Alibaba Business Model | How Does Alibaba Make Money?
When it comes to online marketplace, the first name that comes to your mind is Amazon. Amazon surely is a big e-commerce company, but there is another upcoming e-commerce company that is about to (and has already started to) take over the internet marketplace. It is a China-based company whose founder was rejected by KFC. He is now the richest man in China. This e-commerce giant is none other than Alibaba. With one of the most successful business models in the world, this company is on to take on the online marketplace globally. But how does Alibaba make money? What is Alibaba’s business model? Let us understand more about the company before we move onto discuss Alibaba Business Model.
Alibaba has come a long way since its beginning in 1999. As of April 2016, It is the world’s largest retailer surpassing Walmart, with operations in over 200 countries. But what exactly is Alibaba Business Model? How did it manage to gain such success? For that let us first understand how does Alibaba work and what all businesses does it own.
How does Alibaba work?
The business model of Alibaba is different from other players like eBay and Amazon. It focused more on trade between businesses. Unlike the usual business-to-consumer approach, Alibaba focuses on being a platform for suppliers to sell products in bulk at wholesale prices to small or medium-sized businesses worldwide, who then resell them for a profit in their domestic markets.
Although Alibaba focuses on business to business trade it also supports other trade through e-commerce web portals. Taobao is for consumers to trade, where as Tmall is for the upcoming middle class of China to purchase branded products. There are many other subsidiaries through which Alibaba makes money.
How does Alibaba make money?
Alibaba’s Busines model is made up of three major web portals: Alibaba.com, Taobao, and Tmall. All of them serve to connect various types of buyers and sellers. However, there are 6 more subsidiaries of Alibaba which include Aliexpress, 1688, Alimama, Alibaba Cloud, Ant Financial, and Cainiao Network. All these subsidiaries are so well integrated that they make the Alibaba group a big ecosystem.
Alibaba Businesses & How Do They Make Money Alibaba.com
How does Alibaba make money?
Alibaba.com is a marketplace where sellers and buyers meet. The website acts as an intermediary which charges commissions from the sellers of mainland China, Hongkong & Taiwan. However, the revenue isn’t earned just as commissions.
Alibaba offers two types of supplier membership:
Free Supplier Membership
Suppliers on Alibaba do not need to pay anything to list their goods on the online marketplace. They are free to display up to 50 Products online and to get business inquiries. Alibaba only makes money from them in the form of commissions if the money is paid through Ali Pay and the seller is from mainland China, Hongkong & Taiwan
Premium Gold Supplier Membership
There are limitations to being a free supplier member of Alibaba as these suppliers are not verified (reduces buyer’s trust) and are only able to display up to 50 products on the website. The suppliers from China can’t even list themselves as free suppliers and have to buy the premium gold supplier membership plan to start a business on Alibaba.com.
Alibaba Gold Supplier Membership is a premium membership where suppliers pay certain fees (few thousand dollars) to become a verified Gold Supplier.
What is Alibaba?
Alibaba Group was founded by Jack Ma along with 17 other co-founders in 1999 with the website Alibaba.com, a business-to-business portal with an aim to connect Chinese manufacturers with international buyers. Today, Alibaba Group Holding Limited is one of the biggest companies in China that provides consumer-to-consumer, business-to-consumer and business-to-business sales and various other services via e-commerce web as well as offline portals. The major revenue earning services include electronic payment services, marketplace, and data-centric cloud computing.
The name Alibaba came from the character Ali Baba from the Persian literature One Thousand and One Nights because of its universal appeal. According to Jack:
Alibaba Business ModelPeople from India, people from Germany, people from Tokyo and China, they all knew about Alibaba. Alibaba – open sesame. Alibaba is a kind, smart business person, and he helped the village. So … easy to spell, and globally known. Alibaba opens sesame for small- to medium-sized companies.
Alibaba has come a long way since its beginning in 1999. As of April 2016, It is the world’s largest retailer surpassing Walmart, with operations in over 200 countries. But what exactly is Alibaba Business Model? How did it manage to gain such success? For that let us first understand how does Alibaba work and what all businesses does it own.
