Alibaba is an online marketplace. The thing is, it’s huge. Although the name isn’t really a household name yet in the east – only 88 percent of Americans have heard of it – the Chinese company is actually bigger than those that are, companies like Amazon and eBay. In fact, astonishingly, Alibaba is actually bigger than both Amazon and eBay combined.
In 2013, Alibaba’s annual revenues were over $8.5 billion on more than $300 billion worth of online goods sales. That number represents a huge increase over the prior year; profits tripled between 2012 and 2013. In China, Alibaba makes up the vast majority of the online retail market. It is estimated that 80 percent of online sales in China – the world’s second largest economy – go through Alibaba and the array of companies it owns.
The basic business model is that Alibaba does not charge companies or individuals listing fees, but instead allows them to pay extra for advertising. Alibaba Group includes both business-to-business sites like alibaba.com and consumer-to-consumer sites like Taobao. Unlike Amazon, which actually warehouses some of its own goods for sale, Alibaba is just a site for others to sell and trade, much like eBay. Like eBay, Alibaba has its own site to handle money exchanges, called Alipay. However, unlike eBay, Alibaba does not used an auction-based sales model. As marketwatch.com described it, “The best way to understand Alibaba is as a mix of Amazon.com, eBay and PayPal with a dash of Google thrown in, all with some uniquely Chinese characteristics.” Alibaba plays a middleman role, which is where the eBay comparisons come in. However, there’s no bidding, which is where the Amazon comparisons come in. Because it makes money off of ad revenues, Google comparisons are thrown in the mix.
Essentially, Alibaba is an innovative recombination of existing companies. What makes it really stand out is its sheer size. For instance, Marketwatch describes Taobao, the biggest of the Alibaba sites, as being “like a gigantic Chinese bazaar with about 760 product listing from seven million sellers.” Alibaba has said that Taobao and another Alibaba site, Tmall, account for more than 50 percent of all parcel deliveries in China. In fact, in 2012, the total transaction value for just two of Alibaba’s sites – Taobao and Tmall – was larger than it was for Amazon and eBay together. Overall, Alibaba’s revenues are lower than Amazon’s because Alibaba does not actually sell the products; it’s just a middleman. However, Alibaba’s profits are far higher than Amazon’s. For instance, in the third quarter of 2014, Alibaba’s revenues were 1.7 billion and their net profits were $792 million, while Amazon’s revenues were $17 billion but they posted a $41 million loss during that same period.
Part of the reason Alibaba has done so extraordinarily well is because of the size of its customer base. There are 1.4 billion people in China, as opposed to 327 million in the U.S. Alibaba says that it has 300 million customers, which is almost equal to the entire population of the United States. Because of those numbers, Alibaba can do astoundingly well on major shopping days (and throughout the whole year as well, obviously). On November 11, which is a major shopping day called Singles Day in China, Alibaba recorded $5.6 billion in sales in 2013. In the U.S. on the major shopping holiday, Cyber Monday, total online sales were around $1.7 billion.
Until quite recently, Alibaba was a privately owned company. Jack Ma founded Alibaba in 1999 as a business-to-business marketplace, although within a few years the company began other online enterprises including its consumer-to-consumer site. Despite its size, Alibaba is not commonly known in the U.S., largely because it is marketed abroad. However, you may have seen Alibaba in the news more than usual toward the end of 2014 because in September is when Alibaba went public with a huge – and hugely anticipated – IPO (initial price offering). The initial IPO gave the company a valuation of $26 billion. By any standards, Alibaba is huge — and hugely successful.