In this series, we explore one of China's most iconic internet companies that captures the country's rapid economic boom during the 2000s - Alibaba Group (Chinese: 阿里巴巴集团). Since its founding in 1999, Alibaba has grown to become the largest retail commerce business in the world in terms of gross merchandise value (GMV), with a GMV of RMB7.5 trillion generated from its China retail commerce marketplaces and a total GMV of RMB8.12 trillion generated from the Alibaba ecosystem as a whole during fiscal 2021.
While Alibaba is widely known for its success in Chinese retail commerce, the Group's ecosystem also consists of a wholesale business segment (which is what Alibaba started with initially), international e-commerce platforms outside China (i.e. southeast Asia's Lazada, south Asia's Daraz, and Turkey's Trendyol), an industry dominant cloud computing business, as well as acquired digital media, entertainment, and other initiatives. In this article, we introduce the components of the Alibaba ecosystem, and examine the constituents of the Group's colossal commerce empire. Other business segments are explored in detail in Part 2.
Alibaba Series Roadmap
Note: Alibaba Group's fiscal year ends in March, so "fiscal year" in our Alibaba series refers to the year ended March 31st.
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Corporate History
Undoubtedly, Alibaba's history is lengthy and detail-heavy due to the evolution of its many business units. In this section, we focus on summarising the events surrounding the Group's key businesses.
The company Alibaba was founded as a wholesale commerce platform in 1999 for Chinese wholesalers to sell to customers domestically and abroad, while Taobao was launched four years later as an online retail marketplace in 2003. To support the company's e-commerce business and facilitate transactions by bridging the trust gap between buyers and sellers, Alipay was created as an online payment platform with escrow functionalities in 2004.
As China's economy boomed in the early 2000s, the country experienced a surge in demand for higher-quality, premium products. To meet this demand, Alibaba launched T-Mall in 2008, while the famous 11.11 sale was pioneered and first hosted by T-Mall in 2009. The same year also saw the inception of Alibaba's cloud computing business, although Alibaba Cloud did not gain much traction until later on as the cloud computing industry grew in importance.
In 2011, Alipay was divested and eventually developed to become a diversified digital finance platform that was renamed Ant Financial in 2014. T-Mall was also expanded around the same time to include an international component, T-Mall Global, where brands from around the world could now reach out and enter the Chinese market. Alibaba went public on the New York Stock Exchange (NYSE: BABA) the same year.
2016 marks the start of Alibaba's foreign ventures, with the acquisition of southeast Asian
e-commerce company Lazada, followed by the acquisitions of south Asia's Daraz and Turkey's Trendyol platforms in 2018. In 2019, Alibaba had a secondary listing on the Hong Kong Stock Exchange (HKEX: 9988).
Ant Financial, now known as Ant Group, was scheduled to go public on the Hong Kong Stock Exchange and the Shanghai Stock Exchange's STAR Market in November 2020. However, the IPO was called off as a number of new online micro-lending regulations were launched in China (see our summary and analysis here).
The Alibaba Ecosystem
We now turn to a cross-section of the Alibaba ecosystem. Although Alibaba is commonly viewed as just an e-commerce company, and e-commerce does form the core of the Group's business, we think that an understanding of Alibaba as an ecosystem of companies (as the Group also describes itself) is more robust and accurate.
The Alibaba ecosystem consists of a domestic and global core commerce business, two supplementary business arms (i.e. cloud computing, and digital media and entertainment), an experimental business segment (i.e. innovation initiatives), and spun-off financial services associate Ant Group, which Alibaba has a 33% stake in.
We further discuss Ant Group in our Ant Group series.
*note: as of April 2021, DingTalk was reclassified from the Innovation Initiatives segment to the Cloud Computing segment
We construct a flowchart explaining the structure of the Alibaba ecosystem as follows:
In the section below, we focus on the core commerce segment and explore its constituents in detail.
Core Commerce Segment
Commerce lies at the core of Alibaba Group and accounts for 87% of the Group's revenue in the year ended 2021. The core commerce segment comprises of both retail and wholesale commerce in the domestic Chinese market, at the cross-border level between China and other countries, as well as in the global (i.e. ex-China) markets.
China Retail Commerce
Domestic retail commerce accounts for the bulk of Alibaba's commerce portfolio, with China retail contributing to 66% of the Group's total revenue in fiscal 2021 (see specific financial details in Part 3). We walk through the history and development of Alibaba's retail commerce portfolio below.