How does Alibaba work?
The business model of Alibaba is different from other players like eBay and Amazon. It focused more on trade between businesses. Unlike the usual business-to-consumer approach, Alibaba focuses on being a platform for suppliers to sell products in bulk at wholesale prices to small or medium-sized businesses worldwide, who then resell them for a profit in their domestic markets.
Although Alibaba focuses on business to business trade it also supports other trade through e-commerce web portals. Taobao is for consumers to trade, where as Tmall is for the upcoming middle class of China to purchase branded products. There are many other subsidiaries through which Alibaba makes money.
How does Alibaba make money?
Alibaba’s Busines model is made up of three major web portals: Alibaba.com, Taobao, and Tmall. All of them serve to connect various types of buyers and sellers. However, there are 6 more subsidiaries of Alibaba which include Aliexpress, 1688, Alimama, Alibaba Cloud, Ant Financial, and Cainiao Network. All these subsidiaries are so well integrated that they make the Alibaba group a big ecosystem.
Alibaba Businesses & How Do They Make Money Alibaba.com
Alibaba.com is the world’s largest online wholesale marketplace for global trade. The website allows exporters in China as well as in other countries to connect with the buyers in over 200 countries. The buyers usually constitute trade agents, wholesalers, retailers, manufacturers, and SMEs engaged in the import and export business.
The company also offers other import /export supply chain services which include
- custom clearance,
- VAT refund,
- trade financing, and
- logistic services.
Sellers can list their products on the website for free. They also have the privilege to pay for certain extra features such as greater exposure on the site and unlimited product listings.
Alibaba.com is a marketplace where sellers and buyers meet. The website acts as an intermediary which charges commissions from the sellers of mainland China, Hongkong & Taiwan. However, the revenue isn’t earned just as commissions.
Alibaba offers two types of supplier membership:
Free Supplier Membership
Suppliers on Alibaba do not need to pay anything to list their goods on the online marketplace. They are free to display up to 50 Products online and to get business inquiries. Alibaba only makes money from them in the form of commissions if the money is paid through Ali Pay and the seller is from mainland China, Hongkong & Taiwan
Premium Gold Supplier Membership
There are limitations to being a free supplier member of Alibaba as these suppliers are not verified (reduces buyer’s trust) and are only able to display up to 50 products on the website. The suppliers from China can’t even list themselves as free suppliers and have to buy the premium gold supplier membership plan to start a business on Alibaba.com.
Alibaba Gold Supplier Membership is a premium membership where suppliers pay certain fees (few thousand dollars) to become a verified Gold Supplier.
All Gold Supplier members are required to fulfill necessary requirements for this highest level of membership. They are also required to undergo rigorous authentication and verification procedure by third-party credit reporting agencies.
Gold members are also charged commissions as a percentage of the transaction value of goods sold.
Taobao
Taobao means “search for treasure” in Chinese. It was launched on 10th May 2003 under the Alibaba group. This part of Alibaba’s business model facilitates (small) business to consumer and consumer to consumer trade by allowing small businesses and individual entrepreneurs to list their products on their website for sale.
Taobao, the biggest website of Alibaba, is so big and popular that it forced the market leader of the online marketplaces – eBay to shut its business in China in 2006. The website, today, is China’s largest shopping website. It is ranked the ninth most popular website in the world by Alexa.com. Taobao lists hundreds of millions of products and services from millions of sellers (400 million active users).
How does Taobao make money?
There is no transaction fee to conduct trade on Taobao and the merchants can join the site for free. The website functions just like Google which lists the result of the specific keywords and where merchants pay to stand out of all the other players through advertising and other marketing strategies. This was one of the reasons of Taobao’s high user base in China.
The site has a special rating system that reflects how many transactions each seller has successfully completed. Buyers can ask the merchants direct questions through Alibaba Group’s instant messenger software.
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