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SHENYANG AEROSPACE UNIVERSITY        E-Commerce




 “AnAlysis on the
 Business Model of
   AlibAbA.com”

                                          rOni BHOWMIK

                                               Master’s Program

Department of Economics & Management



          SHENYANG AEROSPACE UNIVERSITY

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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


                             TABLE OF CONTENTS

                         Title                                     Page No.

                      Introduction                                   05

    Alibaba Group Companies and Affiliated Entities                  06

                 Development History                                 08

                        Vision                                       09

                        Mission                                      09

                        Values                                       09

              Alibaba Stock Performance                              09

                    SWOT Analysis                                    11

                  Macro environment                                  12

                 Competitors Analysis                                13

                 Five Forces Analysis                                15

                    Business Model                                   17

          Business to Business Models (B2B)                          20

                    Revenue Model                                    21

                  Market Opportunity                                 25

                    Market Strategy                                  29

              B2B Electronic Exchanges:                              31

Value Propositions, Chains, and Supply Chains of Alibaba             41

             Transaction Process of Alibaba                          50
             Impacts of Electronic Business
                                                                     51
                      Conclusion
                                                                     55

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SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


Introduction:

Alibaba Group (simplified Chinese: 阿里巴巴集团; traditional Chinese: 阿里巴巴集團;

pinyin:Ālǐbābā Jítuán) is a privately owned Hangzhou-based family of Internet-based
businesses that includes online marketplaces that facilitate business-to-business international
and domestic China trade, retail and payment platforms, shopping search engine and data-
centric cloud computing services.

Alibaba Group and its affiliated entities now have more than 22,000 employees across some
70 cities and regions, including China, Hong Kong, India, Japan, Korea, Taiwan, the United
Kingdom, and the United States.

Jack Ma, the founder of Alibaba, is reportedly the first to have launched a commercial
website in China.Founded in Hangzhou in eastern China, Alibaba.com has four marketplaces.
The company‘s English language international marketplace (www.alibaba.com) serves to
bring together importers and exporters from more than 240 countries and regions. The China
marketplace (www.1688.com) is developed for domestic business-to-business trade in China.
It also has a Japanese marketplace (www.alibaba.co.jp), which is focused on facilitating trade
to and from Japan through an associated company. In addition, Alibaba.com offers a
transaction-based wholesale platform, AliExpress (www.aliexpress.com), which allows
smaller buyers to buy small quantities of goods at wholesale prices.

The company claims that together these marketplaces have more than 65 million registered
users. Alibaba.com was listed in the Hong Kong Stock Exchange at the IPO price of
HK$13.5 on 6 November 2007, raising HK$13.1 billion (US$1.7 billion) in the second-
largest initial public offering sale of an Internet company after Google Inc.

In September 1995 Chinapages.com, a directory of companies, goes online and within ten
years Ma grows it in one of the most successful Internet companies of China.

The initial business model of Alibaba was simple; facilitate a 24/7 meeting platform for
suppliers and buyers around the world. From the start Alibaba did not just connect Chinese
suppliers with international buyers, but it had the goal of connecting all importers and
exporters around the world to each other. Although other B2B websites have always said



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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


―You cannot have a global company out of China, it makes no sense.‖ From the very
beginning Alibaba was ―the first global Internet Company emerging from China.‖

Unlike most other Internet companies, language was no barrier for Alibaba. Its membership
base has always been communicating in English even before Alibaba arrived on the scene, so
its non-English members were already used to communicating in a different language. Porter
points out: ―We are lucky that our market is country independent, it is inherently global.‖
Alibaba basically functions as a matchmaker and provides a cheap and efficient platform
where sellers from all over the world in practise mostly China can find appropriate foreign
buyers and visa versa. In a 2007 interview for Radio86, Porter comments on the growth of
Alibaba: ―Alibaba really just getting started‖ and ―given that the internet is growing and
international trade increasing and more and more people are coming online, there’s plenty of
room to grow for the next fifteen to twenty years.‖




Alibaba Group Companies and Affiliated Entities:

Alibaba.com

Founded in Hangzhou in eastern China, Alibaba.com has four marketplaces. The company‘s
English language international marketplace (www.alibaba.com) serves to bring together
importers and exporters from more than 240 countries and regions. The China marketplace
(www.1688.com) is developed for domestic business-to-business trade in China. It also has a
Japanese marketplace (www.alibaba.co.jp), which is focused on facilitating trade to and from
Japan through an associated company. In addition, Alibaba.com offers a transaction-based

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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


wholesale platform, AliExpress (www.aliexpress.com), which allows smaller buyers to buy
small quantities of goods at wholesale prices.

Taobao Marketplace

Taobao Marketplace (www.taobao.com), previously known as Taobao, is the biggest C2C
online shopping platform in China. Founded in 2003, it provides a wide variety of product
offerings. The company claims that it served more than 370 million registered users as of the
end of 2010.

Taobao Mall

Taobao Mall (www.tmall.com) was introduced in April 2008 as a dedicated B2C platform to
complement Taobao‘s C2C marketplace and became an independent business in June 2011. It
is now a major online shopping destination for quality, brand name goods in China.

eTao

eTao was beta-launched by Taobao in October 2010 as an independent search engine and
became an independent business in June 2011. It is the most comprehensive shopping search
engine in China, covering product results from all major Chinese online shopping platforms.



Alipay

Launched in 2004, Alipay (www.alipay.com) is a third-party online payment platform.
According to analyst research report, Alipay has the biggest market share in China. The
company claims it had more than 550 million registered users as of the end of 2010.In China,
Alipay partners with more than 65 financial institutions including Visa and MasterCard to
provide payment solutions for Taobao as well as more than 500,000 Chinese businesses.
Internationally, Alipay helps more than 300 merchants and sellers worldwide sell directly to
consumers in China.

Alibaba Cloud Computing

Alibaba Cloud Computing aims to build an advanced data-centric cloud computing service
platform, including e-commerce data mining, high-speed massive e-commerce data

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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


processing, and as well as data customization. It was established in September 2009 in
conjunction with the 10th anniversary of Alibaba Group.

China Yahoo!

In October 2005, Alibaba Group formed a strategic partnership with Yahoo! Inc and acquired
China Yahoo! (www.yahoo.com.cn), which is a Chinese portal with a focus on essential
Internet services including news, email and search.


Development History:

    In December 1998, Jack Ma and other 17 founders released their first online
       marketplace named "Alibaba Online".
    From 1999 to 2000, Alibaba Group raised a total of US$25 million from SoftBank,
       Goldman Sachs, Fidelity and some other institutions.
    In December 2001, Alibaba.com achieved profitability.
    In May 2003, Taobao was founded as a consumer e-commerce platform.
    In December 2004, Alipay became an independent business.
    In October 2005, Alibaba Group took over the operation of China Yahoo! as part of
       its strategic partnership with Yahoo! Inc.
    In November, 2007, Alibaba.com successfully listed on the Hong Kong Stock
       Exchange.
    In April 2008, Taobao established Taobao Mall, a dedicated B2C platform, to
       complement its C2C marketplace.
    In September 2008, Alibaba Group R&D Institute was established.
    In September 2009, Alibaba Group established Alibaba Cloud Computing in
       conjunction with its 10-year anniversary.
    In May 2010, Alibaba Group announced a plan to earmark 0.3% of its annual
       revenues to fund environmental protection initiatives.
    In October 2010, Taobao beta-launched eTao as an independent shopping search
       engine.
    In June 2011, Alibaba Group reorganized Taobao into three separate companies:
       Taobao Marketplace, Taobao Mall and eTao.




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SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


Vision:
       To last 102 years
       To be one of the world‘s top 10 internet sites
       To be an essential partner for all business people


Mission:
       To make doing business easy


Values:


Customer comes first              Customers are everything

Teamwork and Cooperation          Team interests are always ahead of individual interests

Embrace changes                   Go beyond yourself and welcome changes

Integrity                         Honest and upright, honoring commitments

Passion                           Never give up and stay optimistic

Honoring your job                 Perform the extraordinary with a professional attitude and
                                  an ordinary mind




Alibaba Stock Performance:

Alibaba.com Limited operates as a business-to-business e-commerce company in the
People‘s Republic of China and internationally. It provides software, technology, and other
services connecting small and medium-sized buyers and suppliers, as well as offers Internet
content, advertising services, business management software, and Internet infrastructure
services. The company offers platforms for international, domestic, and retail trade. Its
products and services also include online payment platform, instant messenger development
and maintenance services, and keywords on Web sites for the promotion of its marketplaces.




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SHENYANG AEROSPACE UNIVERSITY                            E-Commerce




The company‘s listings displayed on its online marketplaces cover a range of products and
services in various industries, including agriculture, apparel, automobile, business services,
chemicals, computer hardware and software, construction and real estate, electronic
components and supplies, energy, excess inventory, fashion accessories, food and beverage,
furniture, and gifts and crafts. Its listings also cover products in industries, such as hardware,
health and medical, home and garden, home appliances, lights and lighting, luggage, bags and
cases, minerals and metallurgy, mechanical parts and fabrication services, office and school
supplies, packaging and printing, rubber and plastics, security and protection, shoes and
accessories, sports and entertainment, telecommunications, textiles and leather products,
timepieces, jewelry and eyewear, toys, and transportation.

        Open                    $11.36                Previous Close               $11.38
      Day High                  $11.44                   Day Low                   $11.26
   52 Week High           (02/17/11) - $17.70         52 Week Low           (06/20/11) - $11.02
     Market Cap                  57.2B              Average Volume 10              8.2M
                                                             D
      EPS TTM                    $0.29              Shares Out Standing             5.1B
       Ex-Date                 12/23/10                  P/E TTM                   32.2x
      Dividend                     --                 Dividend Yield               1.95%



                    LAST$11.30 HKDCHANGE TODAY-0.08-0.70%VOLUME5.5M

                               1688: HK Historical Stock Quote

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SHENYANG AEROSPACE UNIVERSITY                           E-Commerce




                            1688: HK Advanced Stock Chart



SWOT Analysis:


Strength(S)
      The site has a team of three (Britain, China, Japan), to include broader customer base,
      and conducive to information exchange, an increase of the amount of information, but
      conducive to building momentum to expand its influence.
      Alibaba increases segmentation of information and comprehensive, so that more
      targeted and effective.
      The world's largest Chinese Forum –―以商会友‖, has created a great convenience for
      traders around the globe to exchange, and also closer to the distance between the
      various traders, but also to enhance the visibility of the website.
      A large number of members, to enhance the visibility of the brand so that the set of
      information Alibaba increasing coverage, the advent of attracting business.
      To open the "Golden supplier", a web-based transactions to ensure security.


Weaknesses (W)
      Alibaba's Web site model is an intermediary form, and replicability of this model,
      which other competitors from entering the industry to provide a sample; it increased
      by competitors for itself.
      2.Alibaba membership system to increase the fees in the process of transformation,
      will lead to the loss of existing members, will create the opportunities for competitors,
      the development of the site will be difficult.
      Alibaba's business platform large and cluttered that it had 27 industries, 800 - 900
      categories of industries as a business platform to optimize the greatest obstacles.


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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


Opportunities (O)
       In China, several large banks and credit companies to participate fully in the field of
       e-commerce, which the depth of the development of e-commerce has created
       opportunities.
       China is now speeding up the development of e-commerce legal provisions, and
       actively creates a safe and regulated business environment.
       China's existing small and medium enterprises cannot afford to start their own b2b
       business website, so that online intermediaries such as the popular Alibaba their
       welcome.
       The Internet continuous development and improvement, the popularization of
       computers, there will be more companies have joined the online business.


