How often do you shop online? Quite frequently, right? From groceries to electronics you can get anything to everything online. Especially in 2020, online marketplaces have truly become a saving grace. Dont you agree? Who would have thought that people will be confined to their homes and even groceries are needed to be ordered online? In all fairness, for people who don’t enjoy shopping or always busy, online shopping truly saves time and effort. And don’t even start on the amazing discounts and sales that they have. Truly online shopping is amazing.
But with so many online marketplaces taking birth each and every day. Which one do you think is the most popular? Yup, you are thinking it right. Amazon is truly popular worldwide and is one of the best online marketplaces that offer people with quality services. Agreed that Amazon is a major player in the e-commerce industry. But do you know there is another online market place that is slowly but steadily taking over the internet? Yup, you heard it right. Today in this article you will be learning about that online marketplace i..e, Alibaba. You must have already heard about it.
Most of you know that Alibaba is a Chinese multinational technology company, which specializes in retail, e-commerce, technology and internet. It was founded by Jack Ma in 1999. He has been an inspiration for many young entrepreneurs. The man who was rejected by KFC is now one of the richest men in the world. Truly inspiring, right?
With Alibaba taking over the world, more and more people are curious to know about its business model and how it makes money. If you’re also one of them then you’re at the right place. By the end of this article, you will understand their business model and how they make money. So stick till the end.
Before moving further, let’s first know more about Alibaba.
What is Alibaba?
Some of the common things that people know about this online marketplace are about its founder and the type of work it does. But there is more than this. This website was built with the intention to connect Chinese manufactures with international buyers. It was a business to business portal.
But now in 2020, this business is one of the biggest eCommerce platforms in the Chinese market. It provides business to business, business to customers and customer to customer sales. Not only these, but it also provides many other services through e-commerce web along with offline portals.
Fun Fact: Did you know? Alibaba was founded by Jack Ma and 17 other people.
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Business Model of Alibaba
Since its inception in 1999, this online marketplace has come a long way. There is no denial in that. By April 2016, this company has surpassed Walmart by starting its operations in around 200 countries. As you know Walmart is the world’s largest retailer. Curious to know about the business model that has brought this level of success? Then what are you waiting for, let’s continue then?
First thing, the business model of this online marketplace is quite different from other online marketplaces such as Amazon and eBay. The difference is that while all these businesses mainly focused on the business to customer sales. This platform has seen a gap for business to business sales and seized the opportunity.
That has become plus for this business. Alibaba lets manufacturers sell their products in bulk at a discounted price to the small and medium businesses. These businesses purchase the products here for a discounted price and sell them in the domestic market for a profit. Truly amazing idea, right?
If you think this platform only supports the business to business sales then this is where you’re wrong. Because it does more than that, this website also supports other trades through their eCommerce portals. It has many eCommerce portals such as Taobao, Tmall. Taobao is for customers to make purchases and Tmall helps middle-class families to purchase branded products. Cool, right? Apart from these two, there are many other subsidiaries for Alibaba.
Not that you have got a glimpse into its business model are you not curious to know how it makes money? If you’re then without any delay let’s jump straight into the topic.
Fun fact: The name Alibaba comes from Persian literature (one thousand and one nights). He is a character, who opens sesame to treasure. Jack Ma wanted to create an online marketplace that opens sesame to small and medium businesses, so he named his online marketplace Alibaba.
How does Alibaba make money?
There are many revenue sources for Alibaba. Let’s dive deep into each of these and understand them better. The business model of Alibaba is made up of three web portals namely Taobao, Alibaba.com and Tmall. Other than these there are other subsidiaries such as 1688, Aliexpress, Ant Finance, Alibaba Cloud, Alimama and Cainiao network. These subsidiaries are well integrated that they make Alibaba a big ecosystem.
If you want to know about how does Alibaba make money then you must first understand about its subsidiaries and how they make money as they are also an income source for Alibaba. As you already know Alibaba is one of the best online marketplaces in the world, right now. It connects Chinese manufacturers with buyers in around 200 countries. The buyers are usually retailers, wholesalers, manufacturers, trade agents, etc.
If you think this marketplace only offers services such as connecting buyers and sellers then you’re highly wrong. They also offer other export/import services such as VAT refund, logistics services, customs clearance and trade financing. The best thing about Alibaba is that sellers can list their products without spending a single penny.
Sellers can pay extra to avail features like unlimited product listing and exposure on the site. One of the major sources of revenue for Alibaba comes from commissions. As they act as intermediaries for buyers and sellers, they charge a commission from the sellers. But you must remember that it is not the sole source of income. They also make money through memberships. This platform offers two types of supplier memberships.
