Alibaba Group (BABA) is a Chinese e-commerce company established in 1999. Its primary operations are founded on a service-based ecommerce model in which the company provides online platforms others can use to buy and sell goods, much like the eBay (EBAY) business model. Alibaba’s primary businesses in this area include a business-to-business ecommerce platform, Alibaba.com; a business-to-consumer (B2C) platform, Tmall.com; and a consumer-to-consumer platform, Taobao.com.
How Alibaba Makes Money
Alibaba generates revenue primarily from sales commissions, fulfillment services, advertising fees and other service-based fees, including those from its online payment platform, Alipay. The company also operates a cloud computing business, Aliyun, and other e-commerce businesses and websites.
Alibaba reported $39.9 billion in revenue for the fiscal year ended in March 2018, the most recent annual results available. The company’s domestic ecommerce operations accounted for 75.7% of revenue, while its international ecommerce operations contributed just 8.4%. The remaining 15.9% was generated by its cloud computing business, digital media and other operations.
Primary Competitor: JD.com
Established in 2004, JD.com (JD) is Alibaba’s primary competitor in the ecommerce space in mainland China. JD.com is a direct-sales retailer in the mold of Amazon.com (AMZN). In contrast to Alibaba’s ecommerce services model, JD.com warehouses, markets and ships merchandise directly to Chinese consumers through its national shipping network, which includes a last-mile delivery component throughout much of the nation.
According to preliminary financial results for the fiscal year ended in December 2017, JD.com had a net revenue of $51 billion on the year, primarily from domestic operations.
Although Alibaba and JD.com are founded on very different business models, they are fierce competitors in the Chinese ecommerce market, waging an increasingly public battle for online shoppers. With direct control over its supply chain, JD.com has developed a reputation for authentic products and reliable, fast shipping. Alibaba, on the other hand, has long battled an association with counterfeit goods among both domestic and international customers and brand owners. This contrast is worth noting as the two companies continue in the fight to become the go-to ecommerce outlet for international brands looking to enter the Chinese retail marketplace.
Other Domestic Competitors
Beyond JD.com, Alibaba faces numerous smaller national competitors and local upstarts across the Chinese landscape. According to the Chinese market research firm iResearch, Alibaba’s Tmall.com captured 59.6% of the B2C market in the first quarter of 2018, while JD.com managed 25.3%. Next in line, with just 5% of the market, was the ecommerce division of Suning, an influential household products retailer with thousands of retail stores across the country.
With 4.1% of the market, Vipshop Holdings (VIPS) is a specialty online discount retailer. The company partners with domestic and international brand owners to provide customers with special offers and discount opportunities on branded products. Capturing 1.3% of the Chinese B2C market, Gome Electrical Appliances is another brick-and-mortar retailer with a substantial e-commerce division. It operates more than 1,000 retail stores across China.
International Competitors: Amazon.com and eBay
While Alibaba has big ambitions globally, its international operations remain a relatively small piece of the pie at 8.4% of revenue. Most of this revenue is generated from wholesale business between suppliers in China and international business customers. As Alibaba continues its quest to connect buyers and sellers around the world, its competition with global ecommerce giants Amazon.com and eBay will continue to heat up in North America, Europe and beyond.