Threats (T)
       Alibaba profits mainly in China, but China b2b business environment has constrained
       the further development of Alibaba, such as a sound law, loopholes in online payment
       security, not so good infrastructure in some cities, which will hold back the
       development of Alibaba.
       B2B business site model, not only in the last few years with the rapid development of
       the world, and gradually formed a trend - e-business alliance - that is, the trend of
       mergers and cooperation, which will lead to more competitive.




Macro environment:
According to the latest iResearch released "in 2007 China's small and medium-sized B2B e-
commerce study," data show that in 2006 the total number of Chinese small and medium-
sized 31518000, in the state system conditions gradually improved, well-developed macro-
economic environment, China has become the world's such as a manufacturing center, driven
by favorable factors, Ereli next 5 years will be for the expansion of China's small and
medium-sized, small and medium enterprises will remain 7% -8% annual growth rate, the
total number of SMEs in 2012 will reach 50 million.




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SHENYANG AEROSPACE UNIVERSITY                            E-Commerce




      The number of SMEs (ten thousand)       the growth rate



Competitors Analysis:




Global Sources
Global Sources is a Hong-Kong based business-to-business (B2B) Media Company that
facilitates trade between Greater China and the world. It provides sourcing information to
volume buyers and integrated marketing services to suppliers. A wide range of media is used
to connect suppliers and buyers worldwide – online portals, magazines, research reports, and
trade fairs.
Global Sources advantage-
        The promotion of more channels and market research reports and organize their own
        event.
        Promote experienced Global Sources has been done for 38 years, is the old platform
        to promote and experience.
        Has its own fixed base of buyers, manufacturers


Global Sources disadvantage-
        Less well-known domestic brands than Alibaba.
        Less number of suppliers than Alibaba groups.
        Publicity and advertising no better than Alibaba channels.
        If the three channels at the same time promoting the relatively high cost.
        Alibaba positioned to service small and medium-sized, Global Sources in the large
        enterprises (SMEs are more).


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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


       Apart from the "world managers" journal, other magazine subscription needs to
       reduce the number of the issue. With the rise of e-commerce, CD-ROM and paid
       magazines will be gradually out the stage of history.




Made-in-China.com
China manufacturer directory and China products catalog, providing trade leads among China
factory, manufacturers, suppliers, and global buyers
Made-in-China.com advantage-
       It is under the Focus Technology Co. ltd, has financial strength.
       English name is made-in-china, a good Web site optimization, to some extent the
       search engine to facilitate search.
       The prices are cheaper.
       The use of agent systems. Rapid accumulation of short-term source of funds to
       expand the business scale.


Made-in-China.com disadvantage-
       Less well-known domestic brands than Alibaba.
       Less number of suppliers than Alibaba groups.
       Publicity and advertising no better than Alibaba channels.
       Agents management uneven, and sometimes have a negative impact on Made-in
       China.com‘s services.




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SHENYANG AEROSPACE UNIVERSITY                            E-Commerce


Five Forces Analysis:


Barriers to Entry
High returns will draw firms. This results in many new entrants, which will effectively
decrease profitability. With the development of B2B market and long time high profit of
Alibaba.com. There are more and more new websites try to copy the business mode of
Alibaba.com. The most common way to entry B2B e-market is try to position its target
market to a single industry. For example, in the recently 2 years, finechemical.com for the
chemical products and Textilehome.com for the textiles and so on. Although these firms
don‘t have the broad market as Alibaba.com, in another word, they share the special market
of Alibaba.com because they are more professional and targeted.


Buyer Bargaining Power
The buyer bargaining power is the ability of customers to put the firm under pressure and it
also affects the customer's sensitivity to price changes. For Alibaba.com, the customers are
generally the medium and small-size firms which don‘t have the ability or don‘t need to build
up their own websites. To negotiate with the biggest B2B e-platform, these firms don‘t have
too many advantages to fight for lower cost and nearly all the standards are decided by the
Alibaba.com. But with the development of B2B websites, the customers may have the
opportunity to choose the other platform and that will also be the opportunity to negotiate
with Alibaba.com for more rights.


Supplier Bargaining Power
Suppliers of raw materials, components, labor, and services (such as expertise) to the firm
can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g.
charge excessively high prices for unique resources. But for Alibaba.com, there are seldom
suppliers of raw materials, components and labor because it is not a manufacture firm but an
e-service one. The largest cost for this firm is cost for selling, so the most important suppliers
are the firms supply the advertise for Alibaba.com, such as the famous magazines,
newspapers and websites.




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SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


Availability of Substitutes
The existence of close substitute products increases the propensity of customers to switch to
alternatives in response to price increases. The most important substitute service is the self-
websites of large companies. For the customers which prefer to make business with large
companies, they will not turn to Alibaba.com but directly contact with the companies
themselves.




Competition
For most industries, this is the major determinant of the competitiveness of the
industry.Sometimes rivals compete aggressively and sometimes rivals compete in non-price
dimensions such as innovation, marketing, etc. The most competitive firms of Alibaba.com
are the search-websites such as Baidu.com and Google.com. The potential customers may
search the results just through these free and simpler websites but not through the B2B e-
platform, which will lead Alibaba.com to lose lots of profit.




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SHENYANG AEROSPACE UNIVERSITY        E-Commerce


Business Model:




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SHENYANG AEROSPACE UNIVERSITY                            E-Commerce


Business Model:

Business Model describes details of planned activities in business that involve with purpose,
offerings, strategies, infrastructure, organization structures, trading practices, operational
processes, and policies designed to result in profits in a marketplace.

Business model is very important because business model is a main component of business
plan and every good business must have a business model. More than that, for independent
study and most of case study, student has to be able to identify the components of business
model.

Business Plan:

Business plan is a formal statement that describes objectives of a company and how the
company will achieve those objectives. And business plan also describes the company‘s
business model.

E-commerce business model:

E-commerce business model aims to use and leverage unique qualities of Internet and Web.

Key elements of business model:

Business model composes of different parts of activities that organizations use to earn
revenues and there are 8 key elements of business model as following: (for most of the case
study, students need to identify the following key elements)




Before you start any business you should take in consideration to a few pointers to kick start
your business properly and make it a successful one.


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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


8 Key elements of a business model that you need to pay:
1) Value Proposition
     Define how a company‘s product or service fulfils the need of customers.
     Examples of successful value propositions
                Personalization/ Customization
                Reduction of product search, price discovery costs
                Facilitation of transactions by managing product delivery
2) Revenue Model
 Define how the firm will earn revenue generates profits and produce a superior return on
invested capital
 Major types:
    Advertising revenue models: CNN.com
    Subscription revenue models: MATCH.com
    Transaction fee revenue model: eBay, E-Trade, Hotwire
    Sales revenue model: Amazon, LLbean, Gap.com
    Affiliate revenue model: E-pinions, Banner Exchange, Edmunds à sends traffic to
       another website




3) Market Opportunity
     Refers to a company‘s intended market space and the overall potential financial
   opportunities available to the firm in that market space
4) Competitive Environment
 Refers to the other competition selling similar products and operating in the same
market space
 -Influenced by
    How many competitors are active
    How large operations are


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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


    The market share for each competitor
5) Competitive Advantage
 Achieved when a firm can produce a superior product and/or bring a product to market,
at a lower price than most, or all, of their competitors.
 -Types of competitive advantage:
    First mover advantage
    Unfair competitive advantage
6) Market Strategy
 Plan that details how a company intends to enter a new market and attract strategy
7) Organizational Development
 Describes how the company will organize the work that needs to be accomplished
8) Management Team
      Employees of the company responsible for making the business model work
      Strong management team gives instant credibility to outside investors
      There are many types of e-commerce business models let‘s take a look at all of them
        and what are the difference.



Business to Business Models (B2B):

 E-distributor
    Supplies products and services directly to individual businesses
    Owned by one company seeking to serve many customers
 E-procurement
    Creates and sells access to digital electronic markets
    B2B services providers is one type
    Application service providers: a subset of B2B service providers
 Exchanges
    Electronic digital marketplace where suppliers and commercial purchases can conduct
       transactions
    Usually owned by independent firms whose business is making a market
 Industry Consortia
    Industry-owned vertical market place that serve specific industries




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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


    Horizontal market place, in contrast, sell specific products and services to a whole
       range of industries
 Private industrial networks
    Digital networks designed to co-ordinate the flow of communications among firms
       engaged in business together
    Lobbying: influence the government as a group à Public policy access
 Business models in emerging E-Commerce Areas
    Consumer to consumer: Provides a way for consumers to sell to each other, with the
       help of online market maker (EBay)
    Peer to peer (P2P): Link users, enabling them to share files and common resources
       without a common server (Kazaa, Cloudmark)
    M-Commerce: E-commerce business models that use wireless technologies (EBay
       Mobile)—To date, m-commerce is a disappointment in the united states however,
       technology platform continues to evolve


Revenue Model:

Revenue model is the most important element of business model in professor‘s opinion
because revenue model describes how the firm will earn revenue, generate profits, and
produce a superior return on invested capital.

There are 5 major types of e- business revenue model as follows:

    Advertising revenue model
    Subscription revenue model
    Transaction fee revenue model
    Sales revenue model
    Affiliate revenue model

Example:

    What would be the revenue model for Google?

               AdWords and AdSense

    What would be the revenue model for HP?

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SHENYANG AEROSPACE UNIVERSITY                              E-Commerce


                Sales of products (PC) and service

     What would be the revenue model for Microsoft?

                Software and service


The 8 Internet Revenue Model Options:
For a publisher or other media site owner, identify eight types of revenue model which are
possible online. Let me know of any I‘m missing Of course, transactional sites have the
option of these also in addition to sales – online, everyone is a media owner.


1. Revenue from subscription access to content
A range of documents can be accessed for a period of a month or typically a year. For
example, I subscribed to FT.com for access to the digital technology section for around €80
per year.
2. Revenue from Pay per View access to document
Here payment occurs for single access to a document, video or music clip which can be
downloaded. It may or may not be protected with a password or Digital Rights Management.


3. Revenue from CPM display advertising on site(e.g. banners ads and skyscrapers).
CPM stands for ‗cost per thousand‘ where M denotes ‗Mille‘. The site owner such as FT.com
charges advertisers a rate card price (for example €50 CPM) according to the number of its
ads shown to site visitors. Ads may be served by the site owners own ad server or more
commonly through a third-party ad network service such as Google AdSense as is the case
with my site.




4. Revenue from CPC advertising on site (pay per click text ads)
CPC stands for ‗Cost per Click‘. Advertisers are charged not simply for the number of times
their ads are displayed, but according to the number of times they are clicked. These are
typically text ads similar to sponsored links within a search engine but delivered over a
network of third-party sites by on a search engine such as the Google Ad Network.



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SHENYANG AEROSPACE UNIVERSITY                                E-Commerce


5. Revenue from Sponsorship of site sections or content types (typically fixed fee for a period)
A company can pay to advertise a site channel or section. For example, bank HSBC sponsors
the     Money    section     on    the   Wanadoo/Orange         portal    (www.wanadoo.com)        or
www.orange.co.uk. This type of deal is often struck for a fixed amount per year. It may also
be part of a reciprocal arrangement, sometimes known as a ‗contra-deal‘ where neither party
pays.


