Alibaba Group, A Company Reforming Chinese Business Model and Payment System

Introduction

This essay will focus on one most the greatest companies in China, Alibaba. Specifically, two of its products, Taobao and Alipay. Thanks to Taobao, Chinese people started the “mobile payment era” in a straightforward way, skipping the “entity shopping Carnival” and starting a new “online shopping Carnival”[1]. By trying to reproduce the offline shopping experience, Taobao has transformed into an online representation of a marketplace. Alibaba has made the same investment in customer service on its platform, which provides services throughout the before-in-after experience. Moreover, Alibaba makes online shopping fun with videos, contests, and games on its e-commerce platform. It becomes a great place to shop and enjoy, just as interesting as offline shopping. And in terms of Alipay, which is a mobile payment service under Ant Financial Services Group, it gives us a perfect example of how technology is going to change finance and how the traditional retail banking mode and payment system are changed[2], backed by its various servers, including check financial returns, check Taobao balance and logistics and free inter-bank transfer. Also, as a third-party escrow service that hands money to sellers after buyers receive payment, Alipay successfully addressed the credit problems between customers and sellers.

 

History

In 1999, the group was formally founded by 18 founders led by Jack Ma in Hangzhou. They gave a name to their first website, which is Alibaba, a website aimed at the global wholesale trading market. Meanwhile, not long after, Alibaba Group launched the “1688”, which focuses on domestic wholesale trade. Then in 2003, Taobao, a shopping website, was founded in Ma’s apartment. The foundation of Taobao was recognized as a milestone in Alibaba history, and also a milestone in Chinese retail history. It makes business easier and available to everyone.

In December 2004, Alipay was launched, a third-party online payment platform affiliated to Alibaba Group. In 2009, at Alibaba Group’s 10th anniversary they founded Alibaba Cloud Computing, which uses the distributed method to compute mass data. It supports the computing of countless data generated by Taobao and Alipay, and even in industries like manufacturing, agricultural operations, urban transportation, etc.

Picture showing site of Alibaba Taobao

Image: https://www.cleverism.com/wp-content/uploads/2014/09/TaoBao.png

In October 2014, Ant Financial Services Group was formally established (formerly known as “Small and Micro Financial Services Group”), which is an affiliate of Alibaba Group, . And Alibaba Group announced a restructuring with Ant Financial Group, the parent company of Alipay a year later. The personalized recommendation was introduced in Taobao in 2014, and “Guess what you like” became the biggest recommended product among Chinese e-commerce companies, which helped Alibaba attracted a huge amount of traffic. In June 2019, Alipay with its partners served over 1.2 billion world’s users. On March 25, 2020, OceanBase, a finance-level distributed database developed by Alipay, was officially opened to the world through Alicloud, one of the most powerful database in the world[4].

 

Business Model

The success of Alibaba is a successful combination of Taobao and Alipay, with the support from its powerful calculating capacity of big data. In short, the business of Alibaba Group could be concluded as follows. Firstly, free experiential. At the beginning of its establishment, Jack Ma has realized that Chinese consumers were not ready for the charging service and it would take a long time before the Chinese market became a competitive one. It advertised their free service, which attracted customers from everywhere within an extremely short time and attracted great traffic[6]. Secondly, differentiation. As a newly established company, Taobao received great challenges from its competitor e-bay since its establishment and finally defeated e-bay. Moreover, payment links, Taobao provides derivative payment services supported by Alipay. Alipay account number is bunded with the personal Taobao account number, and every transaction made in Taobao could be reflected in Alipay. Alipay allows buyers to pay after receiving goods, which lowers the potential hazard of information asymmetry and makes network transactions reliable. Fourthly, credit evaluation system. To provide a reference for honest transactions, successfully protect the interests of buyers, and urged sellers to trade in good faith, Taobao judges the credit of both buyers and sellers based on their past transaction histories, quality of goods and services. Using the feedback information, buyers will get the comprehensive information and quality of sellers, making online shopping safer and more transparent[7].

Alibaba’s profit model also includes 1. Alipay’s third-party payment platform. As discussed above, the greatest challenge from C2C transactions is the distrust between buyers and sellers. Alipay’s secured transaction by playing the role of an intermedia. Taobao’s annual turnover in 2007 was more than 43 billion, Alipay contributed a lot. 2. B2C business. With the great traffic and user base provided by Taobao and its free C2C transactions, Taobao started its next step, B2C, and Tmall is the representative. Tmall is aimed at providing B2C platform services. Tmall not only solves the problem of the C2C market, that is, high-end sellers’ brand awareness is not wide enough, but also provides opportunities for other traditional sellers to expand online opportunities to find a wider range of consumers [8]. 3. Advertisement revenue. The large customer traffic is a guarantee of large advertisement revenue.

