How Alibaba is Disruptive — It Empowers Ecommerce

I keep hearing news about Alibaba’s expansion and growth, founded in 1991, this company has become a true powerhouse not just in Asia, but internationally. The New York Times covers a good timeline and news of its development.

Having gone public in September 2014, with raising nearly 22 billion in initial public offering (IPO) this e-commerce giant and cloud computing group is a business with enormous potential.

Fun fact, Jack Ma, their CEO used to be an English teacher. His larger than life personality combines networking and foresight made its ecommerce platform into a B2C, B2B and C2C (P2P) success. To understand his company’s rise to prominence, the CEO as a child used to visit hotels each summer to befriend the children of foreign tourists to growth-hack his English:

Alibaba has recently overtaken Walmart as the largest retailer in the world by gross sales. It’s not just an online marketing place giant, it’s also gotten into cloud computing and Big Data. You might remember how Alibaba killed the previous E-commerce shark known as E-bay.

Here is (BABA) shares on yahoo finance compared to some of its huge big-box cousin competitors. According to statista, In the fiscal year ending March 31, 2015, Chinese e-commerce corporation Alibaba recorded cumulative revenuesof 76.2 billion yuan. This translates to approximately 12.29 billion U.S. dollars.

Last summer Jack Ma reveled a bit on the way he sees his company moving forwards. In specific he mentioned:

  • He wants USA SMBs to buy and sell their products on Alibaba’s ecommerce sites.
  • Ma does not think it’s competition is Amazon, but wants to important more American products to hungry Chinese consumers.

He stresses that in China, Ecommerce is dominant, whereas in countries like America with better infrastructure it’s still a brick-and-mortar play, where ecommerce is just a 10% complementary course. 11 Main is one of the new initiatives to sell in English in the US, which could not really compete as a late-comer with the Amazon, E-Bay, Etsy type market.

Alibaba is an enabler of small business, which means it’s different business model is not the model of the greedy corporate giant type American company. Like Amazon, Alibaba.com serves as a shopping destination for millions of consumers, but Alibaba doesn’t have any of its own warehouses or products. Instead, it helps small companies manage their respective warehouses. It’s ironic than that the more ethical company might have a brighter future than even Amazon (TBA).

“We do not buy and sell,” Ma said. “We help small businesses buy and sell.”

You cannot compare apples and oranges, but if we wanted to, what would the numbers say?

  • Amazon only does 13.3% the orders that Alibaba does
  • But makes 29% of the sales Alibaba does

As of 2014, Alibaba was playing catch-up with the big-box brand names:

However is it possible Alibaba’s growth curve exceeds Amazon’s?

When we contrast Amazon and Alibaba we see different visions. If Amazon is obsessed with price differentiation and custom experience, Alibaba has a vision that’s much more Millennial value-centric friendly:

Alibaba has a more corporate social responsibility friendly business model, when he has said that Alibaba’s priorities are their employees, their customers and then the shareholder, in that order. It’s quite a sharp contrast to Amazon’s history. This is also a reason I feel Alibaba’s proposition and growth is disruptive. It’s inherently compatible with a sharing and on-demand economy that’s collaborative.

Alibaba is fully prosperity from Ecommerce within China, as the dominant “cash cow” of their business model. This has nearly unlimited potential, while Amazon has dominant as it is, still has a lot of competition. Alibaba has such a stranglehold on Ecommerce in China, you might as well consider Alibaba as the company of China’s future. As Alibaba finds ways to grow outside of China, it will be quite disruptive. It obviously hasn’t even come close to realizing its full potential:

(circa 2014)

The profit margins of Alibaba, makes Amazon look like a corporate failure. Back in 2013, Amazon had a 0.8% profit margin. Alibaba, by contrast, had a 44% profit margin in 2013 — more than 50x higher. Because Alibaba doesn’t sell products themselves and simply offer a web platform that facilitates the exchange of good. Alibaba is a native Ecommerce corporate group (BABA). Amazon is still hybrid, disruptive in a different way.

It’s not by accident WeChat is reinventing Ecommerce and America and Facebook messenger are playing catch-up. Back home, the Chat Bot revolution hasn’t even officially started. This marks the beginning, 2016, where Asia starts to truly lead, expand more into North America and refine its status as the new kid on the block in the world economy.

Apr 13, 2016

I hope you enjoyed this article.