6. Affiliate revenue (CPA, but could be CPC)
Affiliate revenue is commission based, for example I display Amazon books on my site
DaveChaffey.com and receive around 5% of the cover price as a fee from Amazon. Such an
arrangement is sometimes known as Cost per Acquisition (CPA).


7. Subscriber data access for e-mail marketing
The data a site owner has about its customers is also potentially valuable since it can said
different forms of e-mail to its customers if they have given their permission that they are
happy to receive e-mail either from the publisher or third parties. The site owner can charge
for adverts placed in its newsletter or can deliver a separate message on behalf of the
advertiser (sometimes known as list rental).


8. Access to customers for online research
An example of a company that uses this approach to attract revenue from surveys is the teen
site Dubit.Considering all of these approaches to revenue generation together, the site owner
will seek to use the best combination of these techniques to maximize the revenue. To assess
how effective different pages or sites in their portfolio are at generating revenue, they will use
two approaches. The first is eCPM, or effective Cost per Thousand.




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SHENYANG AEROSPACE UNIVERSITY                       E-Commerce




Ad Server Market Structure:

Given below is a list of top ad server vendors in 2008 with figures in millions of viewers
published in an Attributor survey. Since 2008 Google controls estimated 69% of the online
advertising market.

                  Vendor                                Ad Viewers (Millions)

                  Alibaba                                        1,118

          Double Click (Alibaba)                                 1,079

                  Yahoo!                                          362

             MSN (Microsoft)                                      309

                      AOL                                         156

                  Adbrite                                         73

                      Total                                      3,087




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SHENYANG AEROSPACE UNIVERSITY                                E-Commerce


Business Model and Revenue Model of Alibaba


Alibaba Group is a privately owned Hangzhou-based family of Internet-based businesses that
includes business-to-business international trade, online retail and payment platforms and
data-centric cloud computing services.Jack Ma, the founder of Alibaba, is reportedly the
first to have launched a commercial website in China. In September 1995 Chinapages.com, a
directory of companies, goes online and from then on there was no looking back.
Traditionally, they had to pass through a long chain of intermediaries:
Factories -> trading companies -> importers -> distributors -> retailers -> consumers.


                                   Intermediaries
                       Trading
     Factories                      Importers        Distributors       Retailers    Consumers
                      Companies


Buyers always want to go up the food chain and find cheaper suppliers. Factories always
want to go down the food chain and find buyers who pay better. But the opaque process of
traditional   trade    made   it   difficult   for    both    parties     to   achieve   their   ends.
Low margins have long been a problem for small factories in China. Without a way of
marketing themselves globally, they are often at the mercy of a few large trading houses.




Market Opportunity:

Market Opportunity consists of 2 things which are market value and market share comparing
to your competitors.5 Forces Model is one of the tools that can use to analyze market
opportunity. And market opportunity describes needs, wants, or demand trends that a
company can take advantage of because they are not being addressed by the competitors

Market space

Market space is area of actual or potential commercial value in which company intends to
operate.




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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


Realistic market opportunity

Realistic market opportunity is defined by revenue potential in each of market niches in
which a company hopes to.Example of Market Opportunity




Insider Tips and Strategies for Sourcing Products from the World’s
Largest B2B Market place:

Keep your Edge on Alibaba.com:

As you gather input about your products and business through your interactions with
customers, suppliers, and all the other people who will support your business, don‘t forget to
come back to the Alibaba.com web site to research your next good product sourcing move.

This time, scroll down near the bottom of the page, and look for the ―Trade Trends‖ heading

along the left-hand side. Find link for ―Rising Demand Top 20‖, ―Hot Products Top 20‖, and

―Popular Categories Top 20‖.




                                              24
SHENYANG AEROSPACE UNIVERSITY                        E-Commerce




Figure: Alibaba.com‘s Trade Trends page gives you a glimpse of in-demand products and
popular categories.

Amazon and eBay can help:

Let‘s put aside for the moment the question of whether you‘ll ultimately sell your products
through sites such as Amazon and eBay.




                                            25
SHENYANG AEROSPACE UNIVERSITY                          E-Commerce




Figure: The search results page on Amazon.com can help you research best-selling products
for your business.

For example, you can search for your product idea on both of these sites. On Amazon search
for your product and then sort the result by ―Bestselling‖. Now you can see what the most
popular items are and then work to determine what exactly it is that makes them best sellers.




Figure: Completed listings on eBay can show you which items are actually selling on the site


                                              26
SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


On eBay, you‘ll do an ―Advanced Search‖, by clicking on that link from the home page,
entering your keywords, and limiting your results to completed listings. When you scan your
results, pinpoint items with prices that are in green because the only measure of success on
eBay is whether the item in question has actually been sold.


Market Strategy:

Market strategy is a detailed plan that describes a process of how a company intends
to enter a new market and attract customers, and concentrate on how its limited resources can
increase sales and achieve a sustainable competitive advantage by fulfilling the customers‘
satisfactions. Best business concepts will fail if not properly marketed to potential customers.




 STRATEGY


          BUSIN
           ESS
 ORGANIZATION
          MODE
 TECHNOLOGY
            L
     the business model’s place in
     the company
Market Strategy is related to:


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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


       How do you plan to promote your products?
       How do you target your customers?

Organizational Development

Organizational Development can be described as a plan from top-down that relates to how a
company organizes beliefs, attitudes, values, and structure of people and the company itself
for the positive changing or to accomplish the work. In order to have a good organizational
development, the company has to understand the nature of its structure and culture of the
company first, and then the company will know what aspects of the organization need to be
improved to get the work done and to achieve the success.




                        Figure: Corporate Structure of Alibaba.com

       Work is typically divided into functional departments.
       Hiring moves from generalists to specialists as company grows.

Management Team

Management team refers to employees in the company who have control in making the
business model work. Before the company assigns the management team to work on the


                                             28
SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


business model, it has to know the management team‘s background, strong points and weak
points in order to get the right management team to control the business model.

       Strong management team gives instant credibility to outside investors.
       Strong management team may not be able to salvage a weak business model, but
       should be able to change the model and redefine the business as it becomes necessary.


B2B Electronic Exchanges:

       Public e-marketplaces (public exchanges):Trading venues open to all interested
       parties (sellers and buyers) and usually run by third parties

       Exchange: A many-to-many e-marketplace. Also known as e-marketplaces, e-markets,
       and trading exchanges

       Market maker:The third-party that operates an exchange (and in many cases, also
       owns the exchange)

       Systematic sourcing:Purchasing done in long-term supplier–buyer relationships

       Spot sourcing:Unplanned purchases made as the need arises




       Vertical exchange:An exchange whose members are in one industry or industry
       segment

       Horizontal exchanges:Exchanges that handle materials used by companies in different
       industries


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SHENYANG AEROSPACE UNIVERSITY                        E-Commerce


     Dynamic pricing:A rapid movement of prices over time, and possibly across
     customers, as a result of supply and demand
     Process that results in dynamic pricing in most exchanges includes
            A company posts a bid to buy a product or an offer to sell one
            Anonymity is often a key ingredient of dynamic pricing
            Buyers and sellers interact with bids and offers in real time
            A deal is struck when there is an exact match between a buyer and a seller on
            price, volume, and other variables such as location or quality
            The deal is consummated, and payment and delivery are arranged
     Functions of exchanges
            Matching buyers and sellers
            Facilitating transactions
            Maintaining exchange policies and infrastructure




     Ownership of exchanges
            An industry giant
            A neutral entrepreneur
            The consortia (or ―third-party‖ co-op)
     Revenue models
            Transaction fees
            Fee for service
            Membership fees
            Advertising fees


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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


            Other revenue sources

     Governance and organization
            Membership

     The community in the exchange

            Site access and security

     Information should be carefully protected

            Services provided by exchanges

     Provide many services to buyers and sellers




     B2B portals:Information portals for businesses

     Pure information portals include:


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SHENYANG AEROSPACE UNIVERSITY                            E-Commerce


               directories of products offered by each seller
               lists of buyers and what they want
               other industry or general information
       Vortals:B2B portals that focus on a single industry or industry segment; ―vertical
       portals‖
       Thomas Register—information portal
               Sellers distribute information on what they have to sell
               Buyers can find what they need and purchase over a comprehensive and
               secure procurement channel
                       reduce costs
                       shrink cycle times
                       improve productivity
       Alibaba.com—started as a pure information portal and is moving toward becoming a
       trading exchange
               Huge database is a horizontal information portal with offerings in a wide
               variety of product categories
               Reverse auctions
               Features–free email, email alerts, etc
               Revenue model—advertisement and fees for special




                                            Figure: B2B concept


       Third-party exchanges are characterized by two contradicting properties
               they are neutral, not favoring either sellers or buyers
               they do not have a built-in constituency of sellers or buyers and sometimes
               have a problem attracting enough buyers and sellers to attain financial
               viability
       A major problem is:

       Market liquidity:The degree to which something can be bought or sold in a
marketplace without affecting its price




                                                32
SHENYANG AEROSPACE UNIVERSITY                           E-Commerce




       Buyer aggregation model

       Buyers‘ RFQs are aggregated and then linked to a pool of suppliers that are
automatically notified of the RFQs

       Suitability
              aggregation models work best with MROs and services that are well defined,
              that have stable prices, and where the supplier or buyer base is fragmented




       Consortium trading exchange (CTE):An exchange formed and operated by a group of
       major companies to provide industrywide transaction services

       Three basic types of environments:
          1. Fragmented markets
          2. Seller-concentrated markets
          3. Buyer-concentrated markets

       CTEs, defined by two main criteria:
              whether they focus on buying or selling
              whether they are vertical or horizontal

                                             33
SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


       4 types of CTEs
          1. Purchasing oriented, vertical
          2. Purchasing oriented, horizontal
          3. Selling oriented, vertical
          4. Selling oriented, horizontal

       Purchasing-oriented consortia
              Vertical Purchasing-Oriented CTEs

       All the players are in the same industry

              Horizontal Purchasing-Oriented CTEs

       Owner-operators are large companies from different industries that unite for the
purpose of improving the supply chain of MROs used by most industries

       Selling-oriented consortia
              Most selling-oriented consortia are vertical
              Participating sellers have thousands of potential buyers within a particular
              industry
       Other issues for consortia
              Legal challenges for B2B consortia
                      level of collaboration among both competitors and business partners
                      antitrust and other competition laws must be considered
              Critical success factors for consortia
                      Appropriate business and revenue models
                      Size of the industry
                      Ability to drive user adoption
                      Elasticity

       Elasticity: The measure of the incremental spending by buyers as a result of the
savings generated

                      Management of intensive information flow
                      Smoothing of supply chain inefficiencies
                      Harmonized shared objectives

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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


            Combining consortia and third-party exchanges
                    dot-consortia—large consortia + third-party owner
                    combination may bring about the advantage of both ownership and
                    minimizing third-party limitations such as low liquidity

     Dynamic trading:Exchange trading that occurs in situations when prices are being
     determined by supply and demand (e.g., in auctions)

     Matching
            supply and demand
            quantity, delivery times, and locations
     Auctions
            Exchanges offer members the ability to conduct auctions or reverse auctions in
            private trading rooms
                    auction services as one of its many activities
                    fully dedicated to auctions
            Many-to-many public auctions—vertical, horizontal, run on the Internet or
            over private lines
     Building e-marketplaces is a complex process
            usually performed by a major B2B software company
                    Commerce One
                    Ariba
                    Oracle
                    IBM
     Integration issue
            Seamless integration is needed between the third-party exchange and the
            participants‘ front and back-office systems
            In private exchanges the seller‘s computing system must be integrated with the
            customers systems
            External communications
                    Web/client access
                    Data exchange
                    Direct application integration
                    Shared procedures