Picture showing 2019 Taobao transaction on Nov 11 reached 268 billion Yuan

Image: https://www.chinainternetwatch.com/29999/double-11-2019/

Over time, Alibaba’s core concepts have been changing. The first stage is from 2001 to 2004, and the development goal is to create needs of trade and to achieve trading. As the largest and leading free e-commerce platform in the industry (B2B / B2C / C2C), Alibaba has successfully nurtured a large number of loyal users, a great member base, and more importantly, promising future Internet business potential. The second stage is from 2005 to now, with a goal of Work-At-Alibaba. In this stage, Alibaba expands its ambition to the extent that Alibaba should be related to any transaction and trade behavior of users. To achieve this goal, a number of value-added services were created with the convenience of Alibaba’s previous user base. These services have almost penetrated every corner of our daily life including finance, business, logistics, and so on. Among industries of different sizes and across channels. At present, Alibaba is now attempting to transform into its third development goal, which is Live-at-Alibaba.

 

Alibaba Ecosystem

Alibaba has been specialized in information flow from the beginning to now. Through the development of Alibaba in the past twenty years, a comprehensive and powerful ecosystem is founded: a connected and mutual supporting community with various enterprises and consumers interacting with each other, and with different platforms. Alibaba’s strategy is to ensure that the platform provides all the resources, data, and traffic needed to support further development and research [9]. The ecosystem Ali built was simple at first: it also connected the buyers and sellers of goods.

Diversion and cross-selling

Through opening up the Ali ecosystem, Alibaba relies on Taobao and Tmall’s core business to develop logistics, cross-border, local life, and other fields in a coordinated way. Among them, the core business is to export cash flow from other businesses. The back-up ecology of each track gradually goes out of differentiated supply, and the ecological synergy is strengthened.

Competitors: Pingduoduo, Jingdong.

Layout import ecology

Tmall global focuses on platform mode, supplemented by direct marketing mode, and accelerates its commercialization through data marketing and various platform tools. As it has a certain global incubation brand foundation, Tmall can better help overseas brands penetrate consumers on the demand side, and can jointly improve the supply chain with Alibaba’s other ecology on the supply side. Especially after the acquisition of Koala Overseas Acquisition, Ali’s import business was upgraded, and the dual-brand strategy was coordinated development. Ant and rookie opened the payment logistics link, forming a relatively complete import ecology.

Competitors: eBay, Amazon, Jingdong.

Cainiao Delivery network, complement logistics shortage

In order to better cope with the competition in the B2C field and make up for its own logistics weakness, Alibaba chose to integrate logistics resources through the platform, and the rookie network came into being.

Competitors: Jingdong, Shunfeng.

Exploration of offline service

In collaboration with Alipay, online payment can get online red packets, while takeaway and other high-frequency active scenes are conducive to improving Alipay activity rate and coordinated development to form an effectively closed-loop ecosystem.

Production end: United Village Taobao, the establishment of fresh agricultural products base, reduce procurement costs, large-scale planting, form price competitiveness.

Logistics terminal: 33 normal temperature and low-temperature warehouses, 11 processing centers, 4 seafood, and aquaculture temporary cultivation centers, with a perfect cold chain logistics system, from the origin and warehouse to consumers.

Demand-side: constantly build its own brand and create differentiated advantages.

Competitors: Meituan

Ant financial: a retail ecological tool

From Alipay to adorable gold clothing, Ali is a new ecosystem of retail ecology. Ant financial currently has the most complete financial license in China, covering almost all scenes of online and offline life consumption and financial management. Ant financial services enable consumers and businesses to trade more conveniently around the world. But more regulation is posed on small loan businesses nowadays.

Competitors: Wechat payment system.

Ant Financial is estimated at $150 billion dollars if went listing

Image: https://qz.com/guide/ant-financial/

The diagram in Appendix1 below is a brief description of Alibaba’s ecosystem.

To sum up, Alibaba has formed a complete business ecosystem through the precipitation of its own e-commerce platform and other departments, targeting e-commerce business as its core and other businesses such as financial services to further expand e-commerce, as well as other life-related services, through the deposition of its own e-commerce platform and other divisions. Data and traffic sharing are the most essential parts, with Alibaba cloud services enhancing the data manipulating capability. Alipay Effective data integration.