2003 - 2010: The Launch of Retail E-Commerce
The Taobao and T-Mall marketplaces are the two earliest launched platforms that form the crux of Alibaba's retail e-commerce business.
Taobao (Chinese: 淘宝) is a marketplace launched in 2003 that hosts products from individual merchants and small businesses. Taobao also serves as a "top-level traffic funnel" that directs users to Alibaba's various e-commerce marketplaces and other features within the Alibaba ecosystem. For example, users can access T-Mall products and access livestream features through the Taobao application.
T-Mall (Chinese: 天猫) is a marketplace launched in 2008 with a diverse range of premium product offerings from nationally and globally (as part of T-Mall Global, discussed further below) renowned brands and established online merchant stores with a strong track record. T-Mall also pioneered China's famous 11.11 Singles' Day sale in 2009, which was later extended in 2020 to become an 11-day sales campaign spanning November 1st to November 11th with a total GMV generated of RMB498.2 billion.
As of March 2021, there were more than 250,000 brands and merchants listed on T-Mall, with everyday items, fast-moving consumer goods, apparel, and consumer electronics being the most popular product categories for buyers. T-Mall was also the largest third-party e-commerce platform in the world in terms of gross merchandise value during the past fiscal year.
2011 - 2015: Expanding the Scope
At the start of the following decade, Alibaba expanded the T-Mall platform to include an online supermarket (T-Mall Mart) and a pharmaceutical sales platform (via Alibaba Health). The Group also launched a separate platform for buyers and sellers of niche products, named Idle Fish.
T-Mall Mart (Chinese: 天猫超市) is T-Mall's online supermarket established in 2011 where consumers can order daily necessities, fast-moving consumer goods, and selected general merchandise from the Taobao application with same-day or next-day delivery.
Alibaba Health (Chinese: 阿里健康) is a separately listed entity on the Hong Kong Stock Exchange (HKEX: 0241) primarily engaged in the sale of medical products via T-Mall's pharmaceutical sales platform starting in 2015. Direct pharmaceutical sales on the T-Mall platform accounted for 87% of Alibaba Health's total revenue in the six months ended September 2021, followed by commission revenue earned from third-party pharmaceutical merchants on the platform (10.8%), and the selling of various healthcare packages associated with external medical services providers (2.4%).
Idle Fish (Chinese: 闲鱼) is a consumer-to-consumer (C2C) marketplace launched in 2014 for niche products where consumers can find a variety of second-hand, recycled, refurbished, and for-rent products.
2016 - 2017: Upgrading Features
To boost sales along with the rise of social media, Alibaba launched a livestreaming feature and a short video feature for merchants and social influencers to promote and share their products.
Taobao Live (Chinese: 淘宝直播) is a feature launched in 2016 where merchants and social influencers can use livestreaming to promote their products and interact with consumers.
Taobao Short Video (Chinese: 点淘) is a feature launched in 2017 where merchants and social influencers can create short videos to advertise their products (we discuss the emergence of short video e-commerce in our Pinduoduo article here).
2016 - 2020: Offline and New Retail Commerce
As the Chinese e-commerce market gradually saturated, Alibaba turned to offline and what the company calls "new retail" as additional growth strategies. New retail is defined by Alibaba as the integration of online and offline, discussed further in Part 4.
Sun Art (Chinese: 永辉超市) is an offline national retailer with 491 hypermarkets, six superstores, and 68 mini-stores covering 236 different cities in 29 provincial-level administrative regions across China as of September 2021. Sun Art is publicly listed on the Hong Kong Stock Exchange (HKEX: 6808), with Alibaba acquiring a 36% stake in the company in 2017 and subsequently increasing to a 72% controlling stake in 2020.
Freshippo (Hema) (Chinese: 盒马鲜生) is a premium supermarket launched by Alibaba in 2016 that offers customers a high-tech shopping experience including digital price tags, scan-to-read product information from QR codes, AI-based product recommendations, and a facial recognition payment system. As part of Alibaba's new retail strategy, Hema supermarkets also serve as fulfillment centres for on-demand delivery orders where consumers can have premium produce delivered to their door in as short a time as 30 minutes depending on the delivery radius. Currently, there are almost 300 Hema stores throughout China.
2020 - Present: Expanding to the Lower Income Markets
While Alibaba and competitor JD originally focused on catering to residents of first and second tier cities who are typically in the middle class or above, the rapid rise of Pinduoduo over the past six years has brought to light the monetization potential from targeting China's forgotten consumers in lower tier cities and rural areas. In response to the relative success of Pinduoduo thus far, Alibaba launched two business initiatives that replicate Pinduoduo's core business model.