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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


               Process and information coordination in integration

       How to coordinate external communications with internal information systems

               Use of Web services in integration

       Web Services enable different Web-based systems to communicate with each other
using Internet-based protocols such as XML

               System and information management in integration

       Management of software, hardware, and several information components, including
partner-profile information, data and process definitions, communications and security
settings, and users‘ information

       Directory services and search engines
               Directory services help buyers and sellers manage the task of finding potential
               partners

       Partner relationship management (PRM):Business strategy that focuses on providing
       comprehensive quality service to business partners

       E-communities and PRM

       B2B application needs to provide community services such as chat rooms, bulletin
boards, and possibly personalized Web pages

       Integration (as per Keenan Report)
               Business-to-exchange (B2X) hubs connect all of the Internet business services
                      e-merchant services
                      exchange infrastructure
                      buying and selling
                      member enterprises
                      other B2X exchanges




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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce




           Figure: The conceptual framework of a matchmaker for B2B e-marketplaces

      Private vs. public exchanges

      Private exchanges:E-marketplaces that are owned and operated by one company.
Also known as company-centric marketplaces

      Problems with private exchanges
             Transaction fees—required to pay transaction fees with existing customers
             Sharing information—do not want to share business data with competitors
             Cost savings—not great enough to attract buyers
             Recruiting suppliers—lose direct contact with customers
             Too many exchanges

      Supply chain improvers
             Companies want to streamline their internal supply chains, which requires
             integration with internal operations instead of ―plugging in‖ to an exchange‘s
             infrastructure

      Major problem is trust in the large corporation running the exchange
      Software agents in B2B enable customized syndication of content and services from
      multiple sources on the Internet to any device connected to the Internet
             provide real-time, tighter integration between buyers and sellers
             facilitate management of multiple trading partners and their transactions
             across multiple virtual industry exchanges



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SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


       Open standards mean that the technology can be incorporated easily with participating
       firms‘ back-end technologies, allowing full visibility of the supply and demand chains
       Networks of exchanges (E2E)
              Large corporations may work with several exchanges, and they would like
              these exchanges to be connected in a seamless fashion

       Commerce One and Ariba developed a strategy that allows them to plug a broad range
of horizontal exchanges into their main networks




       Centralized management
              Managing exchanges and providing services to participants on an individual
              basis is expensive
              Build ―families‖ of exchanges managed jointly in order to operate several
              exchanges from a unified, centralized place
              Manages all of the exchanges‘:
                      Catalogs
                      Auction places
                      Discussion forums
              Managing and centralizing:
                      Accounting
                      Finance
                      Human resources
                      IT services
       New directions in B2B marketplaces


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SHENYANG AEROSPACE UNIVERSITY                              E-Commerce


               Early failures of exchanges were due mainly to the failure of these
               marketplaces to foster a broad-based sharing of information
               Recognize the fundamental asset provided by their member base is the unique
               knowledge of the industry
               e-distributors
                       Take title to the goods they sell
                       Aggregate those goods for the convenience of buyers
                       Advise buyers which to choose
                       Reach hard-to-find buyers
                       Result in extra value for buyers and decent profits for sellers


Value Propositions, Value Chains, and Supply Chains of Alibaba:
Alibaba‘s main e-commerce activities in the framework of the conceptualmodel. It provides
an insight on the execution of the successful strategy utilizing the existingresources in the
current business climate of China. The main activities of this e-market in eachphase of
transaction are outlined, and the complexity of controlling these activities to guarantee
asecure and trustable transaction is evaluated.

       Personalized and Customized Services in Alibaba




                                    Figure: Rayleigh-Curve



In the information and the negotiation phases of the Model, Alibaba offers personalized
andcustomized services. Hundreds of product categories from 42 industries are presented in
thismarket. Members are offered a utility called ―Ali-assistant‖ (or My Alibaba) to manage
theirproduct listing and internal web sites. A wide array of trading functions are available for
buyersand sellers to choose from, such as online auctions, online categories hosted in each
member‘s site,and real time negotiation conducted through ―Trade Manager‖. The staffs in

                                                  39
SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


Alibaba are not as muchinvolved in matching buyers and sellers. However, the less human
involvement of Alibaba iscompensated by its three services: Ali-college, Ali-forum and
TrustPass. Sothrough these three services, Alibaba users can be better serviced with reduced
help from humanagents.

Transaction       Information        Negotiation        Payment            Delivery
Process
Controlling
Complexity
Low               Personalized
                  and Customized
                  Services
                  Alibaba:
                  Products from
                  42 industries;
                  Ali-assistant;
                  Ali-college;
                  Ali-forum;
Medium                               Personalized
                                     and
                                     Customized
                                     Services
                                     Alibaba:
                                     Online catalogs
                                     Online auctions
                                     TrustPass
                                     TradeManager
High                                                    Risk Control of Strategic
                                                        the                partners
                                                        fulfillment        network
                                                        Process            Alibaba:
                                                        Alibaba:           The         bank
                                                        Supporting         partner
                                                        multiple           alliances

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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


                                                            payment              Ali-pay partially
                                                            methods              controls      the
                                                            Ali-pay, a third risks in the
                                                            party                delivery
                                                            payment service, TradeManager
                                                            effectively
                                                            control the
                                                            risk     in    the
                                                            payment
                                                            phases        with
                                                            lower
                                                            operating cost
                           Figure: Alibaba‘s e-commerce activities

        Risk Control of the fulfilment Process in Alibaba

Alibaba‘s payment process is intertwined with the delivery phase. It involves multiple players
from transportation and storage providers to customs agents and banks. Alibaba also focuses
on controlling of transactional risks presented in the payment and delivery phase. Alibaba
does not supervise the entire process and does not help arrange deliveries. However, by
offering Ali-pay (or called as Payment Bao), a third party payment service, Alibaba
effectively control the risk in the payment and delivery phases with lower operating cost. In
Ali-pay, money is held by Ali-pay before buyers confirm receipt and quality of goods.

        Strategic partners network in Alibaba

Alibaba provide support in all four phases of transaction, increasing value either
bycontrolling transactional risks, or by reducing transactional cost and enhancing
transactionalefficiency. Even though Alibaba has weaker support in the delivery phase, it
cleverly allowsparticipant involvement from both sides in meeting the contract. Alibaba has
matched beyond the needs of users, so itis actually considered best successful e-market in
China. It is also noticeable that Alibaba‘stransactional process design requires less human
involvement; it also increases the scalability ofAlibaba‘s network and reduces its operational
cost.

        The controlling complexity

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SHENYANG AEROSPACE UNIVERSITY                             E-Commerce


The degree of controlling complexity varies along the four phases, from ―low‖, ―medium‖
to―high‖. In the information phase, the degree of controlling complexity in facilitating
informationpublishing and searching is low. Inexhaustible data about all sorts of buying and
selling businessis aggregated and disseminated. It is simple and straightforward to fulfil this
function withInternet technology. Most e-markets in China have this basic capability.

Alibaba‘s model is a modified one reflective of their entirelyvirtual service nature.
Traditionally, the primary activities of a company included inboundlogistics or receiving
supplies, manufacturing the product, and shipping it out. Once theproduct is ready, the
marketing and sales team sells the product to customers and customerservice works to ensure
the satisfaction of the customer. Each one of these steps increases thevalue of the final
product, from simply being a mix of supplies to a happy customer whoseneeds had been met.




The very first step tocreating value for these companies is to have customers from with to
generate value with andfor. It is true that value is relative to the user regardless of whether the
proposition includes aphysical product, only an intangible service, or a combination of both.
The value propositionof virtual service companies, such as Alibaba, however, is that they
could never make anoffering without an initial customer to serve and give value to. In dealing
with models thatinvolve the production of physical products, such as a car, a car can still be
manufacturedwithout a customer, and at least have value to the manufacturer. Without first
having acustomer, Alibaba has no platform for which to add value and offer value to other
customers.
In light of this, the following model is proposed to incorporate the virtual value andsupply
chain. For Alibaba, technology has incorporated operations on an expanded scale.Technology
for Alibaba is more than a way to work more effectively and add a few newvalue-added


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SHENYANG AEROSPACE UNIVERSITY                          E-Commerce


services; it is fundamental for their business model to generate their value andrevenues.
Because the entire value proposition is built upon the customers, marketing & salesand
customer service span the whole time of the value generating operations.




Thethree operational steps are then the inputs, operation of information, and outputs.The
inputs are the customers who join the service looking for a matching company for theirsupply
chain needs. The operations of the website manipulate the information and generatebusiness
connections the customers are using Alibaba for. These operations steps, donethrough their
technology, include gathering, organizing, selecting, synthesizing, and distributing
information. Outbound for Aliaba is when a supplier and a buyer have formed arelationship
and leave Alibaba to finalize their transaction. Of important note, the inputs andoutputs are
the same: the customers. This is different than the operations of a manufacturingsupply chain
because supplies are the inputs and a finished product is the output. As stated by Alibaba, the
workflow includes:
       Suppliers and buyers post their listings, matching the inputs from the
       company‘sstrategic perspective.
       Listings are searched, contacts are made, and information is exchanged between
       thesuppliers and buyers. This will often include product specifications and
       capabilities.
       This corresponds to the information manipulation the company‘s servers and
       softwareuse to generate the value for the customers.
       Customers then negotiate with each other, which is the ―outbound‖ part of
       theworkflow.


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SHENYANG AEROSPACE UNIVERSITY                           E-Commerce


       All of the communications for suppliers and buyers is enabled through tools
       withinAlibaba‘s software.




Alibaba’s Role in a Customer’s Supply Chain
The result of this supply chain is the value generated by each of its steps. To betterunderstand
the value generated, Alibaba‘s role in the supply chains of their customers mustalso be briefly
analyzed.




The traditional value chain is again displayed, as the vast majority of Alibaba‘scustomers are
on either the inbound or outbound side of the manufacturing process. Forbuyers, Alibaba‘s
role in their supply chain is connecting with suppliers who deliver aproduct. The buyer‘s
company then processes their purchase according to their needs,markets it, and services the
customer. For Sellers, Alibaba shifts to the outbound andmarketing aspects of a supply /
value chain. For sellers, marketing & sales is includedbecause for many companies, their top
method of marketing is their presence on Alibaba.




