What is Alibaba and how does it work

How does Alibaba work? Alibaba Group is attracting a lot of media attention and comments on social media after withdrawing the largest initial public offering in history. Its IPO in the US moved a whopping $ 25 billion, selling additional shares to meet demand.

While all these looks are on Alibaba there are many concepts about how and what Alibaba does that are still unclear to most people. I will try to clarify some key concepts of this company such as what is Alibaba and how does it work.

What is Alibaba?

Alibaba is regarded as China's largest retailer. The company was founded in 1999 by Jack Ma through the launch of his Ecommerce site Alibaba.com. This site connects Chinese suppliers of just about anything with online shoppers.

Since its inception and up to the present time, Alibaba has expanded through other e-commerce platforms such as Tmail and Taobao. Economics analysts describe to the Chinese Ecommerce giant as a mix between Amazon, eBay, PayPal and to some extent Google.

The funny thing is that Alibaba has no American counterpart in its domination of the small market, that around 80% of all online retail sales come from that country precisely. To be more exact, Alibaba is a collection of companies thatThey operate under different business models and with different sources of income.

How does Alibaba work?

The three main businesses of Alibaba Group are organized as different companies, in such a way that we have:

Alibaba.com

It is the original business of the company, considered as an electronic commerce platform in which Chinese companies meet international companies that require inventory or manufacturers. It is something similar to what Amazon does with the agreements between buyers and sellers.

The interesting thing here is that unlike Amazon, Alibaba.com does not have inventory or participate in logistics such as storage, supply or shipping. That is, the company makes a profit by receiving a commission for each transaction, in addition to charging subscription fees to sellers who maintain windows in the market.

The platform also features the 1688.com website, which in this case connects businesses in China and AliExpress, for small business buyers internationally.

Taobao

It is the largest business of the Alibaba Group, which is basically a consumer-to-consumer market, much like eBay. The main difference however, is that Taobao does not charge transaction fees. Rather, it makes money by selling ads, like what Google does.

In this way merchants can pay to place their products with higher priority, gain more visibility for their products or reach more customers through search ads.

Tmall.com

In this case, it is a company that separated from Taobao to consolidate itself as a Premium market from business to consumers, particularly targeting the growing middle class. Consequently, it has products of the highest level, the best international brands, in addition to charging its merchants annual fees.

It is important to note that although it is true that Alibaba Group generates its revenue volume through these three businesses that we have just detailed, the company also receives income from other businesses.

• Juhuasuan, which is a Groupon-like flash sales site
• Alipay, a payment platform that also resembles the PayPal business model
• Alibaba Cloud Computing
• Laiwang, a mobile messaging app that competes directly with Tencent's WeChat
• Aliwangwang, which is an instant messaging service
• Sina Weibo, which is the Chinese equivalent of Twitter
• YouKu, the Chinese version of YouTube
• It also has a film business, as well as a soccer team and a mutual fund.

Interesting also to mention that Alibaba doesn't really depend on any source of income since you can generate money from many different lines of business. Currently, Alibaba provides microcredits and participates in the Chinese government's program for the creation of five private banks on a pilot basis in some of the largest cities in China.

Controlled by an Alibaba affiliate, the payment system has enabled the company to obtain a wealth of information about small businesses in China, consumers, and the transactions they conduct online. But even though the company continues to be the largest e-commerce platform in China, it faces tougher competition as more Chinese consumers use their smartphones.

We already know how Alibaba works but in the following points we will see some more secrets of his worldwide success.

Alibaba is not the Chinese version of Amazon and is not a retail company

Strictly speaking, Alibaba is not a «Online store»Because it does not sell products, instead it operates huge online marketplaces (Taobao y Tmall) where million merchants and brands They put up their windows and sell their products.

In that sense, Alibaba's model is more similar to eBay and Like him, Alibaba earns part of its income through the fees it applies to Tmall transactions. Unlike eBay, Alibaba also generates revenue from ads on its shopping sites, Taobao and Tmall. Thanks to this combination of ads and commissions, Alibaba is more profitable than its competitors. Now that you know what Alibaba is, let's see its business model.

Alibaba's B2B is just a small part of their business

When you search «Alibabaon Google, one of the first websites to be introduced is Alibaba.com. That is the portal that its founder, Jack Ma, launched in 1999, when the company started. It is a portal dedicated to B2B that connects Chinese manufacturers with overseas customers.

However, this portal B2B it is a relatively small of Alibaba Group's overall operations, especially compared to its markets B2C of Taobao and Tmall, which accumulate hundreds of millions of users and they represent the majority of your income.

Despite that Taobao and Tmall They are household names in China, most consumers outside of China have never heard of them because most of the services on these sites areThey are only available to Chinese speakers.

Alibaba launched Taobao in 2003 y Tmall in 2008, and both now dominate Chinese B2C e-commerce. These markets generated in 2013 248 one billion dollars in transactions, a figure bigger than Amazon and eBay together.

Alibaba and Google share some features

Taobao and Tmall are equipped with their own search engine, provided by Alibaba and helping shoppers search for products. On the other hand, many merchants who sell on Taobao and Tmall participate in keyword auctions, very similar to how companies spend money on Google.

For example, when a buyer enters a keyword as "calculator«, The search results show the products of the merchants who made the highest bids (for this keyword) most visibly, followed by the rest. This operation is similar to that of AdWords of Google.

Search and its link to advertising generates a lot of money for Alibaba, since only Taobao has around 7 million businesses They compete fiercely to attract the attention of buyers of their items.

Now that you know everything about how Alibaba worksWe hope it has become clear what this Chinese giant is and how it works that does not stop growing.

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