 

Alibaba Contributions to Internet

The greatest contributions of Alibaba are that it started the e-commerce era and facilitating China to step into a cashless society.

First of all, It has profoundly changed the consumption habits of Chinese consumers. From 2003 to now, you can buy what you need just by using Taobao without leaving home. Other than how many employment opportunities have been created, the biggest contribution of Alibaba to China is that it only took more than 10 years to change the consumption behavior pattern of Chinese people, which has promoted the spontaneous transformation and upgrading of China’s economy.

Picture showing Taobao broadcast mode

Image: https://www.alizila.com/consumer-engagement-driving-growth-on-mobile-taobao/

Secondly, Alibaba has continuously innovated its business model, which has imperceptibly affected the consumption habits of Chinese people and has also changed the whole industrial chain of production, from wholesale to retail, greatly enhancing the synergy effect of Commerce. From Alibaba B2B (business to business), which is known as “online Canton Fair” in 1999 and aims to help Chinese small enterprises with the overseas market, to C2C (customer to business) specially designed for small and medium-sized sellers in 2003 Taobao market, the platform of e-commerce among consumers, was launched in 2008 to attract high-quality merchants and middle and high-end consumers. Finally, C2B (customer to customer) was launched in early 2013 Business (i.e. consumer-driven) strategy to launch a mass consumer customization platform.

Thirdly, as a leader in the mobile payment system, Alibaba, especially Alipay, is facing stricter regulations. In an important speech, it was pointed out that science and technology finance and financial technology have not changed any of the traditional financial purposes and security principles. The general office of China Banking and Insurance Regulatory Commission announced the notice on strengthening the supervision and management of small loan companies, targeting Alipay.

 

 

Summary

As the first e-commerce platform in China, Taobao has made transactions available to everyone and everywhere. It has changed the consumption habits of Chinese consumers. With the add-on services like delivery, the circulation efficiency of the whole society is improved. Alibaba not only built the largest e-commerce platform in the world, but also made e-commerce possible for entrepreneurs of any size, and even for individuals. Moreover, supported by Alipay, China has transformed into a cashless society. And the credit evaluation system built by Alipay provided important theories for China’s economic credit construction and has provided huge data support.

 

 

 

 

 

 

Reference list

[1] C, J. Q. A. , A, X. Z. , & B, H. G. . (2019). The formation of taobao villages in china. China Economic Review, 53, 106-127.

[2] Lu, L. . (2018). Decoding alipay: mobile payments, a cashless society and regulatory challenges. Social ence Electronic Publishing.

[3] King., L. . (2017). Alibaba cloud takes artificial intelligence to the masses. Air Cargo World.

[4] Zhen-Kun, Y. , & Inc, A. . (2014). The architecture of oceanbase relational database system. Journal of East China Normal University(Natural ence).

[5] Tan, B. , Pan, S. L. , Lu, X. , & Huang, L. . (2009). Leveraging Digital Business Ecosystems for Enterprise Agility: The Tri-Logic Development Strategy of Alibaba.com. Proceedings of the International Conference on Information Systems, ICIS 2009, Phoenix, Arizona, USA, December 15-18, 2009. DBLP.

[6] Wang Tiantian. (2015). Interpretation of Taobao business model from the perspective of big data. Xunpao, Hubei today, 000 (004), 35

[7] Ya-Jun, L. , Jin, C. , Xin-Min, C. , School, B. , University, X. , & School, B. , et al. (2016). Business model of”internet+ farmer+ corporation”:empirical study from “taobao villages”of china. Journal of Northwest A&F University(Social ence Edition).

[8] Zhang, Y. , & Zhu, S. H. . (2014). The application in e-commerce profit model. Applied Mechanics and Materials, 556-562, 6783-6786.

[9] Lepeng, W. , Chunli, L. , & Ying, W. . (2015). Construction and transformation of the electronic commerce ecosystem-taking alibaba as an example. ence Mosaic.

[10] Zhukov, & P., E. . (0). The Impact of Electronic Commerce on Economic Development——Assessment of Contribution to the Chinese Economic Growth from Alibaba Group.

[11] Fu, J. , Zhou, Y. , Wu, S. , & Wang, X. . (2019). Let’s Chat in Alipay: Understanding Social Function Usage in Task-oriented Apps. Extended Abstracts of the 2019 CHI Conference.Appendix1 Alibaba Ecosystem Diagram