Alibaba Group (BABA) is a Chinese ecommerce company established in 1999. The company is headquartered in Zhejiang, China. The service-based ecommerce model that the company provides allows users to buy and sell goods on its platforms, much like the eBay (EBAY) business model. Alibaba has three primary businesses: a business-to-business (B2B) ecommerce platform, Alibaba.com; a business-to-consumer (B2C) platform, Tmall.com; and a consumer-to-consumer platform, Taobao.
- Alibaba Group is a service-based ecommerce company that provides a platform for users to buy and sell goods, much like the eBay (EBAY) business model.
- Alibaba has three primary businesses: a business-to-business (B2B) ecommerce platform, Alibaba.com; a business-to-consumer (B2C) platform, Tmall.com; and a consumer-to-consumer platform, Taobao.
- While Alibaba dominates ecommerce and cloud computing services in China, Amazon dominates those industries in most other growing markets around the world.
- JD.com is one of Alibaba's primary domestic competitors in the ecommerce space.
- Alibaba also faces smaller national competitors and local upstarts across the Chinese landscape, including the Chinese ecommerce site Pinduoduo.
How Alibaba Makes Money
Alibaba generates revenue primarily from sales commissions, fulfillment services, advertising fees, and other service-based fees, including those from its online payment platform, Alipay. The company also operates a cloud computing business, Aliyun, and other ecommerce businesses and websites.
Alibaba reported $109.5 billion USD in revenue for the fiscal year ended in March 2021. Annual active consumers on the company's Chinese retail marketplaces reached 1.1 billion.
In 2010, Alibaba launched AliExpress, a cross-border ecommerce platform that has catapulted the business onto the world stage and made it a major competitor outside of China. In 2019, Alibaba focused its expansion efforts on Europe, beginning in Spain, Italy, and Turkey. The company also opened its first brick-and-mortar store in Madrid in August 2019.
While Alibaba dominates ecommerce and cloud computing services in China, Amazon (AMZN) dominates those industries in most other growing markets around the world. However, as Alibaba's operations have expanded internationally, the company has attempted to undercut Amazon's seller fees in order to attract new sellers. Alibaba's strategy of securing overseas shoppers is likely to continue in the future, making it more likely that Amazon will emerge as its biggest competitor in certain countries and geographical regions. The company's goal is to have over one billion annual active shoppers worldwide by the end of the fiscal year 2024. In addition, Alibaba's move to allow international merchants outside of China to sell on its AliExpress platform has put additional pressure on Amazon. Previously, AliExpress was only open to Chinese merchants who wanted access to the global retail market.
In addition to Amazon's well-known B2C platform, the company introduced its B2B platform, Amazon Business, in 2015. With Amazon Business, companies of all sizes can buy from and sell to each other. Amazon Business provides access to everything from IT and lab equipment to education and food service supplies with business-only selection and pricing. While there are many other B2B marketplaces that use the same model as Amazon Business, Amazon benefits from brand-name recognition, and its success in its other commercial ventures has given it a good reputation.
While Amazon's efforts to penetrate Asian markets have been successful, they have faced some setbacks in the country of China. In 2019, they closed down their Amazon China store, despite its 15-year history in the country. However, online shoppers in China can still purchase items from Amazon's global store.
Established in 2004, JD.com (JD) is one of Alibaba's primary domestic competitors in the ecommerce space. Alibaba and JD.com are the two largest ecommerce companies in China. In May 2021, Alibaba's percentage of total retail ecommerce sales in China was 47.1% and JD.com's was 16.9%, according to a report by eMarketer.
JD.com is a direct-sales retailer that uses a model similar to Amazon. In contrast to Alibaba's ecommerce model, JD.com warehouses, markets, and ships merchandise directly to Chinese consumers through its national shipping network, which includes a last-mile delivery component throughout much of the nation.
According to financial results for the full year ended on December 31, 2020, JD.com had a net revenue of $7.5 trillion USD.
Alibaba and JD.com have very different business models. With direct control over its supply chain, JD.com has developed a reputation for authentic products and reliable, fast shipping. Alibaba, on the other hand, has long battled an association with counterfeit goods among both domestic and international customers and brand owners.
Other Domestic Competitors
Beyond JD.com, Alibaba faces smaller national competitors and local upstarts across the Chinese landscape. According to eMarketers, the Chinese ecommerce site Pinduoduo had 13.2% of the market share in May 2021. For smaller merchants who cannot afford the cost of marketing fees on Alibaba, Pinduoduo is a cheaper alternative. Pinduoduo was started by a former Google engineer in 2015 and has succeeded in reaching consumers in smaller, more rural Chinese markets.
The Future of Ecommerce in China
In September 2021 results, Alibaba had 1.2 billion active shoppers on its online shopping platforms in China. In comparison, JD.com had 471.9 million active shoppers in 2020.
China arguably maintains the world's largest online retail market, much larger than the online retail market in the U.S. As the middle-class population of China has grown, there is more of a desire for international brands among Chinese consumers. Alibaba has been crucial in introducing overseas brands to the country. While Alibaba will likely be successful in its quest for more international growth, its ongoing issues with counterfeiting could stimmy some of its expansion.
Most recently, Alibaba introduced a digital financial services branch. Through its Ant Financial affiliate, Alibaba offers business and consumer loans and mobile payments. Ant Financial also operates Alibaba's online payment platform, Alipay. Currently, Alipay is one of the most popular mobile payment services in China, but it also has international ambitions as Ant Financial works to implement Alipay at retail businesses overseas.
On April 12, 2021, China imposed a restructuring of the Ant Group, and imposed a $2.75 billion antitrust penalty.