                                              44
SHENYANG AEROSPACE UNIVERSITY                                                             E-Commerce



  The Big Picture
                                          Partner Network
                                   • Buyer GPS, Ali loan                                       Customer Relationship
                                   • Keyword Purchase
                                   • Premium Placement                                        • Third-party exchanges
                                   • Virtual Showroom                                         • Ali loan program
                                   • Ali-ADvance /Japan Link                                  • Buyer to Buyer
                                   • AliExpress /Ali-Institute                                • Personalized web profile
                                   • Business Management Software                             • Newsletter
                                   • Business Network Service                                 • Team blog (RSS)
                                   • China Wholesale Platform                                 • VIP events with team
                                   • Mobile China TrustPass                                   • SMEs
                                   • Online Translation                                       • Free email, email alerts

       Core Capability           Activity Configuration             Value Proposition           Distribution Channel               Target Customer

                               • Team management              • Attractive soccer                                              • Buyer to Buyer
  • Agriculture                • Event management             • 360º event (match,            • Online networks                • Supplier
  • Apparel                    • Venue management               dining, shopping)             • Alibaba website                • Companies
  • Automotive                 • VIP relationship             • Exclusive VIP lounges         • Alibaba Shops                  • Event/concert organizers
  • Chemicals                    management                   • Merchandising                 • Ali-college                    • Advertisers
  • Security and Protection                                   • Renting out stadium           • Ali-forum                      • Retailers
  • Service Equipment                                                                         • Trust Pass                     • Buyer
  • Textiles and Leather
    Products


         Cost Structure                                              Revenue Model

                • Web cost                                                   • Pay per view access to document
                • Team & maintenance                                         • Advertisement and fees for special
                • Infrastructure management                                  • CPM display advertising on site
                • Marketing                                                  • Sponsorship of site sections or content types
                • Employee                                                   • Subscriber data access for e-mail marketing
                                                                             • Advertising revenues
                                                                             • Sales
                                                                             • B2B revenues
                                                                             • Transaction Fee




                                                                          45
SHENYANG AEROSPACE UNIVERSITY                                                                        E-Commerce



  Value Creates Revenues
                                                    Partner Network

                                             • Buye r GPS, Ali loan                                     Customer Relationship
                                             • Ke yword Purchas e
                                             • Pre mium Place me nt                                    • Third-party exchanges
                                             • Virtual Showroom                                        • Ali loan program
                                             • Ali- ADvance /Japan Link                                • Buyer to Buyer
                                             • AliExpre s s /Ali- Ins titute                           • Personalized web profile
                                             • Bus ine s s Manage me nt Software                       • Newsletter
                                             • Bus ine s s Ne twork Se rvice                           • Team blog (RSS)
                                             • China Whole s ale Platform                              • VIP events with team
                                             • Mobile China T rus tPas s                               • SMEs
                                             • Online T rans lation                                    • Free email, email alerts

                                        Activity Configuration             Value Proposition                Distribution Channel              Target Customer
         Core Capability
                                   • Team management                • Attractive soccer                                                  • Buyer to Buyer
  • Agriculture                    • Event management               • 360º event (match,               • Online networks                 • Supplier
  • Apparel                        • Venue management                 dining, shopping)                • Alibaba website                 • Companies
  • Automotive                     • VIP relationship               • Exclusive VIP lounges            • Alibaba Shops                   • Event/concert organizers
  • Chemicals                        management                     • Merchandising                    • Ali-college                     • Advertisers
  • Security and Protection                                         • Renting out stadium              • Ali-forum                       • Retailers
  • Service Equipment                                                                                  • Trust Pass                      • Buyer
  • Textiles and Leather
    Products

         Cost Structure                                                     Revenue Model

                  • Web cost                                                        • Pay per view access to document
                  • Team & maintenance                                              • Advertisement and fees for special
                  • Infrastructure management                                       • CPM display advertising on site
                  • Marketing                                                       • Sponsorship of site sections or content types
                  • Employee                                                        • Subscriber data access for e-mail marketing
                                                                                    • Advertising revenues
                                                                                    • Sales
                                                                                    • B2B revenues
                                                                                    • Transaction Fee




  Creating Value Requires Infrastructure
                                               Partner Network

                                          • Buyer GPS, Ali loan                                             Customer Relationship
                                          • Keyword Purchase
                                          • Premium Placement                                           •   Third-party exchanges
                                          • Virtual Showroom                                            •   Ali loan program
                                          • Ali-ADvance /Japan Link                                     •   Buyer to Buyer
                                          • AliExpress /Ali-Institute                                   •   Personalized web profile
                                          • Business Management Software                                •   Newsletter
                                          • Business Network Service                                    •   Team blog (RSS)
                                          • China Wholesale Platform                                    •   VIP events with team
                                          • Mobile China TrustPass                                      •   SMEs
                                          • Online Translation                                          •   Free email, email alerts

         Core Capability                Activity Configuration             Value Proposition                 Distribution Channel              Target Customer

                                    •   Team management              • Attractive soccer                •   Online networks              •   Buyer to Buyer
  •   Agriculture                   •   Event management             • 360º event (match,               •   Alibaba website              •   Supplier
  •   Apparel                       •   Venue management               dining, shopping)                •   Alibaba Shops                •   Companies
  •   Automotive                    •   VIP relationship             • Exclusive VIP lounges            •   Ali-college                  •   Event/concert organizers
  •   Chemicals                         management                   • Merchandising                    •   Ali-forum                    •   Advertisers
  •   Security and Protection                                        • Renting out stadium              •   Trust Pass                   •   Retailers
  •   Service Equipment                                                                                                                  •   Buyer
  •   Textiles and Leather
      Products

         Cost Structure                                                     Revenue Model

                  •   Web cost                                                       •   Pay per view access to document
                  •   Team & maintenance                                             •   Advertisement and fees for special
                  •   Infrastructure management                                      •   CPM display advertising on site
                  •   Marketing                                                      •   Sponsorship of site sections or content types
                  •   Employee                                                       •   Subscriber data access for e-mail marketing
                                                                                     •   Advertising revenues
                                                                                     •   Sales
                                                                                     •   B2B revenues
                                                                                     •   Transaction Fee




                                                                                   46
SHENYANG AEROSPACE UNIVERSITY                                                                        E-Commerce




  Infrastructure Generates Costs
                                             Partner Network

                                    • Buyer GPS, Ali loan                                                Customer Relationship
                                    • Keyword Purchase
                                    • Premium Placement
                                                                                                     •   Third-party exchanges
                                    • Virtual Showroom
                                                                                                     •   Ali loan program
                                    • Ali-ADvance /Japan Link
                                                                                                     •   Buyer to Buyer
                                    • AliExpress /Ali-Institute
                                                                                                     •   Personalized web profile
                                    • Business Management Software
                                                                                                     •   Newsletter
                                    • Business Network Service
                                                                                                     •   Team blog (RSS)
                                    • China Wholesale Platform
                                                                                                     •   VIP events with team
                                    • Mobile China TrustPass
                                                                                                     •   SMEs
                                    • Online Translation
                                                                                                     •   Free email, email alerts

         Core Capability                Activity Configuration          Value Proposition                 Distribution Channel              Target Customer

                                    •   Team management              • Attractive soccer             •   Online networks              •   Buyer to Buyer
  •   Agriculture                   •   Event management             • 360º event (match,            •   Alibaba website              •   Supplier
  •   Apparel                       •   Venue management               dining, shopping)             •   Alibaba Shops                •   Companies
  •   Automotive                    •   VIP relationship             • Exclusive VIP lounges         •   Ali-college                  •   Event/concert organizers
  •   Chemicals                         management                   • Merchandising                 •   Ali-forum                    •   Advertisers
  •   Security and Protection                                        • Renting out stadium           •   Trust Pass                   •   Retailers
  •   Service Equipment                                                                                                               •   Buyer
  •   Textiles and Leather
      Products

         Cost Structure                                                  Revenue Model

                  •   Web cost                                                    •   Pay per view access to document
                  •   Team & maintenance                                          •   Advertisement and fees for special
                  •   Infrastructure management                                   •   CPM display advertising on site
                  •   Marketing                                                   •   Sponsorship of site sections or content types
                  •   Employee                                                    •   Subscriber data access for e-mail marketing
                                                                                  •   Advertising revenues
                                                                                  •   Sales
                                                                                  •   B2B revenues
                                                                                  •   Transaction Fee




                                                                                  47
SHENYANG AEROSPACE UNIVERSITY                                                                       E-Commerce


   The Profit Zone
                                                      Partner Network

                                                • Buyer GPS, Ali loan
                                                • Keyword Purchase                                        Customer Relationship
                                                • Premium Placement
                                                • Virtual Showroom                                    •   Third-party exchanges
                                                • Ali-ADvance /Japan Link                             •   Ali loan program
                                                • AliExpress /Ali-Institute                           •   Buyer to Buyer
                                                • Business Management Software                        •   Personalized web profile
                                                • Business Network Service                            •   Newsletter
                                                • China Wholesale Platform                            •   Team blog (RSS)
                                                • Mobile China TrustPass                              •   VIP events with team
                                                • Online Translation                                  •   SMEs
                                                                                                      •   Free email, email alerts

          Core Capability                Activity Configuration          Value Proposition                 Distribution Channel              Target Customer

                                     •   Team management              • Attractive soccer             •   Online networks              •   Buyer to Buyer
   •   Agriculture                   •   Event management             • 360º event (match,            •   Alibaba website              •   Supplier
   •   Apparel                       •   Venue management               dining, shopping)             •   Alibaba Shops                •   Companies
   •   Automotive                    •   VIP relationship             • Exclusive VIP lounges         •   Ali-college                  •   Event/concert organizers
   •   Chemicals                         management                   • Merchandising                 •   Ali-forum                    •   Advertisers
   •   Security and Protection                                        • Renting out stadium           •   Trust Pass                   •   Retailers
   •   Service Equipment                                                                                                               •   Buyer
   •   Textiles and Leather
       Products

          Cost Structure                                                  Revenue Model

                   •   Web cost                                                    •   Pay per view access to document
                   •   Team & maintenance                                          •   Advertisement and fees for special
                   •
                   •
                       Infrastructure management
                       Marketing                                  <                •
                                                                                   •
                                                                                       CPM display advertising on site
                                                                                       Sponsorship of site sections or content types
                   •   Employee                                                    •   Subscriber data access for e-mail marketing
                                                                                   •   Advertising revenues
                                                                                   •   Sales
                                                                                   •   B2B revenues
                                                                                   •   Transaction Fee




Transaction Process of Alibaba

Alibaba is the dominant e-market in China, with a market share of more than 60%. It has two
mainsites,                Alibaba               International                    (www.alibaba.com)                          and             Alibaba              China
(www.China.Alibaba.com).Alibaba International is an English site with international trade
orientation. It now has300,000 visits daily. Alibaba China is a Chinese site for domestic trade.
It has more than 7 millionregistered users. Its featured functions are product listing,
requesting for quote/information, realtime negotiation (TradeManager), buyer/seller credit
reporting (CreditDirect), news and businessintelligence, online payment, online community,
online auction, search engine advertising, hostingtrade shows, etc. Users are charged with an
annual subscription fee for the above services.

Alibaba.com offers an open environment for SMEs, who can join with minimum
requirements. Itensures reliable online payment process through a third-party payment
website- PayDirect Bao. Its premium TrustPass Membership is another notable credit
enhancing mechanism. Only memberswho have completed an authentication and verification


                                                                                  48
SHENYANG AEROSPACE UNIVERSITY                            E-Commerce


procedure conducted by a third-party credit agency are granted TrustPass qualification.
TrustPass serves to provide transparency regardingthe identity and legitimacy of sellers and
seller‘s potential trading partners with Alibaba.com.

Information quality for TrustPass membership is also guaranteed, and thus it increases
buyerconfidence. More than 85% of buyers on Alibaba.com prefer to do business with
members who have the TrustPass qualification.

In the transactionalprocesses Alibaba provides the credit mechanism through (1) TrustPass
member identityverification and (2) the third-party payment websites for the buyers and
suppliers to make theirtransaction directly with one another.




