Alibaba Group (BABA) is a Chinese e-commerce company established in 1999. The company is headquartered in Zhejiang, China. The service-based e-commerce 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) e-commerce platform, Alibaba.com; a business-to-consumer (B2C) platform, Tmall.com; and a consumer-to-consumer platform, Taobao.com.

Key Takeaways

  • Alibaba Group is a service-based e-commerce 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) e-commerce platform, Alibaba.com; a business-to-consumer (B2C) platform, Tmall.com; and a consumer-to-consumer platform, Taobao.com.
  • While Alibaba dominates e-commerce 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 e-commerce space.
  • Alibaba also faces smaller national competitors and local upstarts across the Chinese landscape, including the Chinese e-commerce 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 e-commerce businesses and websites.

Alibaba reported $56.12 billion in revenue for the fiscal year ended in March 2019, an increase of 51% year-over-year. Annual active consumers on the company's Chinese retail marketplaces reached 654 million, an increase of 102 million from the 12-month period ended March 31, 2018. 

In 2010, Alibaba launched AliExpress, a cross-border e-commerce platform that has catapulted the business onto the world stage and made it a major competitor outside of China. In Russia and Brazil, AliExpress is the top e-commerce marketplace. 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.

Amazon

While Alibaba dominates e-commerce 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 foodservice 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 have 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.

JD.com

Established in 2004, JD.com (JD) is one of Alibaba's primary domestic competitors in the e-commerce space. Alibaba and JD.com are the two largest e-commerce companies in China. In May 2019, Alibaba's percentage of total retail e-commerce sales in China was 55.9% and JD.com's was 16.7%, 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 e-commerce 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 unaudited financial results for the full year ended on December 31, 2019, JD.com had a net revenue of $82.9 billion, an increase of 24.9% from the full year of 2018. 

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 e-commerce site Pinduoduo had 7.3% of the market share in 2019. 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 the fourth quarter of the fiscal year 2019, Alibaba had 654 million active shoppers on its online shopping platforms in China. In comparison, Pinduoduo had 443.3 million active shoppers, and JD.com had 310.5 million active shoppers. Amazon has 300 million active shoppers on its marketplace.

China 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.