Alibaba Group Holding Ltd. (NYSE: BABA) and JD.com Inc. (NASDAQ: JD) are the two largest e-commerce companies in China. Alibaba was established in 1999 and has grown into an e-commerce and technology conglomerate with operations that reach around the globe. JD.com was founded in 2004 and has become China's biggest online consumer retailer with a market share of nearly 50% in 2014. While these companies compete fiercely for online customers in China and, increasingly, around the world, their business models have been decidedly different.
Alibaba operates in the mold of eBay, providing an e-commerce platform that businesses and consumers can use to sell products to each other. It operates three main e-commerce websites: a business-to-business platform at Alibaba.com, a business-to-customer platform at Tmall.com and a consumer-to-consumer platform at Taobao.com. Together, the company's e-commerce platforms powered $394 billion in gross merchandise volume during the fiscal year ended in March 2015, nearly five times the volume reported by eBay in its most recent fiscal year. Alibaba also operates numerous subsidiaries, including the online payment platform Alipay, a cloud computing platform named Aliyun and AutoNavi, an online map provider. The company reported revenue of about $12.3 billion on the year, most of which comes from advertising, fees and sales commissions charged to third-party sellers.
In contrast to Alibaba's service-based business model, JD.com operates in the mold of Amazon.com, retailing and shipping merchandise directly to buyers from its own warehouses. It has gone a step further than its American counterpart by building out a nationwide order-fulfillment network and last-mile delivery service staffed by JD.com employees. JD.com also acts as a platform for third-party sellers, many of whom use the company's delivery infrastructure. JD.com reported gross merchandise volume of nearly $42 billion during the fiscal year ended in December 2014. Net revenue amounted to more than $18.5 billion on the year, with direct merchandise sales by JD.com accounting for about $17.5 billion of that total.
JD.com has long specialized in consumer electronics and home appliances. In recent years, however, it has made efforts to diversify its product selection to capture more sales from its current customers and to reach into new markets. Consequently, its sales of general merchandise not including electronics and appliances have increased as a percentage of revenue for several years running. In 2015, the company also introduced an international retail platform to reach markets worldwide and to encourage retailers and brands outside China to sell products to Chinese consumers using the JD.com platform and order-fulfillment service.
Along these same lines, the company has invested in technology and delivery infrastructure to continue attracting new third-party sellers to the JD.com platform within China. Sales commissions, order fulfillment fees and other payments made by third-party sellers, the lifeblood of Alibaba's business, accounted for scarcely more than 5% of JD.com's revenue in 2014. However, this amounts to a doubling in this business segment in only two years. While the company remains a rather small player in the e-commerce services business in China, it has made some important inroads onto turf long dominated by Alibaba.
Alibaba has made a concerted effort in recent years to provide a dependable, fast order fulfillment system for its third-party sellers so JD.com cannot outflank it. Rather than building its own infrastructure, however, Alibaba formed a consortium, known as Cainiao, that includes more than a dozen logistics companies partnering to handle order fulfillment for third-party sellers on Alibaba platforms. The company hopes to have next-day delivery services available in 50 Chinese cities by early 2016. In comparison, as of early 2015, JD.com offers same-day delivery in 134 districts and counties in China and next-day delivery in an additional 866 districts and counties.