Free Supplier Membership
Premium Gold Supplier Membership
Free Supplier Membership
As you already know the suppliers can list their products for free on Alibaba. They can display upto 50 products and also get business inquiries through the platform. Alibaba makes money through them in the form of commissions. Whenever the money is paid from Ali pay for sellers from Hongkong, China and Taiwan they charge commission.
Premium Gold Supplier Membership
Although suppliers can display their products for free on the platform. But still, the free membership plan comes with its own limitations. In case the seller is not verified the buyers will not be able to trust them completely. Also, they have limitations on the number of products they can display. If they want to overcome all the troubles then it is better to subscribe to a Premium Gold Supplier Membership plan.
Also, the suppliers from China must subscribe to this plan if they want to start a business on this platform. By paying a small sum they can become the verified Gold suppliers, sounds cool right? If you want to have Gold membership then you must fulfil certain requirements. Also, not to forget they must go through the verification and authentication procedure by third party credit reporting agencies. Alibaba makes money from them in the form of commission. They must pay a small sum of money for the good they sell on the platform.
Now that you have understood the basic sources of income for this platform. It is time for you to understand how their subsidiaries bring them revenue, What are you waiting for? Let’s dive into the topic now.
Taobao
Taobao is one of the three web portals in Alibaba. Merchants can join this platform for free and they don’t have to pay any transaction fee too. Taobao is really popular, it is ranked by Alexa as the ninth most popular website in the world. It has 400 million monthly active users.
It is not an exaggeration to say that this platform is China’s largest website. Taobao’s popularity has forced one of the largest online marketplaces in the world- eBay to close its operations in China. This web portal is quite similar to Google. Whenever you search for a specific keyword, the users will find results relating to their search.
Now that you know how popular this website is, aren’t you curious to know how it makes money? As you already know, this portal has the highest user base in China. It is one of the reasons why companies pay a good sum to stand out from other merchants. They use marketing strategies and advertising to reach their target audience. The speciality of this platform is that it has a special rating system that shows how many transitions a seller has successfully completed.
So Alibaba makes money through advertisements from this platform. As many businesses are interested to run ads on this platform because of its popularity. Not only that the customers can ask the seller’s questions directly through the instant messenger software offered by the Alibaba Group. This way the buyers can understand more about the product and ask away other queries they have relating to the product.
Tmall
As you already know, Alibaba Group is made of three web portals. One of them is Taobao and the other is Tmall. Tmall was launched in 2010 and by June 2011 it had become an independent business. Initially, back in 2008, Taobao launched Taobao mall. It is a B2C platform that complements the C2C marketplace. But this business idea got a whole new makeover when they have launched Tmall. Taobao mall (Tmall) is a web portal that focuses more on middle-class families.
It provides them with a wide range of branded products. As you know Taobao provides more emphasis on small, medium and individual merchants. However, Tmall deals with branded companies/large companies such as Apple, Nike, etc. It has over 500 million active users and hosts over 3700 different product categories. This eCommerce platform is similar to the online marketplace such as eBay, Amazon, etc. Another best thing about this platform is that they provide sellers with access to analytic tools.
With these tools, they can check their page views, customer rating, and a number of visitors. Having this information will help the business in understanding their customers. Not only that it will help them in making decisions that will bring profit and take their business to the next level.
This brings us to the revenue part. As you already know one of the sources for income for Alibaba is Tmall. So you must understand the revenue sources of Tmall. This platform makes money like the other eCommerce platforms i.e, service fee and commissions.
The commission for these groups varies based on the categories. However, it has three service fees that users have to pay such as annual technology, one time fixed security deposit and service fee. Lastly, they also charge for the marketing services they provide to their customers.
Now that you have understood the revenue sources of the Alibaba Group i.e., the three web portals. It is time to learn about the subsidiary companies that are under Alibaba. If you want to know how Alibaba makes money. Then you must learn about these subsidiaries too.
Alimama
Alimama is AdSense of China. As you see, this is one of the biggest open marketing platforms within the country. It is an online advertising platform that focuses both on the advertisers and publishers. As you see the advertisers want to reach more people with the advertisements.
Publishers want to make money by placing the advertisements in their content. And this platform brings both of them together. The advertisers can purchase text links or banners or PPC advertisement plans based on the cost per time or cost per impression. This platform makes money through advertisers. But they share the revenue with their affiliate partners.
