Alibaba Group Fostering an E-Commerce Ecosystem

Alibaba Group Fostering an e-commerce ecosystem

Question 1

Growth strategy and primary core business

1. “Global and horizontal” and “free-for-all” strategy

Alibaba promised to use free-for-all strategy for five years from 2003 to 2008. It did not derive revenues directly from transactions or membership fees, which could harm the membership base. In the first two years since its inception, Alibaba hardly made any profit from advertising. While its rivals were “whale-targeting”, Alibaba would like to increase its customer base and focus on “shrimps”.

Core business is its C2C platform, Taobao. Taobao used the same “free-for-all” strategy to combat eBay’s fee-based auction service; it also adopted the instant-messaging tool Taobao Wangwang to simulate face-to-face negotiations between sellers and buyers. Its market share reached 72.2% in 2005 and the
winner grabbed the expanding market. Meanwhile, e-payment tool Alipay also gained China’s highest customer satisfaction levels.

Effect: Alibaba hardly made any profit from advertising.9 Even though its advertising packages were priced significantly lower priced than those offered by the “whale-targeting” rivals, they were still unaffordable for the “shrimps.” Therefore, the company envisioned that it could generate revenue and profits from add-on features such as shipping, trade financing, on-site inspections, quality control services, and insurance. Ma intended to collect fees from advertising and promotions from premium members.

2. Monetization attempt and pay-for-performance advertising

On this stage, instead of taking a cut of every deal, Alibaba offered sellers the opportunity to bid on keywords to influence the order of their product listings, which were previously arranged chronologically. The first attempt failed in 2006 but the second attempted succeeded in 2008 after the “five-year free-for-all” promise ends. Taobao launched a B2C platform within the general C2C platform, which provided an application of customer discrimination strategy on the seller’s side.

Core business is B2C platform and Tmall. It eliminated equal opportunity for business sellers and consumer sellers. It imposed screening and set bars. It also started to collect annual fees, including advance deposit fees, technical service fees, and transaction commissions. Over the years, Taobao had developed many ways to monetize its huge Internet audience; most of these helped stores to launch marketing campaigns

Effect: As Taobao and Tmall’s customer base become larger and larger, people concerned about  the quality of  online foods and after-sale service. The lack of supervision mechanism also worried tist-time buyers who did not trust any form of unscreened online sellers. Therefore, Alibaba introduced B2C sellers on Taobao. This movement could mitigate the problem because these sellers were either manufacturers or big sellers who were willing to spend large amounts of money on building their online presence, rather than simply the ¥1,000 penalty reserve deposited by small sellers.