Taobao Marketplace

It was 1994. Jack Ma, an English teacher from Hangzhou, China, heard about the Internet and managed to fly to the US to experience it by himself. In 1995 Jack started his own website development company. In 1999 he created Alibaba, a business-to-business marketplace connecting Western businesses to Chinese manufactureres.

Today Alibaba grew to a group making $15 billion of revenues. Jack Ma is the richest man of China, with an estimated net worth of $24 billion.

“Our proposition is simple: we want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy. Since our founding in 1999, we have helped millions of small businesses to achieve a brighter future.”

More than 80% of Alibaba group fortune is coming from their eCommerce platform in China.

Founded in 2003, Taobao is a fee-free marketplace targeted to small merchants where neither sellers nor buyers are assessed a fee for completing transactions. The nearly 7 million active sellers on Taobao pay to rank higher on the site’s internal search engine, generating advertising revenue for Alibaba that resembles Google’s core business model.

According to Zhang Yu, the director of Taobao, the number of stores on Taobao with annual sales under $15k increased by 60% between 2011 and 2013. Over the same period, the number of stores with sales between $15k and $150k increased by 30%, and the number of stores with sales over $150k increased by 33%.

In 2008, Alibaba group launched Tmall (Taobao Mall), a platform oriented to larger businesses and brands. Unlike Amazon, Tmall itself does not sell the goods directly but it facilitates transactions between the buyer and the seller. In this case, Alibaba charges a commission between 2% and 5% with a business model near to the one of AirBnB, which became the largest hotel chain without owning a single hotel.

Overall, Taobao and Tmall are counting for 80% of all online purchase in China and made a profit of 44% in 2013, while by comparison Amazon made a 0.8% in the same year.

Alibaba does not sell products themselves. Instead, they offer a web platform that facilitates the exchange of goods. They’re the world’s largest eCommerce company, but they’re actually much more like a software house than a shop. Software tends to scale much better than warehouses do.

Furthermore Alibaba understood that its success depends on the success of its sellers. In 2007 they launched their own consultancy company, Alimama, to support their sellers with a range of services such as customer segmentation, product positioning, marketing campaign, and more.

We believe that putting (…) the traditional business just purely online — that’s not called e-commerce. In the future, business will not make money because of the scale, it’s because of the value — the different value — created. (…) I checked Amazon. They have $52 billion but they still do not make money, so ‘scale’ does not make any sense. Jack Ma