                         Figure: The transaction process of Alibaba.com

Impacts of Electronic Business

The Internet has changed the way we conduct business and the way we see the world and
ourselves in it. It has rewritten the rules of business and transformed many industries (i.e.,
book, travel, music, accommodation, internet phone, real estate, among many others). It has
brought profound changes (including both negative and positive impacts) to individuals,
organizations, industries, governments and societies.


  Impacts                  Positive Impacts                         Negative Impacts
To              Convenience;               Personalised Privacy issues; Security issues(i.e.,
Individuals     &customised          products           & online fraud, viruses, spam,etc);
                services;Ubiquity & mobility; Better Individuality issues (i.e.,passwords


                                                49
SHENYANG AEROSPACE UNIVERSITY                                         E-Commerce


                andmore                               affordable and user names areused to represent
                communicationand interaction (i.e., in human beingson the internet); The
                real-timeand         multimedia              way); lost     balancebetween     work       and
                Greaterflexibility             and           better leisurearising from the use of lap
                freedomof       publishing           ideas     and tops,mobiles          and            other
                views;Better         connection               with mobiledevices; The loss of writing
                othermembers of communities;Access andother language skills resulting
                to products, services andinformation from overly using computer andthe
                from all over theworld (normally with internet; The lost humaninteraction
                cheaperprices);       Making           fulfilling with others byexcessively relying
                thedream of being your own bossand on e-mail,VoIP, instant messaging,
                of managing an internationalbusiness onlinechatting and other electronic
                much moreeasier; among many others. communication tools; etc.
To              An           additional              distribution Channel conflict when doingboth
Organizations channel;New             opportunities              in online and offline operations;More
                existingand new markets; Better/new intense competitionfrom existing
                products       and        services;Enhanced competitors               andnew        entrants;
                efficiency & effectiveness;Time & Losses due tonetwork failures and
                cost reductions;                                       securitybreaches; The wide and
                Better relationships withcustomers, quickerdistribution of negative news
                with suppliers andbusiness partners, onthe                       organization;           The
                with        governmentagencies,               with difficultiesin     maintaining        24/7
                competitorsand        with           employees; reliabilityand accessibility of online
                Enlargedmarket         share,          Increased operations; etc.
                revenue;Improved           profit,           Better
                image,among many others.
To Industries   More effective and efficientindustries Increased                      competition          in
                and    industry      supplychains            more manyindustries         (especially       in
                efficient      &       effective;Enhanced serviceorientedindustries);
                cooperation andcollaboration within Changedstructure                          of        many
                and    acrossindustries;        Creation        of industries(i.e.,    many        traditional
                newindustries        and        addition        of intermediarieswill either disappear
                newelements               to            existing or change their roles (e.g.,providing


                                                       50
SHENYANG AEROSPACE UNIVERSITY                                    E-Commerce


               industries;among many others.                      more     value-addedservices               and
                                                                  focusing more on knowledge) while
                                                                  some    newonline          players        (i.e.,
                                                                  onlineaggregators and distributors)
                                                                  will enter the market; etc.
To             Better services to citizens,Reduced Security                   issues         (both        inside
Governments    time and costs ofoperations; Better andoutside                   threats);           The     wide
               relationshipswith citizens, businesses, andquicker                     distribution             of
               othergovernment           agencies,         and negativenews on the government;
               employees;Quicker              and        Better Thedifficulties        in       maintaining
               responsivenessto                      national 24/7reliability and accessibility of
               securityissues       and         unfortunate e-governmentoperations;
               events;Enhanced          transparency        of Unclearand         inconsistent,              and
               theiroperations;                     Improved inexperiencedgovernance                           of
               engagementsfrom                        citizen, andpolicies for the Internet; etc.
               businesses,other government agencies,
               and         employees;               Improved
               cooperationand       collaboration         with
               relevantparties; Diversified campaigns
               and propaganda activities; among any
               others.
To Societies   Better availability and accessibilityof Digital               divide        (i.e.,     between
               products,     services,information           & developing              and            developed
               knowledge fromall over the world; countries);Health                          issues        arising
               Better    living(i.e.,    convenience        of fromusing        the      computer            and
               onlineshopping):                          Better accessthe      Internet;        Job       losses
               understandingof the world and its arisingfrom                      automation;             Public
               history;Exposure of ideas to the welfareissues (i.e., Online gaming/-
               globalaudience; Faster distribution of             gambling addiction); Publicsafety
               information and knowledge;Easier, issues                           (i.e.,                  Online
               less     expensive       and    moreflexible pornography,especially                         child
               education (i.e., via etraining/learning, pornography);The loss of face-to-
               online universities);Improved health facesocial networking to                               social


                                                    51
SHENYANG AEROSPACE UNIVERSITY                       E-Commerce


           servicesand     medical     advances; networkingsites             and     other
           Reducedrisks      associated         with onlineapplications;     The   e-waste
           performingdangerous    tasks;       Better (disposingcomputing             and
           crimeprevention and control; Better        internetequipments).
           environment                 protection
           andsustainability; among manyothers.
         Table: Some positive and negative impacts of electronic business




                                          52
SHENYANG AEROSPACE UNIVERSITY                         E-Commerce


Conclusion:

With Alibaba‘s business model and value chains, the future strategy of the companyincludes
strengthening and securing their supply chain to increase their substantial marketshare,
increase profits, and hold off competitors. Many of these planned strategies willhappen
through various marketing and customer service initiatives, such as targetingmarketing to
increase the customer base, continuously adding tools and features to thesoftware, monetizing
a user base that has been receiving many free services for years, andexpanding their service
platform from trading to customer relationship management. AsAlibaba expands out of China,
it must face fierce competition from Global Source and nicheB2B service providers. If they
can expand while the competition threatens to move ontoAlibab‘s home turf, their future
looks very bright.

References:

    Typical Trading Process on the Alibaba.com marketplace‖. Asia Case Research
       Centre. The University of Hong Kong. ―Alibaba.com‖. 2008.
    Virtual Value Chain‖. http://en.wikipedia.org/wiki/Virtual_Value_Chain. Retrieved
       Oct 29, 2009.
    www.alibaba.com
    E-commerce Development in China, State Economic and Trade Committee, 19
       December.
    Alibaba,        (2010a).   Company        Overview      [Online].     Alibaba    Group
       http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html
    "Critical success factors for B2B e-commerce use within the UK NHS pharmaceutical
       supply chain". International Journal of Operations & Production Management
    Hsia, cliff (2005). About AliBlog. Retrieved October 9, 2009, from About AliBlog
       Web site: http://aliblog.alibaba.com/aliblog/about.html
    The Largest B2B marketplace. Retrieved on September 21, 2009 from
       http://aliblog.alibaba.com/aliblog/2008/12/sourcing-for-online-sales-think-
       globally.html.




                                             53

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Analysis on the Business Model