Taobao Deals (Chinese: 淘特) is a marketplace founded in 2020 that offers consumers value-for-money products by letting manufacturers and merchants produce and sell directly to consumers rather than via third-party intermediaries. The number of mobile active users on Taobao Deals reached 130 million in March 2021, while the number of annual active consumers reached 150 million the same fiscal year.
(As a benchmark, the Pinduoduo platform has 823.8 million active buyers as of Q1 2021)
Note: the difference between "active users" versus "active consumers/buyers" is that the former refers to users who have visited an e-commerce platform regardless of whether or not they actually made a purchase on the platform, while the latter refers specifically to those users who have made purchases on the platform.
Taobao Grocery (Chinese: 淘宝买菜) is Alibaba's community group buying program launched in January 2021, where small sites are set up in each community for local residents to order fresh produce and groceries online for next-day pickup at the designated sites. The concept of community group buying was pioneered by Pinduoduo, as discussed in our Pinduoduo series here.
Cross-Border Retail Commerce
Alibaba's cross-border retail businesses can be classified as either export-oriented (i.e. selling Chinese-manufactured goods to the rest of the world) or import-oriented (i.e. selling foreign goods to consumers based in China).
Export-Oriented Retail Commerce
Alibaba's export commerce business is represented by AliExpress (Chinese: 全球速卖通), an international retail marketplace that allows consumers to buy directly from manufacturers and distributors in China and across the globe.
Import-Oriented Retail Commerce
Alibaba's import-oriented commerce business comprises of T-Mall Global and Kaola Global.
T-Mall Global (Chinese: 天猫国际) is an extension of the T-Mall platform launched in 2014 that allows overseas brands and retailers to engage with and sell to consumers in China. T-Mall Global is also the largest import e-commerce platform in China based on gross merchandise value during fiscal 2021.
Kaola Global (Chinese: 考拉海购) is an import e-commerce platform built by NetEase and acquired by Alibaba in 2019, presumably as part of an effort to expand the latter's market share. The Kaola platform provides broadened product offerings through what seems to be (based on the platform's website) first-party selling by Alibaba (as opposed to third-party selling on T-Mall Global).
Global Retail Commerce
Alibaba's global retail commerce sub-segment consists of three businesses across Turkey, and the south Asian and southeast Asian regions.
Lazada, a regional e-commerce platform based in southeast Asia that was acquired by Alibaba in 2016 and has more than 100 million annual active consumers in fiscal 2021.
Trendyol is a Turkish e-commerce platform that was acquired by Alibaba in 2018.
Daraz is a regional e-commerce platform based in south Asia that was acquired by Alibaba in 2018.
During the year ended March 2021, Alibaba served 240 million annual active consumers located outside of China through its export-oriented AliExpress business and international platforms Lazada, Trendyol, and Daraz. However, cross-border and global retail only accounted for 5% of the Group's total revenue in fiscal 2021.
China Wholesale Commerce
Alibaba's domestically-oriented wholesale commerce business comprises of 1688, a platform that connects manufacturers and wholesale sellers with wholesale buyers, and Lingshoutong, a platform that focuses on connecting the manufacturers and distributors of fast-moving consumer goods to small retailers such as convenience store owners.
1688 is a platform that connects manufacturers and wholesale sellers to wholesale buyers across a wide range of product categories. Sellers can purchase a membership program with an annual subscription fee to list items on the 1688 website, in addition to paying for additional value-added services such as premium data analytics, upgraded storefront management tools, and customer management services. As of March 2021, there were 990,000 paying members on the 1688 platform, while value-added services contributed to over 50% of the platform's revenue during the 2021 fiscal year.
Lingshoutong (Chinese: 零售通) is a platform that connects the manufacturers and distributors of fast-moving consumer goods directly to small retailers. Specifically, the Lingshoutong platform is analogous to Taobao marketplace but is targeted towards local convenience stores rather than retail consumers. Lingshoutong functions as an application for such small retailers to make wholesale purchases of items that they would not normally be able to obtain through their regular distributors. This in turn allows the small retailers to offer a broader selection of products to end consumers, who also have the option of ordering certain grocery products for pick-up at participating Lingshoutong stores as part of Alibaba's new retail strategy.
