Alibaba Group in 1999 began as a way to connect Chinese manufacturers with buyers overseas. It has since grown to be one of the most successful companies on the planet. As of June 2017, its market cap had grown to $360 billion. Clearly, founder Jack Ma is doing something right. What can eCommerce learn from the Alibaba B2B business model? Plenty.
Alibaba and B2B eCommerce: Open Sesame
Alibaba was founded to open the door for small to medium-sized companies to connect with a global marketplace. The name was taken from the kind, smart businessman in One Thousand and One Nights and was meant to represent the opening of a magical portal. Magical it was. The Alibaba B2B eCommerce model has since grown to include business-to-consumer and consumer-to-consumer sales much like the Amazon marketplace. Alibaba is poised to be the only eCommerce ecosystem that could take on Amazon. Here’s why.
Successes and Innovations
From the beginning, Alibaba was an innovator. At the time of the 1999 launch, the internet was not widely known or available in China. So, Alibaba focused on B2B eCommerce. By bringing together manufacturers in China with a global marketplace, Alibaba built an ecosystem that automatically scaled with success. As more buyers came to Alibaba, more manufacturers arrived. More manufacturers offered a wider variety of products that attracted more buyers. The closed-loop system fed on its own success. Alibaba didn’t make money on the transaction, it made money on advertising. More traffic meant more advertising and more revenue.
Alibaba not only served global buyers, but it also attracted attention in China with consumers. Alibaba then served as a customer acquisition tool for Taobao, the second portal to be opened. A key decision in Alibaba history was to block search engines from crawling Taobao. This move trained the buyer to go directly to Taobao to perform a search. When Taobao generated sufficient traffic, it served as the launchpad for Tmall, the first member of the group with a pay-to-play model.
Founder Jack Ma attributes Alibaba’s success to continual focus on the customer. “These days, many companies’ models are not “B2B” – they are “B-whatever-the-analysts-want-you-2-B.” If you stay focused on members then you will succeed in the long run.” Click to Tweet.
Different Products for Different Markets
One way the Alibaba Group stays focused on members is by providing three distinct portals. Alibaba is for B2B sales, Taobao is for small business-to-consumer and consumer-to-consumer sales (think eBay), and Tmall is for B2C sales. Alibaba understands that one size does not fit all and when you try to please everyone you please no one. Each portal is essentially providing the exact same product, but the product has been tailored to the needs of the specific market.
Taobao is for small companies. It doesn’t make money on transactions, it makes money on advertising. Taobao doesn’t collect a fee per transaction like eBay or Amazon. Sellers on Taobao buy ads to make their products more visible on the portal. And there are many sellers on Taobao because it attracts a high volume of buyers. Taobao blocks Baidu (China’s leading search engine) so shoppers must go directly to the site to search for items.
Tmall is for large brands like Nike or Ray-Ban. The entry fee is $25,000 and a per transaction fee is collected. The entry fee may seem large, but the profits to be made are huge. Consumers here are guaranteed to get authentic branded items and not bootleg imitations. This is very important to Chinese consumers.
Three markets; essentially one product (software) tailored to the needs of the customer. What B2B eCommerce should take away from this example is that small tweaks in how a product is delivered can be all that is necessary to tailor the same product for a different market. You can make slight changes to your products or offer your products through different portals and deliver exactly what the buyer wants. For example, a bedding manufacturer could produce white linens for the hospitality market and dye those same linens for the retail market. The linens could be offered through two different sites powered by the same B2B eCommerce platform backend such as OroCommerce.
My Customer is Not My Competitor
Another reason Alibaba has been so successful is that it does not compete with its customers. All throughout the Alibaba history, it has never deviated from this philosophy. Alibaba is laser-focused on providing the best possible experience for its customers, not challenging them for the same business. This philosophy should have Amazon shaking in its boots.
Alibaba is perfectly poised to gather a wealth of data from the flood of transactions processed each day. This data could be used to determine which products are best sellers and Alibaba could use this intelligence to enter the market selling this product. This is exactly what Amazon does, but it is not consistent with the Alibaba B2B business model. Instead, Alibaba feeds data to Alimama. Alimama is part of the Alibaba family and it happens to be the largest open marketing platform in China. Amazon’s model can alienate its business customers and requires investments in warehousing and logistics. It may produce more revenue but not more profit. Alibaba’s model supports its business customers and because it is software-driven it requires no warehousing or logistics. Not only does the Alibaba model generate more revenue also it generates considerably more profit.
The Alibaba B2B eCommerce model has been successful for several reasons:
- It scales automatically with success.
- It focuses on customer needs at all times.
- It provides essentially the same product tailored to different markets.
- It succeeds when the customer succeeds.
- It never competes with the customer.
These are valuable lessons for any B2B eCommerce business.