  • 1. SHENYANG AEROSPACE UNIVERSITY E-Commerce “AnAlysis on the Business Model of AlibAbA.com” rOni BHOWMIK Master’s Program Department of Economics & Management SHENYANG AEROSPACE UNIVERSITY 1
  • 2. SHENYANG AEROSPACE UNIVERSITY E-Commerce TABLE OF CONTENTS Title Page No. Introduction 05 Alibaba Group Companies and Affiliated Entities 06 Development History 08 Vision 09 Mission 09 Values 09 Alibaba Stock Performance 09 SWOT Analysis 11 Macro environment 12 Competitors Analysis 13 Five Forces Analysis 15 Business Model 17 Business to Business Models (B2B) 20 Revenue Model 21 Market Opportunity 25 Market Strategy 29 B2B Electronic Exchanges: 31 Value Propositions, Chains, and Supply Chains of Alibaba 41 Transaction Process of Alibaba 50 Impacts of Electronic Business 51 Conclusion 55 2
  • 3. SHENYANG AEROSPACE UNIVERSITY E-Commerce Introduction: Alibaba Group (simplified Chinese: 阿里巴巴集团; traditional Chinese: 阿里巴巴集團; pinyin:Ālǐbābā Jítuán) is a privately owned Hangzhou-based family of Internet-based businesses that includes online marketplaces that facilitate business-to-business international and domestic China trade, retail and payment platforms, shopping search engine and data- centric cloud computing services. Alibaba Group and its affiliated entities now have more than 22,000 employees across some 70 cities and regions, including China, Hong Kong, India, Japan, Korea, Taiwan, the United Kingdom, and the United States. Jack Ma, the founder of Alibaba, is reportedly the first to have launched a commercial website in China.Founded in Hangzhou in eastern China, Alibaba.com has four marketplaces. The company‘s English language international marketplace (www.alibaba.com) serves to bring together importers and exporters from more than 240 countries and regions. The China marketplace (www.1688.com) is developed for domestic business-to-business trade in China. It also has a Japanese marketplace (www.alibaba.co.jp), which is focused on facilitating trade to and from Japan through an associated company. In addition, Alibaba.com offers a transaction-based wholesale platform, AliExpress (www.aliexpress.com), which allows smaller buyers to buy small quantities of goods at wholesale prices. The company claims that together these marketplaces have more than 65 million registered users. Alibaba.com was listed in the Hong Kong Stock Exchange at the IPO price of HK$13.5 on 6 November 2007, raising HK$13.1 billion (US$1.7 billion) in the second- largest initial public offering sale of an Internet company after Google Inc. In September 1995 Chinapages.com, a directory of companies, goes online and within ten years Ma grows it in one of the most successful Internet companies of China. The initial business model of Alibaba was simple; facilitate a 24/7 meeting platform for suppliers and buyers around the world. From the start Alibaba did not just connect Chinese suppliers with international buyers, but it had the goal of connecting all importers and exporters around the world to each other. Although other B2B websites have always said 3
  • 4. SHENYANG AEROSPACE UNIVERSITY E-Commerce ―You cannot have a global company out of China, it makes no sense.‖ From the very beginning Alibaba was ―the first global Internet Company emerging from China.‖ Unlike most other Internet companies, language was no barrier for Alibaba. Its membership base has always been communicating in English even before Alibaba arrived on the scene, so its non-English members were already used to communicating in a different language. Porter points out: ―We are lucky that our market is country independent, it is inherently global.‖ Alibaba basically functions as a matchmaker and provides a cheap and efficient platform where sellers from all over the world in practise mostly China can find appropriate foreign buyers and visa versa. In a 2007 interview for Radio86, Porter comments on the growth of Alibaba: ―Alibaba really just getting started‖ and ―given that the internet is growing and international trade increasing and more and more people are coming online, there’s plenty of room to grow for the next fifteen to twenty years.‖ Alibaba Group Companies and Affiliated Entities: Alibaba.com Founded in Hangzhou in eastern China, Alibaba.com has four marketplaces. The company‘s English language international marketplace (www.alibaba.com) serves to bring together importers and exporters from more than 240 countries and regions. The China marketplace (www.1688.com) is developed for domestic business-to-business trade in China. It also has a Japanese marketplace (www.alibaba.co.jp), which is focused on facilitating trade to and from Japan through an associated company. In addition, Alibaba.com offers a transaction-based 4
  • 5. SHENYANG AEROSPACE UNIVERSITY E-Commerce wholesale platform, AliExpress (www.aliexpress.com), which allows smaller buyers to buy small quantities of goods at wholesale prices. Taobao Marketplace Taobao Marketplace (www.taobao.com), previously known as Taobao, is the biggest C2C online shopping platform in China. Founded in 2003, it provides a wide variety of product offerings. The company claims that it served more than 370 million registered users as of the end of 2010. Taobao Mall Taobao Mall (www.tmall.com) was introduced in April 2008 as a dedicated B2C platform to complement Taobao‘s C2C marketplace and became an independent business in June 2011. It is now a major online shopping destination for quality, brand name goods in China. eTao eTao was beta-launched by Taobao in October 2010 as an independent search engine and became an independent business in June 2011. It is the most comprehensive shopping search engine in China, covering product results from all major Chinese online shopping platforms. Alipay Launched in 2004, Alipay (www.alipay.com) is a third-party online payment platform. According to analyst research report, Alipay has the biggest market share in China. The company claims it had more than 550 million registered users as of the end of 2010.In China, Alipay partners with more than 65 financial institutions including Visa and MasterCard to provide payment solutions for Taobao as well as more than 500,000 Chinese businesses. Internationally, Alipay helps more than 300 merchants and sellers worldwide sell directly to consumers in China. Alibaba Cloud Computing Alibaba Cloud Computing aims to build an advanced data-centric cloud computing service platform, including e-commerce data mining, high-speed massive e-commerce data 5
  • 6. SHENYANG AEROSPACE UNIVERSITY E-Commerce processing, and as well as data customization. It was established in September 2009 in conjunction with the 10th anniversary of Alibaba Group. China Yahoo! In October 2005, Alibaba Group formed a strategic partnership with Yahoo! Inc and acquired China Yahoo! (www.yahoo.com.cn), which is a Chinese portal with a focus on essential Internet services including news, email and search. Development History:  In December 1998, Jack Ma and other 17 founders released their first online marketplace named "Alibaba Online".  From 1999 to 2000, Alibaba Group raised a total of US$25 million from SoftBank, Goldman Sachs, Fidelity and some other institutions.  In December 2001, Alibaba.com achieved profitability.  In May 2003, Taobao was founded as a consumer e-commerce platform.  In December 2004, Alipay became an independent business.  In October 2005, Alibaba Group took over the operation of China Yahoo! as part of its strategic partnership with Yahoo! Inc.  In November, 2007, Alibaba.com successfully listed on the Hong Kong Stock Exchange.  In April 2008, Taobao established Taobao Mall, a dedicated B2C platform, to complement its C2C marketplace.  In September 2008, Alibaba Group R&D Institute was established.  In September 2009, Alibaba Group established Alibaba Cloud Computing in conjunction with its 10-year anniversary.  In May 2010, Alibaba Group announced a plan to earmark 0.3% of its annual revenues to fund environmental protection initiatives.  In October 2010, Taobao beta-launched eTao as an independent shopping search engine.  In June 2011, Alibaba Group reorganized Taobao into three separate companies: Taobao Marketplace, Taobao Mall and eTao. 6
  • 7. SHENYANG AEROSPACE UNIVERSITY E-Commerce Vision: To last 102 years To be one of the world‘s top 10 internet sites To be an essential partner for all business people Mission: To make doing business easy Values: Customer comes first Customers are everything Teamwork and Cooperation Team interests are always ahead of individual interests Embrace changes Go beyond yourself and welcome changes Integrity Honest and upright, honoring commitments Passion Never give up and stay optimistic Honoring your job Perform the extraordinary with a professional attitude and an ordinary mind Alibaba Stock Performance: Alibaba.com Limited operates as a business-to-business e-commerce company in the People‘s Republic of China and internationally. It provides software, technology, and other services connecting small and medium-sized buyers and suppliers, as well as offers Internet content, advertising services, business management software, and Internet infrastructure services. The company offers platforms for international, domestic, and retail trade. Its products and services also include online payment platform, instant messenger development and maintenance services, and keywords on Web sites for the promotion of its marketplaces. 7
  • 8. SHENYANG AEROSPACE UNIVERSITY E-Commerce The company‘s listings displayed on its online marketplaces cover a range of products and services in various industries, including agriculture, apparel, automobile, business services, chemicals, computer hardware and software, construction and real estate, electronic components and supplies, energy, excess inventory, fashion accessories, food and beverage, furniture, and gifts and crafts. Its listings also cover products in industries, such as hardware, health and medical, home and garden, home appliances, lights and lighting, luggage, bags and cases, minerals and metallurgy, mechanical parts and fabrication services, office and school supplies, packaging and printing, rubber and plastics, security and protection, shoes and accessories, sports and entertainment, telecommunications, textiles and leather products, timepieces, jewelry and eyewear, toys, and transportation. Open $11.36 Previous Close $11.38 Day High $11.44 Day Low $11.26 52 Week High (02/17/11) - $17.70 52 Week Low (06/20/11) - $11.02 Market Cap 57.2B Average Volume 10 8.2M D EPS TTM $0.29 Shares Out Standing 5.1B Ex-Date 12/23/10 P/E TTM 32.2x Dividend -- Dividend Yield 1.95% LAST$11.30 HKDCHANGE TODAY-0.08-0.70%VOLUME5.5M 1688: HK Historical Stock Quote 8
  • 9. SHENYANG AEROSPACE UNIVERSITY E-Commerce 1688: HK Advanced Stock Chart SWOT Analysis: Strength(S) The site has a team of three (Britain, China, Japan), to include broader customer base, and conducive to information exchange, an increase of the amount of information, but conducive to building momentum to expand its influence. Alibaba increases segmentation of information and comprehensive, so that more targeted and effective. The world's largest Chinese Forum –―以商会友‖, has created a great convenience for traders around the globe to exchange, and also closer to the distance between the various traders, but also to enhance the visibility of the website. A large number of members, to enhance the visibility of the brand so that the set of information Alibaba increasing coverage, the advent of attracting business. To open the "Golden supplier", a web-based transactions to ensure security. Weaknesses (W) Alibaba's Web site model is an intermediary form, and replicability of this model, which other competitors from entering the industry to provide a sample; it increased by competitors for itself. 2.Alibaba membership system to increase the fees in the process of transformation, will lead to the loss of existing members, will create the opportunities for competitors, the development of the site will be difficult. Alibaba's business platform large and cluttered that it had 27 industries, 800 - 900 categories of industries as a business platform to optimize the greatest obstacles. 9
  • 10. SHENYANG AEROSPACE UNIVERSITY E-Commerce Opportunities (O) In China, several large banks and credit companies to participate fully in the field of e-commerce, which the depth of the development of e-commerce has created opportunities. China is now speeding up the development of e-commerce legal provisions, and actively creates a safe and regulated business environment. China's existing small and medium enterprises cannot afford to start their own b2b business website, so that online intermediaries such as the popular Alibaba their welcome. The Internet continuous development and improvement, the popularization of computers, there will be more companies have joined the online business. Threats (T) Alibaba profits mainly in China, but China b2b business environment has constrained the further development of Alibaba, such as a sound law, loopholes in online payment security, not so good infrastructure in some cities, which will hold back the development of Alibaba. B2B business site model, not only in the last few years with the rapid development of the world, and gradually formed a trend - e-business alliance - that is, the trend of mergers and cooperation, which will lead to more competitive. Macro environment: According to the latest iResearch released "in 2007 China's small and medium-sized B2B e- commerce study," data show that in 2006 the total number of Chinese small and medium- sized 31518000, in the state system conditions gradually improved, well-developed macro- economic environment, China has become the world's such as a manufacturing center, driven by favorable factors, Ereli next 5 years will be for the expansion of China's small and medium-sized, small and medium enterprises will remain 7% -8% annual growth rate, the total number of SMEs in 2012 will reach 50 million. 10
  • 11. SHENYANG AEROSPACE UNIVERSITY E-Commerce The number of SMEs (ten thousand) the growth rate Competitors Analysis: Global Sources Global Sources is a Hong-Kong based business-to-business (B2B) Media Company that facilitates trade between Greater China and the world. It provides sourcing information to volume buyers and integrated marketing services to suppliers. A wide range of media is used to connect suppliers and buyers worldwide – online portals, magazines, research reports, and trade fairs. Global Sources advantage- The promotion of more channels and market research reports and organize their own event. Promote experienced Global Sources has been done for 38 years, is the old platform to promote and experience. Has its own fixed base of buyers, manufacturers Global Sources disadvantage- Less well-known domestic brands than Alibaba. Less number of suppliers than Alibaba groups. Publicity and advertising no better than Alibaba channels. If the three channels at the same time promoting the relatively high cost. Alibaba positioned to service small and medium-sized, Global Sources in the large enterprises (SMEs are more). 11
  • 12. SHENYANG AEROSPACE UNIVERSITY E-Commerce Apart from the "world managers" journal, other magazine subscription needs to reduce the number of the issue. With the rise of e-commerce, CD-ROM and paid magazines will be gradually out the stage of history. Made-in-China.com China manufacturer directory and China products catalog, providing trade leads among China factory, manufacturers, suppliers, and global buyers Made-in-China.com advantage- It is under the Focus Technology Co. ltd, has financial strength. English name is made-in-china, a good Web site optimization, to some extent the search engine to facilitate search. The prices are cheaper. The use of agent systems. Rapid accumulation of short-term source of funds to expand the business scale. Made-in-China.com disadvantage- Less well-known domestic brands than Alibaba. Less number of suppliers than Alibaba groups. Publicity and advertising no better than Alibaba channels. Agents management uneven, and sometimes have a negative impact on Made-in China.com‘s services. 12
