eCommerce of Alibaba

Abstracted from "Alibaba Defines the New Face of eCommerce"

Posted by Martin Veitch, editorial director at IDG Connect, on July 12 2013

There are eCommerce companies that are convenient and very useful, but there are only a few that have changed the world. In this last, rarefied category, we might think of Amazon.com and, increasingly, Alibaba Group. The fact that Alibaba’s success has been more remarkable in its China homeland than elsewhere, and that its reputation outside China is primarily as a business-to-business phenomenon.

But even among laggards it surely won’t be long until its name becomes synonymous with the new face of eCommerce, rapid geographical expansion and supply-chain globalisation.

The Group is actually a remarkable empire where the numbers alone make heads spin. There is Alipay, a PayPal-like consumer payments system that is enormous in China and has 800 million registered members. Taobao is like eBay but highly customized for the Chinese market and responsible for over 94% of all consumer-to-consumer transactions there. 60% of all parcels delivered in China stem from Taobao orders and the marketplace hosts 800 million products and 500 million registered users. Tmall.com is the Amazon.com of China, providing both Chinese and foreign brands and selling to 500 million registered users.

Explaining the Alibaba Group world requires understanding of cultural nuance. For example, Chinese buyers tend to prefer to shop from malls rather than own-brand stores or sites and even big brands pursuing sales in China tend to follow, in part because of this tendency, in part because of the difficulties of selling to the enormous Chinese market which expects a distinct experience very different to the needs of many other large markets, and in part because of the data the platform generates for participants. Cash-on-delivery, overnight deliveries in cities and seven-day return policies also make China distinctive and it’s quite common for buyers to reject goods on delivery.

It was founded as recently as 1999 but Alibaba Group’s sheer scale and reach is placing it front and centre of the fundamental changes taking place in the way we work and trade.

Western companies find it hard to replicate the user experience designed for the Chinese consumer. Alibaba also offer very high-quality data analytics through research on product pricing and responsiveness and they're linked in to a fairly sophisticated delivery and logistics network. You can’t just take learning from other markets into this market so you have to hire or bolt on.

The broader commercial movement is towards partnering, outsourcing and franchising.  Channel dominance is becoming more important than product dominance in many markets. They are becoming offline platforms where they rent the space internally; they have access to brands and the margins they get are better. The world is moving back to platforms and away from brands unless those brands are very strong.

Alibaba Group is on a remarkable trajectory and its gross merchandise revenue of about $160bn per annum is already greater than Amazon and eBay combined.

While all eyes are on Alibaba to float at some point, the focus for the Group, is expansion in international markets: Turkey, Brazil, Russia, Australia, the US and Europe all offer growth spurts. That’s crucial because, while many have contended that China will have the last word on price for a long time to come, the rapid rise in her middle class could give Indonesia, the Philippines or another ‘Next Eleven’ country a chance to undercut.

And, while doubts remain on the Chinese line over intellectual property and geopolitical issues remain sensitive, the company is part of a tectonic and historic change in attitudes. People everywhere are going to stop viewing them as a threat and more as an opportunity. Anytime there is an opportunity, people tend to take a more favorable view and China is where the opportunity is.