China’s eCommerce colossus: Alibaba

China’s eCommerce colossus: Alibaba
06.11.2018 iqi-adm
Alibaba

The Chinese Internet market is in a class of its own. Not Amazon and eBay, but subsidiaries of the largest Chinese Internet group Alibaba dominate the Digital Commerce. Local brands also determine the market in most other BRIC nations (iq! reported in the article “Amazon and eBay do not rule the world“). But what businesses does the Chinese company operate? And how is it different from Amazon? After iq! analysed China’s mobile heavyweight Xiaomi a few weeks ago, we take a deeper look into E-Commerce titan Alibaba today.

Alibaba’s business models

Alibaba was founded in 1999 by Chinese entrepreneur Jack Ma, who is still CEO of the company today. The company went public in 2014, earning New York’s most successful IPO in history, with revenues of $ 25 billion.
The largest shareholders today are the Japanese telecommunications and entertainment group SoftBank (32.4%) and the US Internet giant Yahoo! (16.3%).
In addition to many other holdings in Internet companies, Alibaba operates business models in 12 areas of the Internet. The more significant in terms of revenue are clearly in the eCommerce sector. The largest Chinese B2B, B2C and C2C commerce platforms are owned by Alibaba. In addition, the Group is active in the areas of group deals, price comparison and online travel agencies. On the service side, in particular, the ePayment system Alipay (with an impressive 700 million active users) and the IaaS provider Aliyun, the largest public cloud provider in China, should be emphasized.

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Alibaba’s Internet operations
Source: iq! Consulting based on Company information

Alibaba vs. Amazon

Alibaba is often compared to Amazon. And surely it occupies the same dominant position in China, which holds Amazon in many industrialized nations, above all the USA. However, the Chinese competitor can not yet suffice its US competitors for sales. For example, in the first quarter of 2018, Alibaba, with nearly $ 10 billion in revenue, generated only one-fifth of Amazon’s revenue.However, the Chinese group is very profitable and has a similar profit as Amazon. A plus for Amazon is the degree of internationalization. The US company already generates 32% of its sales outside of its home market, with Alibaba accounting for only 10%. However, the Chinese Internet giants can still build on a greater potential in their own market, because Internet penetration rates are still significantly lower compared to the Western world (see blog article “Digital Commerce in China vs. USA“).

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Amazon vs. Alibaba in the first quarter of 2018
Source: Statista

In addition, Amazon has diversified its business models already to a greater extent. 27% of sales come from the US rival’s service operations, in the Chinese Internet group, it is only 10%. A big advantage of Amazon here is the incredible innovative power of the Group, in which Alibaba certainly can not quite keep up yet.

 

Conclusion

In the markets already occupied by Amazon or Alibaba, the other competitor will find it very difficult to gain a foothold. The power of the brand is already very big. It will be exciting how and if the two companies divide the rest of the world and if necessary stick out local Internet companies. The next strategic investments in new business areas should also provide suspense and possibly attack other established players such as Google, Apple or others.

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