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Grade

E-Commerce

Case Analysis Report on

Alibaba.com
 Case Summary

Alibaba is a Hangzhou-based e-commerce/e-auction company, specializing in global

trading. It was founded in 1999 by Ma Yun (Jack Ma, and operates five e-commerce sub-
companies which operate different aspects of trading.

Alibaba Group web site alibaba.com specializes in business-to-business trades, especially

for international buyers Type e-commerce trying to contact Chinese sellers.

Japan's Softbank was one of the earliest investors in Alibaba founder, Masayoshi Sou
invested S18 million in the company in 2000 and also participated in subsequent rounds of
financing.

As of January 2009, the Alibaba Group is made up of 6 sub-companies:

Taobao.com: Online auctions web site for customers.

Alipay: Online payment. web site, processing mainly payments within China.
Alisoft: Provider of web services to the Chinese Small and Medium-sized Enterprise
marketplace.
Alimama: Online advertising exchange, which allows web publishers and advertisers
to trade online advertising inventory.

The revenue of Alibaba.com is generally from the advertisements and payment of members.
It's free to search the results in the websites, but if the firms want to sell the products
through the platform, they have to be the members of Alibaba.com and pay for it. Because
the high visibility of Alibaba.com, members make lots of profit from the advertisement in its
websites.

The revenue model of Alibaba.com is advertising based. This advertising based is not only
the traditional one, but al. includes the payment of members, the webpage prepares for the
small and medium-size firms belong to another kind of advertisements for the products.

The cost drivers of Alibaba.com are generally the fixed cost and the semi variable cost.
Because of the e-business model, the firm has seldom variable cost such as the material cost.
The fixed cost includes the cost of revenue, research & development and operation; it takes
about 45% of the total cost. The semi variable cost is the cost for selling such as
advertisement and the cost of sells man; it takes about 55% of the total cost.
Clear strategy was to be the best e-business website not only in China, but also all over the
world is the mission of Alibaba Corporation. The clear strategy is the beginning of the team
of Ma Yun and the highest demand of all the team members. The right strategy born with
the right period of e-business development in right place of China, that makes the half
success of Alibaba.

The ability of effective execution is the sign of a mature team. CEO Ma Yun, CFO Cai
Congxin, CTO Wu Jiong and CPO Guan Mingsheng are all the best members in their own
area before join in Alibaba. Their high experience of managing a team and maximum the
performance of each employer is the success factor of Alibaba. They. refine each activity to
be feasible, high effective and high feedback, which make Alibaba to be one of the business
deifies. 2.43. Special Culture Without a charismatic culture, a firm cannot attract the
excellent employers and investors. In the low of Alibaba Corporation, the %age of each
employer is j. 500 RMB, which is near the lowest wage in that period. But the team didnt
break, even more it attracts the million dollars earning Cai Congxin to join the team, thats
the charismatic culture to help the firm cross the obstruction.
 Problem Statement

Alibaba.com has expanded is services in various sectors ranging from B2B to B2C. This has
created a lot of risk and increased the number of competitors for Alibaba. Also, it has
created a lot of security and legal issues. But still Alibaba is continuing to enter new
segments and grab a lot of market share. Even though the company is not aggressively
running for revenues, they do have internal targets. The focus of the company has shifted
towards revenues rather than membership acquisition. Now the question which needs to be
asked is can Alibaba monetize in what it has invested millions in?

To check on Alibabas position in the market, SWOT analysis and Porters five analysis is
done.

SWOT Analysis

Strength(S)

1. The site has a team of three (Britain, China* Japan), to include broader customer base, and
conducive to information exchange, an Increase of the amount of information, but
conducive to building momentum to expand its influence
2. Alibaba increases segmentation of information and comprehensive so that more targeted and
effective.
3. A large Chinese forum created a great convenience for traders around the globe to exchange,
and closer to the distance between the various but also to enhance the visibility of the
website
4. A large number of members to enhance the visibility of the brand SO that the set of
information Alibaba increasing coverage, the advent of attracting business.
5. To open the "Golden supplier", a web-based transaction to ensure security.
 Weaknesses
1. Alibabas Web site model is an intermediary form, and replicability of this model, which
other competitors from entering the industry to provide a sample; it increased by competitors
for itself.

2.Alibaba membership system to increase the fees in the of transformation, will lead to the
loss of existing members, will create the opportunities for competitors, the development of
the site will be difficult
3. Alibabas business platform large and clustered that it had 27 industries. SOO - 900
categories of industries a business platform to optimize the greatest obstacles.

