Know about Alibaba, the biggest e-commerce company

Alibaba Group, a Chinese e-commerce company stated in 1999 and is the largest online and mobile commerce company in the world in terms of gross merchandise volume (GMV) in 2013, according to the IDC GMV Report. The group enabled small businesses to grow by solving their problems through Internet technology and leveraging innovation to grow and compete more effectively in China.

Since 1999, Alibaba has helped millions of small businesses to achieve a brighter future by operating its ecosystem as a platform for third parties, and not engaging in direct sales and competing with merchants or hold inventory.

Recently, Alibaba Group has floated an IPO that can beat the world’s biggest IPO, Agriculture Bank of China which raised $22.1 billion in 2010. At $66 per ADS, Alibaba can raise $21.13 billion through 320 million ADS and the underwriters have the right to purchase up to an aggregate of 48 million additional shares which will take the overall tally to $24.3 billion, making it the biggest IPO in the world.

In terms of market cap, it is expected Alibaba Group’s market cap will be around $163 billion at $66 per ADS surpassing Amazon, world’s No 1 e-commerce company with present market cap of $155 million.

The Platform
Alibaba has developed an eco-system platform that connects buyers, sellers, third-party service providers, strategic alliance partners and investee companies. The  platform connects buyers and sellers making it possible for them to do business anytime and anywhere. Consumers and businesses benefit from this ecosystem because they can access products and services with a combination of selection, value, quality, convenience and customer experience that is not available elsewhere.

Merchants are enabled by its tools and infrastructure to do business and flourish. Other participants in the ecosystem – including marketing affiliates, logistics providers, independent software vendors and various professional service providers – provide valuable services to buyer and seller and benefit from the process.

Its cloud computing offers include- elastic computing, database services and storage, large scale computing services for platforms and the platforms of companies integral to our ecosystem, such as Alipay, to sellers on our marketplaces, and other third-party customers, such as start-up companies in mobile applications and Internet gaming to established corporations in digital entertainment, consumer electronics, financial services, mobile communications, healthcare and education. The company also provide Internet infrastructure services, such as web hosting and domain name registration.

Alibaba Group Operations
Taobao – China’s largest online shopping destination
Tmall – China’s largest third-party platform for brands and retailers (in terms of gross merchandise volume)
Juhuasuan – China’s most popular group buying marketplace (monthly active users)*
(Taobao, Tmall and Juhuasuan accounted for 81.6 percent of Alibaba Gorup revenues in fiscal year 2014
Alibaba.com – China’s largest global online wholesale marketplace (revenue)*
1688.com – China’s wholesale marketplace
AliExpress – global consumer marketplace + provider of cloud computing services
Source: Alibaba
* stands as per iResearch 2013

Alibaba has been a leader in developing online marketplace standards in China, including consumer protection programs, marketplace rules, qualification standards for merchants and buyer and seller rating systems. The data from consumer behavior and transactions completed on Alibaba marketplaces and interactions among participants in the ecosystem provide the company valuable insights to help us and sellers improve buyer experience, operate more efficiently and create innovative products and services.

The company has developed reliable, scalable and cost-effective technology designed to handle the large volume of transactions on its marketplaces. For example, Alibaba Group successfully processed 254 million orders within 24 hours during Singles Day promotion on November 11, 2013.

The international strategy is focused on leveraging cross-border linkages to our ecosystem that enable foreign brands and merchants to access the Chinese consumer markets without significant capital investments while providing Chinese manufacturers and merchants with a platform to reach businesses and consumers across the world.

The Monetization Model
Alibaba Group’s revenue is highly correlated to the amount of GMV transacted as well as to the monetization rate achieved on such GMV. The revenue for wholesale marketplaces is largely driven by the number of paying members and the company primarily derive revenue from online marketing services where sellers pay marketing fees to acquire user traffic, commissions based on GMV for transactions settled through Alipay and membership fees.

Alibaba Statistics
Total GMV on China retail marketplace – $296 bn
Annual orders – 14.5 billion
Annual active buyers – 279 million
Average annual orders per active buyer – 52
Mobile Maus in June 2014 – 181 million
Mobile GMV – $71 billion
Packages delivered by Alibaba logistics partners in 12 months (ended June 30, 2014) – 6.1 billion
Source: Alibaba

In fiscal year 2014, pay-for-performance (P4P), marketing services, display marketing services, commissions and fees from memberships and value-added services accounted for 45.3 percent, 7.7 percent, 24.3 percent and 9.8 percent of our total revenue respectively.

The marketing services are primarily performance-based, using market-based bidding systems so that each merchant determines the price it is willing to pay for such services. The price a merchant is willing to pay for marketing services generally depends on the merchant’s expected GMV, profit margins and lifetime value of customers acquired from such marketing investment.

The Investors
In 2000, a group of investors led by SoftBank invested $20 million in Alibaba. In 2003, the company established a JV with SoftBank for the development of Taobao marketplace. Through a series of investments totaling $50 million, SoftBank subscribed for shares in the Taobao predecessor entity. In 2003, SoftBank purchased $30 million in our convertible notes, which SoftBank subsequently converted into our ordinary shares.

In 2005, Yahoo completed a strategic investment in Alibaba group which resulted in Yahoo owning approximately 40 percent on a fully-diluted basis at that time.

In connection with the consummation of the strategic investment, Yahoo invested a total of $1 billion in cash and contributed Yahoo China to Alibaba Group. Specifically, Yahoo purchased US$570 million in ordinary shares from certain shareholders and US$70 million in newly issued ordinary shares from Alibaba.

In conjunction with the strategic investment, Yahoo also purchased a portion of SoftBank’s shares in the Taobao predecessor entity for an aggregate amount of $360 million, which Yahoo subsequently exchanged for Alibaba ordinary shares.

The Investment
Alibaba’s investment and acquisition strategy focuses on enhancing three aspects of its business- increasing user acquisition and engagement, improving customer experience, and expanding our products and services.

With respect to investment, the company opts for a staged approach which begins with an initial minority investment followed by business cooperation. Once the relationship is established, Alibaba will increase its investment or acquire the investee company completely. Examples of this type of approach was seen in investments made in UCWeb, AutoNavi and Weibo, where the period from initial investment to eventual acquisition or increase in investment spanned across more than one fiscal year.

Through invester relationship, the company works with one of the leading Internet television companies in China, Youku Tudou and Weibo, to enhance insights into user behavioral data in commerce, entertainment and social media. These insights will enhance the quality of services to users and improve targeted marketing for online marketing customers.

Having changed China, the company is now planning to change the world in terms of e-commerce space by doing what is best over the long term.

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