Alipay
This is the third party online payments platform that assists buyers with transactions they make. Simply put it is an eWallet that is similar to Google pay with which they can make payments. The users can store their money on the platform and make payments both online and offline.
There are two methods in which the shoppers make payment using this online payment platform. They can make payments using their devices such as a mobile, tablet, etc. All they have to do is scan the QR code on the Alipay payment page. Simple right?
This simplicity is what has made this platform popular among shoppers. The other method is that the shoppers have to log into the Alipay page with their credentials. Now coming to the revenue. This source earns income from the money stored in the platform. Yup, you heard it right.
Alipay works through escrow service. As you see they store the money of the shoppers in their partner bank. As they store their money at a predetermined rate, they receive interest on this amount. Simply they make money through the interest they receive on the amount stored.
AliExpress
This is the platform that allows people from across the globe to buy from the distributors and manufactures of China directly. Sounds familiar to Taobao, right? But there is a slight difference between both of them. Taobao provides services locally i.e., within the country. However, AliExpress is mainly for global customers. This global retail marketplace brings Chinese merchants closer to the global audience.
It has customers from countries such as Spain, France, UK, Brazil, Russia, etc. Through this platform, the business in these countries can purchase directly from Chinese merchants. AliExpress makes revenue similar to other eCommerce platforms such as Alibaba. It makes income through the commission they charge from the sellers.
The sellers have to pay commission as a percentage of the value of the goods they sold. Commission ranges from 5-8% of the transaction value. Along with this AliExpress also charges $1500 along with the store fee from the sellers, if they want to change or start on the platform. The reason behind this additional fee is that they want to stop bad suppliers or scammers.
Alibaba Cloud
Alibaba Cloud is a global cloud computing company that provide users with a wide range of cloud computing services such as object storage, big data analysis, elastic computing, artificial intelligence and relational database. This platform has first begun as a private cloud to serve and meet the demands of the e-commerce businesses under the Alibaba Group. However, over time it has become a global service provider. As you see, this company makes revenue by providing cloud computing services to its clients across the globe.
1688
1688 was previously launched with an intention to target the wholesale business market in China. It was launched back in 2010. Currently, it hosts more than 5,00,000 quality suppliers who offer over 150 Million different types of products. From individuals to businesses this platform caters to all users across the globe. Most of the Taobao stores also receive the supplier from 1688. You can estimate its popularity, right? This is the reason why it is one of the most popular sites to find suppliers and Wholesalers in China.
Another reason why more and more people are attracted to this store is because of the low prices. As it is a wholesale marketplace, it offers goods at a low price for people. Also, one thing that you must remember is that users can list their products for free on this platform. Then wondering how 1688 makes money? Well, they make money through membership fees.
Yup, with the TrustPass membership plan fee, the sellers can host premium storefronts. Not only that they also get access to upgraded management tools for their store along with data analytics applications. So they make money through their premium services such as online marketing services and premium data analytics.
Cainiao network
This is a Logistics data platform operator that is dedicated to meeting the present and the future demands of mobile and online commerce sector of China. Cainiao network aims to deliver goods within China in 24 hours and globally within 72 hours.
Ant Financial
This is one of the most valuable fintech companies in the world right now. It brings inclusive financial services to users. It operates platforms such as Alipay (one of the world’s largest online payments platforms), Ant Fortune, MYbank, Zhima Credit and also one of the world’s largest money market funds i.e., Yu’e Bao.
If you think the list of revenue sources end here then you’re wrong. Apart from the subsidiary companies mentioned in the list it also has stakes in other businesses such as Juhuasan (marketing and sales platform for flash sales of Tmall and Taobao), Youku Tudou ( it is a streaming platform similar to Youtube), Aliwangwang (this is an instant messaging service), Laiwang (this is a messaging application that competes with Wechat), Sina Weibo (China’s Twitter). As you can see these are the other businesses from which Alibaba group makes money.
Wrapping up
Alibaba has been in the market for a long time and Jack ma has become an inspiration for many aspiring entrepreneurs. Over the years, this business has crossed many milestones and has grown globally. It has given a tough competition to online marketplaces such as Amazon, eBay, etc. But one of the first things Alibaba has become famous for is its website Alibaba.com that provides B2B services. However, this is not the sole reason for its growth. They are in the game because of their strong e-commerce platforms in China.
It is not an exaggeration to say that they have huge control over the market. Taobao makes up for more than 70-80% of online purchases in China. Shocking, right? You can understand the success of their business model, just from this one example. Hope you understood about the Alibaba business model. If you want to find out more about such business models then check out other articles in Zeen.
