibaba case study - E-commerce

chain, http://aliresearch.com, Jun 6,2008

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