The average North American likely hasn’t heard of Alibaba, but the Asian retailer is larger than Amazon and eBay combined. The juggernaut, founded in 1999, continues to dominate the ecommerce market and continues to generate substantial revenues and make history.
In September, Alibaba made international headlines after having the largest global initial public offering (IPO) in history. The Chinese Internet retail juggernaut posted an immense $25 billion public debut, which soundly defeated the 2010 IPO from the Agricultural Bank of China ($22.1 billion). In the United States, the former IPO record was held by Visa in 2008 with a $19.7 billion debut.
Most recently, it set a world-record by selling $9.3 billion worth of goods in 24 hours on Singles Day.
So what, you might be thinking. But every business should be paying attention because Alibaba’s rise matters to the ecommerce marketplace, especially considering the company’s online merchandise volume is only second to Walmart.
With the focus on Alibaba’s shares, founder Jack Ma and ecommerce revenues – its Chinese revenues are an astounding $7 billion – the one corporate element that is often neglected is its business-to-business ecommerce play, an important aspect of its business model. Time to learn, every executive in the world.
Ma persists in espousing the benefits for small businesses to use its service, such as allowing smaller merchants to attain an international footprint and gain access to China, a country projected to become the world’s largest economy soon. Essentially, its business model has been to champion “the little guy” and provide him with an outlet to compete globally.
U.S. businesses have already experienced quite the impact of advertising on Alibaba.
Here is what Ma wrote in an SEC filing this year:
“International brands that set up storefronts on Tmall Global benefit from the exposure to the hundreds of millions of visitors on Taobao Marketplace and Tmall, enabling them to establish their brand awareness in China, without the need for a physical presence in China.”
Earlier this month, Frost & Sullivan published the results from its research on Alibaba’s B2B ecommerce and reported that the company’s B2B ecommerce gross merchandise is valued at $27.28 billion. With a market projected to skyrocket to just under $7 trillion within the next five years, Alibaba has placed itself in a comfortable position (to put it mildly). The business world expects China to transform into the largest online B2B market by 2020 with a projected $2.1 trillion, a tremendous opportunity for the company to control this ascending market segment.
Although financial institutions have previously projected this industry to soar to between $4 and $7 trillion a decade ago, which has been an incorrect prognostication, some U.S. companies have been doing rather well, and it may come to no surprise that it’s not Amazon or eBay. In fact, according to Fortune magazine, high-performing startups include those that focus on specific products in the B2B marketplace, such as Joor (fashion), Lookboard (furniture) and Tradeshift (business).
Some blame the dot-com crash for the evisceration of B2B companies similar to the Flight of Icarus. Nevertheless, in the past year, there has been a resurgence of B2B as companies establish their own independent B2B ecommerce platforms, and gearing their services to SMBs, something that Alibaba has been doing for years.
What can Alibaba teach the rest of the retail economy about B2B ecommerce?
In the pioneer days of B2B ecommerce, companies predominantly placed their focus on large-size corporations because they had the resources to institute an automated procurement system rather than relying on faxes. Alibaba refrained from putting all their eggs in one basket and instead incorporated a level of importance on small- and medium-sized businesses.
The retailer currently has approximately 10 million SMBs using its B2B marketplace.
Raising cash, hoarding cash
Alibaba raised more than $2 billion in 2008. Instead of spending that large sum of capital, it hoarded it and kept it in the bank during the economic downturn. Another company might have used those funds to expand operations. Alibaba wasn’t necessarily affected by the financial crisis as sales were up 39 percent and earnings shot up 25 percent. This was certainly a positive for a firm that primarily relies on exports to stay afloat.
Shareholders often panic and sell their stock in a corporation when times are tough. With Alibaba, shareholders had faith in the company’s long-term profitability and Jack Ma’s vision for the B2B behemoth. When other publicly-traded companies lose money, they’ll immediately have to answer to shareholders and explain the challenges in order for them to refrain from dumping their shares.
It may be true what Ma once said: “Customer No. 1, Employee No. 2, Shareholder No. 3.”
In China, Alibaba maintains two website channels, one in English and one in Chinese. The former utilizes Google keywords to perfection, while the latter uses subscription-based model whereby members pay additional fees to receive bonus services (think Amazon Prime). In other words, Alibaba has done an excellent marketing job on its own website.
Impeccable sales staff
With nearly 5,000 salespeople across the People’s Republic of China, and according to business organizations, Alibaba employs some of the best salespersons around today because they are able to bring in new suppliers and clients unlike any other retailer.
Alipay benefitting merchants, customers
Years ago, the Chinese consumer base avoided signing up for credit cards. However, in the past couple of years, they have finally started to accept credit cards, though not at the rate of the average American. For a while, it was difficult for ecommerce companies to develop ways to pay for online transactions.
With that being said, Alibaba came up with a remedy: Alipay, a service whereby customers sign up to deposit money in a bank account. The company holds the money in escrow and releases the funds to the vendor once the buyer has received the purchase.
As Alibaba continues to create the path for future B2B companies, the corporate giant will likely still invent and innovate and generate greater success akin to Amazon, Facebook and Google. Investors seem content with the stock since it’s still trading above its September rate. Expect other B2B entities to mimic Ma and Alibaba while they shatter glass ceilings.
Perhaps it’s as rudimentary as what Forbes wrote earlier this month:
“The technology has improved, buyer expectations have increased, and automation is becoming increasingly powerful. The days of faxing procurement forms may not disappear entirely over the next five years, but the coming generation will wonder how we ever got by.”
Photo via Alibaba Group
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