Business model of Alibaba Group

Customer Segments

Alibaba has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate:  buyers and sellers. These groups include consumers and businesses in different combinations (Business-to-Business, Business-to-Consumer, and Consumer-to-Consumer).

Value Proposition

Alibaba offers five primary value propositions: accessibility, customization, convenience, risk reduction, and brand/status.

The company creates accessibility by enabling buyers and sellers to connect. The most difficult connection it facilitates is enabling Chinese small businesses to sell to buyers overseas.

The company enables customization by personalizing the shopping experience. Its data analytic/management capabilities enable it to predict buyer needs and preferences and tailor product offering displays accordingly, matching shoppers with relevant sellers.

The company offers convenience by making its service easy to use. It reduces buyers’ wait times by shipping a high volume of products, delivering an average of 24 million packages daily. It provides valuable infrastructure support services for sellers, including cloud computing services for CRM and ERP systems hosted on the platform and web-based and mobile interfaces to manage listings.

The company reduces risk by maintaining high standards. It requires sellers to offer consumer protection programs such as product warranties and guaranteed returns. It also enables buyers to provide feedback on sellers and products so future buyers can be adequately informed. Lastly, it utilizes technology to track and trace counterfeiters in order to remove them from the site.

The company has established a powerful brand due to its success. It is the world’s largest online and mobile marketplace in terms of gross merchandise volume. It has more than one billion product and service listings offered by over 10 million active annual sellers. It has more than 350 million annual active buyers who place an average of 58 orders.

Channels

Alibaba’s main channel is its website. It also utilizes a sales team consisting of field sales and telephone sales personnel who sell membership packages to registered members of its wholesale marketplaces. The company promotes its offering through its social media pages.

Customer Relationships

Alibaba’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the main platform while having limited interaction with employees. The company’s website provides self-help resources such as videos and answers to frequently asked questions. That said, there is a personal assistance component in the form of phone, e-mail, and live chat support.

Key Activities

Alibaba’s business model entails maintaining a robust common platform between two parties:  product/service buyers and sellers.

Key Partners

Alibaba maintains the following types of partnerships:

• Marketing Affiliates – Firms that promote the company’s sellers by placing marketing displays on their platforms (websites, mobile apps, etc.); they receive a payment from sellers
• Logistics Service Providers – Firms that provide logistics services; they include line haul service providers, warehouse operators, and express delivery service providers.
• Retail Operational Partners – Firms that handle certain functions outsourced to them by sellers; functions include product planning, supply chain management, inventory storage and fulfillment, marketing and storefront management, customer relationship management, and customer service.
• Independent Software Vendors – Firms that provide software tools and systems integration services to sellers; services include assistance in management of CRM and ERP systems on the platform.
• Professional Service Providers – Firms that offer a wide range of services; examples of these companies include photography specialists, customer service agents, professional buying agents, Internet marketing consultants, and models for clothing and accessories.

Key Resources

Alibaba’s main resource is its proprietary software platform. It depends on human resources in the form of more than 12,000 engineering and data analytic employees that maintain and update the platform, as well as develop new mobile and online products.

Lastly, as a startup it has relied heavily on funding from outside parties, raising $8.91 billion as of June 2016.

Cost Structure

Alibaba has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions. Its biggest cost driver is cost of revenue, a variable expense that includes staff, maintenance, and traffic acquisition costs. Other major drivers are in the areas of sales/marketing and product development, both fixed costs.

Revenue Streams

Alibaba has three revenue streams:

• Commissions – Revenues generated from fees charged to sellers for each sales transaction.
• Advertising Fees – Revenues generated from fees charged to advertisers for online marketing services. These account for the vast majority of company revenues.
• Service Fees – Revenues generated from fees for various online services.