Cross-Border and Global Wholesale Commerce
Alibaba's cross-border and global wholesale commerce business is conducted through Alibaba.com (Chinese: 阿里巴巴), a marketplace that connects Chinese and overseas suppliers with wholesale buyers who are typically trade agents, wholesalers, retailers, manufacturers, and small- and medium-sized enterprises engaged in the import and export business. Similarly to1688, the Alibaba.com platform has a paid membership program for sellers as well as the additional option to purchase value-added services to manage product listings and facilitate transaction processes (e.g. customs clearance services). As of March 2021, there were over 230,000 seller members on the Alibaba.com platform, while value-added services contributed to more than half of Alibaba.com's total revenue.
Although Alibaba was initially founded as a wholesale commerce business with the launch of domestically-oriented 1688 and cross-border/global Alibaba.com in 1999, China wholesale commerce and cross-border/global wholesale commerce each accounted for only 2% of the Group's total revenue in fiscal 2021.
Marketing and Monetization Platform
Alimama (Chinese: 阿里妈妈) is Alibaba Group's monetization platform that matches the marketing demands of merchants, brands and retailers on all of the platforms in the Alibaba ecosystem with the media resources on Alibaba’s own platforms and third-party properties. For example, sellers can choose from various marketing options such as keyword search rankings, social feed marketing that targets specific groups of consumers, or tailored individual campaigns.
Logistics
To supplement the company's commerce business, Alibaba also has a logistics arm that comprises of integrated logistics services and supply chain management solutions provider Cainiao Network, and on-demand local delivery system Fengniao.
Cainiao Network (Chinese: 菜鸟网络) offers primarily domestic but also international integrated logistics services and supply chain management solutions. Cainiao was founded in 2013 as a joint venture between numerous delivery courier companies and Alibaba as the biggest shareholder. Subsequently, Alibaba increased its stake to a controlling 51% in 2017.
On the consumer side, Cainiao's functionalities are embedded in the Taobao application so that buyers can easily return products in one click without having to worry about sourcing a courier company themselves. Through Cainiao, Alibaba takes care of finding a delivery company that can meet the consumer's desired parcel pick-up time, and also provides real-time parcel tracking information for the buyer via the Cainiao Guoguo platform. Furthermore, consumers can also pick up their parcels at designated Cainiao Post offices, which function as a network of local post offices for buyers to pick up their packages at the last mile of the delivery process.
On the merchant side, Cainiao utilizes big data to facilitate the digitalization of the warehousing and delivery process in order to improve efficiency across the logistics value chain. Cainiao manages a network of warehouses in strategic locations where merchants based in more remote areas can have their products stored in Cainiao's warehouses in order to ensure more timely delivery to end consumers. This large warehouse network also brings useful analytical insights that can help merchants to manage their inventory more efficiently.
From the perspective of delivery companies, Cainiao's aggregation of a large volume of orders means that courier delivery routes can be optimized by delegating orders along the same routes to the same company. As of March 2021, Cainiao Network partners with over 270 logistics partners to provide fulfilment services globally, while the average daily cross-border package volume for the month exceeded five million.
Note: we emphasize that unlike competitor JD, which has its own warehouse and logistics delivery system (see here), Cainiao does not engage in physical delivery activity.
Fengniao Logistics (Chinese: 蜂鸟即配) is Alibaba's local delivery network to deliver food, groceries, as well as a growing number of non-food items. Fengniao was previously part of the Ele.me business (discussed below) but was subsequently recognized as a separate business in 2019.
In fiscal 2021, logistics services contributed to 5% of Alibaba Group's total revenue.
Consumer Services
Alibaba's commerce segment also includes several "consumer services", with the Ele.me delivery platform being the most prominent.
Ele.me (Chinese: 饿了么) is a delivery platform Alibaba acquired from Baidu in 2018. The platform allows consumers to order food and beverages, groceries, fast-moving consumer goods, flowers and pharmaceutical products. Ele.me is China's second largest food delivery platform second to dominant player Meituan.
Koubei (Chinese: 口碑) is a restaurant and local services guide platform founded by Alibaba in 2017. On the merchant side, merchants have access to marketing opportunities to promote their stores and services, digital operation capabilities (e.g. inputting the business's operating hours and address), and business analytical tools. On the consumer side, consumers can use the platform to discover restaurants and local services.
Fliggy (Chinese: 飞猪) is an online travel booking platform launched by Alibaba in 2014 which provides comprehensive reservation (e.g. transportation tickets, accommodation, and car rental) and fulfilment services (e.g. package and local attraction tours) to meet consumer's travel needs.
Consumer services contributed to 5% of Alibaba's total revenue in fiscal 2021.
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