Opportunities (O)

1. In China, several large banks and credit companies to participate fully in the field of e-
commerce, which the depth of the development of e-commerce has created opportunities.
2, China is now speeding up the development de-commerce legal provisions; and actively
creates a safe and regulated business environment.
3.China's existing small and medium enterprises cannot afford to start their own b2b
business website, so that online intermediaries such as the popular Alibaba their welcome
4.The Internet continuous development and improvement, the popularization of computers,
there will be more companies have joined the online business.

Threats (T)

1. Alibaba profits mainly in China. hut China b2b business environment has constrained the
further development of Alibaba, such as a sound law, loopholes in online payment security,
not so good infrastructure in some cities, which will hold back the development of Alibaba.
2. B2B business site model, not only in the last few years with the rapid development of the
world* and gradually formed a trend e-business alliance that is, the trend of mergers and
cooperation, which will lead to more competitive.
 Porters 5 Force Analysis

Barriers to Entry
High returns will draw firms, this results in many new entrants, which will effectively
decrease profitability. With the development of B2B market and long-time high profit of
Alibaba.com, There are more and more new websites try to copy the business nuxle of
Alibaba.com. The most common way to entry B2B e-market is try to position Its target
market to a single industry for example; in the recently 2 years, finechemical.com for the
chemical products and Textilehome.corn for the textiles and so on. Although these firms
don't have the brcud market as Alibaba.com, in another they share the special market of
Alibabacom because they are more professional arid targeted

Buyer Bargaining Power

The buyer bargaining power is the ability of customers to put the firm under pressure and it
also affects the customer's sensitivity to price changes. For Alihaba.com, the customers are
generally the medium small-size firms which don't have the ability or don't need to build up
their own websites. To negotiate with the biggest B2B eplatform. these firms don't have
many advantages to fight for lower cost and nearly all the standards are decided by
Alibaba.com. But with the development of B2B websites, the customers may have the
opportunity to choose the other platform and that will also be the opportunity to negotiate
with Alibaba.com for more rights.

Supplier Bargaining Power

Suppliers of raw materials, components, labour; and services such as expertise to the firm
can be a source of power over the firm_ Suppliers may refuse to work with the firm, e.g.,
charge excessively high prices for unique resources. But for Alibahm.com there are seldom
suppliers of raw materials, components and labour because is not a manufacture firm but an
e-service one. The largest cost for this firm is cost for so the most important suppliers are
the firms supply the advertise for Alibaba.com, such us the famous magazines, newspapers
and websites, Because these suppliers are not a union and the price is generally based on the
market It seems to be impossible for the firms to demand higher price special for
Alibaba.com), the supplier bargaining power is limit and stable.
Availability of Substitutes
The existence of close substitute products increases the propensity of customers to switch to
alternatives in response to price increases, the most important substitute service is the self-
websites of large companies. For customers, which prefer to make business with large
companies, they will not turn to Allhaba.com but directly contact with the companies
themselves.

Competition
For most industries, this is the major determinant of the competitiveness of the industry
Sometimes rivals compete aggressively arid sometimes rivals compete in non-price
dimensions such as Innovation, marketing, etc. The most competitive firms of Alibaba.com
are the search-websites such as Baidu.com and Google.com_ The potential customers may
search the results just through these free and simpler websites but not through the B2B e-
platform, which will lead Alibaba.com to lose lots of profit.
 Recommendations and Conclusion
It is evident from the Porters five forces that threat from new entrants is very high.
Entry barriers are low so son new comers will keep entering the field to take a share
of the market whichever country it goes.
Alibaba should start entering new countries especially the developing ones where the
B2B market is not very developed. Indian market is ripe for Alibaba to enter since
around 40% of B2B transactions are happening via ecommerce and no single player
has dominated the market yet.
The customers of Alibaba dont have too much buying power since the companies
paying low to the portal will be listed lower in the search list. So, everyone would
like to pay more than the rest to come on top results. This can be leveraged to earn
more revenues.
Being a popular name in ecommerce, it can sell ads on its websites to earn huge
amount of money.
To tackle the problem of companies interacting on their own web pages rather than
coming to Alibaba, it can tie-up with huge companies and ask them to incorporate
Alibabas plug-in in their websites so that they can only be contacted via Alibabas
portal.
Many people dont take the hassle to come to Alibaba and search but instead search
on Google, to address this problem, Alibaba will have to do extensive advertising to
make its web portal more popular.