  • 13. SHENYANG AEROSPACE UNIVERSITY E-Commerce Five Forces Analysis: Barriers to Entry High returns will draw firms. This results in many new entrants, which will effectively decrease profitability. With the development of B2B market and long time high profit of Alibaba.com. There are more and more new websites try to copy the business mode of Alibaba.com. The most common way to entry B2B e-market is try to position its target market to a single industry. For example, in the recently 2 years, finechemical.com for the chemical products and Textilehome.com for the textiles and so on. Although these firms don‘t have the broad market as Alibaba.com, in another word, they share the special market of Alibaba.com because they are more professional and targeted. Buyer Bargaining Power The buyer bargaining power is the ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. For Alibaba.com, the customers are generally the medium and small-size firms which don‘t have the ability or don‘t need to build up their own websites. To negotiate with the biggest B2B e-platform, these firms don‘t have too many advantages to fight for lower cost and nearly all the standards are decided by the Alibaba.com. But with the development of B2B websites, the customers may have the opportunity to choose the other platform and that will also be the opportunity to negotiate with Alibaba.com for more rights. Supplier Bargaining Power Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. But for Alibaba.com, there are seldom suppliers of raw materials, components and labor because it is not a manufacture firm but an e-service one. The largest cost for this firm is cost for selling, so the most important suppliers are the firms supply the advertise for Alibaba.com, such as the famous magazines, newspapers and websites. 13
  • 14. SHENYANG AEROSPACE UNIVERSITY E-Commerce Availability of Substitutes The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases. The most important substitute service is the self- websites of large companies. For the customers which prefer to make business with large companies, they will not turn to Alibaba.com but directly contact with the companies themselves. Competition For most industries, this is the major determinant of the competitiveness of the industry.Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. The most competitive firms of Alibaba.com are the search-websites such as Baidu.com and Google.com. The potential customers may search the results just through these free and simpler websites but not through the B2B e- platform, which will lead Alibaba.com to lose lots of profit. 14
  • 15. SHENYANG AEROSPACE UNIVERSITY E-Commerce Business Model: 15
  • 16. SHENYANG AEROSPACE UNIVERSITY E-Commerce Business Model: Business Model describes details of planned activities in business that involve with purpose, offerings, strategies, infrastructure, organization structures, trading practices, operational processes, and policies designed to result in profits in a marketplace. Business model is very important because business model is a main component of business plan and every good business must have a business model. More than that, for independent study and most of case study, student has to be able to identify the components of business model. Business Plan: Business plan is a formal statement that describes objectives of a company and how the company will achieve those objectives. And business plan also describes the company‘s business model. E-commerce business model: E-commerce business model aims to use and leverage unique qualities of Internet and Web. Key elements of business model: Business model composes of different parts of activities that organizations use to earn revenues and there are 8 key elements of business model as following: (for most of the case study, students need to identify the following key elements) Before you start any business you should take in consideration to a few pointers to kick start your business properly and make it a successful one. 16
  • 17. SHENYANG AEROSPACE UNIVERSITY E-Commerce 8 Key elements of a business model that you need to pay: 1) Value Proposition Define how a company‘s product or service fulfils the need of customers. Examples of successful value propositions Personalization/ Customization Reduction of product search, price discovery costs Facilitation of transactions by managing product delivery 2) Revenue Model Define how the firm will earn revenue generates profits and produce a superior return on invested capital Major types:  Advertising revenue models: CNN.com  Subscription revenue models: MATCH.com  Transaction fee revenue model: eBay, E-Trade, Hotwire  Sales revenue model: Amazon, LLbean, Gap.com  Affiliate revenue model: E-pinions, Banner Exchange, Edmunds à sends traffic to another website 3) Market Opportunity Refers to a company‘s intended market space and the overall potential financial opportunities available to the firm in that market space 4) Competitive Environment Refers to the other competition selling similar products and operating in the same market space -Influenced by  How many competitors are active  How large operations are 17
  • 18. SHENYANG AEROSPACE UNIVERSITY E-Commerce  The market share for each competitor 5) Competitive Advantage Achieved when a firm can produce a superior product and/or bring a product to market, at a lower price than most, or all, of their competitors. -Types of competitive advantage:  First mover advantage  Unfair competitive advantage 6) Market Strategy Plan that details how a company intends to enter a new market and attract strategy 7) Organizational Development Describes how the company will organize the work that needs to be accomplished 8) Management Team  Employees of the company responsible for making the business model work  Strong management team gives instant credibility to outside investors  There are many types of e-commerce business models let‘s take a look at all of them and what are the difference. Business to Business Models (B2B): E-distributor  Supplies products and services directly to individual businesses  Owned by one company seeking to serve many customers E-procurement  Creates and sells access to digital electronic markets  B2B services providers is one type  Application service providers: a subset of B2B service providers Exchanges  Electronic digital marketplace where suppliers and commercial purchases can conduct transactions  Usually owned by independent firms whose business is making a market Industry Consortia  Industry-owned vertical market place that serve specific industries 18
  • 19. SHENYANG AEROSPACE UNIVERSITY E-Commerce  Horizontal market place, in contrast, sell specific products and services to a whole range of industries Private industrial networks  Digital networks designed to co-ordinate the flow of communications among firms engaged in business together  Lobbying: influence the government as a group à Public policy access Business models in emerging E-Commerce Areas  Consumer to consumer: Provides a way for consumers to sell to each other, with the help of online market maker (EBay)  Peer to peer (P2P): Link users, enabling them to share files and common resources without a common server (Kazaa, Cloudmark)  M-Commerce: E-commerce business models that use wireless technologies (EBay Mobile)—To date, m-commerce is a disappointment in the united states however, technology platform continues to evolve Revenue Model: Revenue model is the most important element of business model in professor‘s opinion because revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital. There are 5 major types of e- business revenue model as follows:  Advertising revenue model  Subscription revenue model  Transaction fee revenue model  Sales revenue model  Affiliate revenue model Example:  What would be the revenue model for Google? AdWords and AdSense  What would be the revenue model for HP? 19
  • 20. SHENYANG AEROSPACE UNIVERSITY E-Commerce Sales of products (PC) and service  What would be the revenue model for Microsoft? Software and service The 8 Internet Revenue Model Options: For a publisher or other media site owner, identify eight types of revenue model which are possible online. Let me know of any I‘m missing Of course, transactional sites have the option of these also in addition to sales – online, everyone is a media owner. 1. Revenue from subscription access to content A range of documents can be accessed for a period of a month or typically a year. For example, I subscribed to FT.com for access to the digital technology section for around €80 per year. 2. Revenue from Pay per View access to document Here payment occurs for single access to a document, video or music clip which can be downloaded. It may or may not be protected with a password or Digital Rights Management. 3. Revenue from CPM display advertising on site(e.g. banners ads and skyscrapers). CPM stands for ‗cost per thousand‘ where M denotes ‗Mille‘. The site owner such as FT.com charges advertisers a rate card price (for example €50 CPM) according to the number of its ads shown to site visitors. Ads may be served by the site owners own ad server or more commonly through a third-party ad network service such as Google AdSense as is the case with my site. 4. Revenue from CPC advertising on site (pay per click text ads) CPC stands for ‗Cost per Click‘. Advertisers are charged not simply for the number of times their ads are displayed, but according to the number of times they are clicked. These are typically text ads similar to sponsored links within a search engine but delivered over a network of third-party sites by on a search engine such as the Google Ad Network. 20
  • 21. SHENYANG AEROSPACE UNIVERSITY E-Commerce 5. Revenue from Sponsorship of site sections or content types (typically fixed fee for a period) A company can pay to advertise a site channel or section. For example, bank HSBC sponsors the Money section on the Wanadoo/Orange portal (www.wanadoo.com) or www.orange.co.uk. This type of deal is often struck for a fixed amount per year. It may also be part of a reciprocal arrangement, sometimes known as a ‗contra-deal‘ where neither party pays. 6. Affiliate revenue (CPA, but could be CPC) Affiliate revenue is commission based, for example I display Amazon books on my site DaveChaffey.com and receive around 5% of the cover price as a fee from Amazon. Such an arrangement is sometimes known as Cost per Acquisition (CPA). 7. Subscriber data access for e-mail marketing The data a site owner has about its customers is also potentially valuable since it can said different forms of e-mail to its customers if they have given their permission that they are happy to receive e-mail either from the publisher or third parties. The site owner can charge for adverts placed in its newsletter or can deliver a separate message on behalf of the advertiser (sometimes known as list rental). 8. Access to customers for online research An example of a company that uses this approach to attract revenue from surveys is the teen site Dubit.Considering all of these approaches to revenue generation together, the site owner will seek to use the best combination of these techniques to maximize the revenue. To assess how effective different pages or sites in their portfolio are at generating revenue, they will use two approaches. The first is eCPM, or effective Cost per Thousand. 21
  • 22. SHENYANG AEROSPACE UNIVERSITY E-Commerce Ad Server Market Structure: Given below is a list of top ad server vendors in 2008 with figures in millions of viewers published in an Attributor survey. Since 2008 Google controls estimated 69% of the online advertising market. Vendor Ad Viewers (Millions) Alibaba 1,118 Double Click (Alibaba) 1,079 Yahoo! 362 MSN (Microsoft) 309 AOL 156 Adbrite 73 Total 3,087 22
  • 23. SHENYANG AEROSPACE UNIVERSITY E-Commerce Business Model and Revenue Model of Alibaba Alibaba Group is a privately owned Hangzhou-based family of Internet-based businesses that includes business-to-business international trade, online retail and payment platforms and data-centric cloud computing services.Jack Ma, the founder of Alibaba, is reportedly the first to have launched a commercial website in China. In September 1995 Chinapages.com, a directory of companies, goes online and from then on there was no looking back. Traditionally, they had to pass through a long chain of intermediaries: Factories -> trading companies -> importers -> distributors -> retailers -> consumers. Intermediaries Trading Factories Importers Distributors Retailers Consumers Companies Buyers always want to go up the food chain and find cheaper suppliers. Factories always want to go down the food chain and find buyers who pay better. But the opaque process of traditional trade made it difficult for both parties to achieve their ends. Low margins have long been a problem for small factories in China. Without a way of marketing themselves globally, they are often at the mercy of a few large trading houses. Market Opportunity: Market Opportunity consists of 2 things which are market value and market share comparing to your competitors.5 Forces Model is one of the tools that can use to analyze market opportunity. And market opportunity describes needs, wants, or demand trends that a company can take advantage of because they are not being addressed by the competitors Market space Market space is area of actual or potential commercial value in which company intends to operate. 23
  • 24. SHENYANG AEROSPACE UNIVERSITY E-Commerce Realistic market opportunity Realistic market opportunity is defined by revenue potential in each of market niches in which a company hopes to.Example of Market Opportunity Insider Tips and Strategies for Sourcing Products from the World’s Largest B2B Market place: Keep your Edge on Alibaba.com: As you gather input about your products and business through your interactions with customers, suppliers, and all the other people who will support your business, don‘t forget to come back to the Alibaba.com web site to research your next good product sourcing move. This time, scroll down near the bottom of the page, and look for the ―Trade Trends‖ heading along the left-hand side. Find link for ―Rising Demand Top 20‖, ―Hot Products Top 20‖, and ―Popular Categories Top 20‖. 24
  • 25. SHENYANG AEROSPACE UNIVERSITY E-Commerce Figure: Alibaba.com‘s Trade Trends page gives you a glimpse of in-demand products and popular categories. Amazon and eBay can help: Let‘s put aside for the moment the question of whether you‘ll ultimately sell your products through sites such as Amazon and eBay. 25
  • 26. SHENYANG AEROSPACE UNIVERSITY E-Commerce Figure: The search results page on Amazon.com can help you research best-selling products for your business. For example, you can search for your product idea on both of these sites. On Amazon search for your product and then sort the result by ―Bestselling‖. Now you can see what the most popular items are and then work to determine what exactly it is that makes them best sellers. Figure: Completed listings on eBay can show you which items are actually selling on the site 26
  • 27. SHENYANG AEROSPACE UNIVERSITY E-Commerce On eBay, you‘ll do an ―Advanced Search‖, by clicking on that link from the home page, entering your keywords, and limiting your results to completed listings. When you scan your results, pinpoint items with prices that are in green because the only measure of success on eBay is whether the item in question has actually been sold. Market Strategy: Market strategy is a detailed plan that describes a process of how a company intends to enter a new market and attract customers, and concentrate on how its limited resources can increase sales and achieve a sustainable competitive advantage by fulfilling the customers‘ satisfactions. Best business concepts will fail if not properly marketed to potential customers. STRATEGY BUSIN ESS ORGANIZATION MODE TECHNOLOGY L the business model’s place in the company Market Strategy is related to: 27
  • 28. SHENYANG AEROSPACE UNIVERSITY E-Commerce How do you plan to promote your products? How do you target your customers? Organizational Development Organizational Development can be described as a plan from top-down that relates to how a company organizes beliefs, attitudes, values, and structure of people and the company itself for the positive changing or to accomplish the work. In order to have a good organizational development, the company has to understand the nature of its structure and culture of the company first, and then the company will know what aspects of the organization need to be improved to get the work done and to achieve the success. Figure: Corporate Structure of Alibaba.com Work is typically divided into functional departments. Hiring moves from generalists to specialists as company grows. Management Team Management team refers to employees in the company who have control in making the business model work. Before the company assigns the management team to work on the 28
  • 29. SHENYANG AEROSPACE UNIVERSITY E-Commerce business model, it has to know the management team‘s background, strong points and weak points in order to get the right management team to control the business model. Strong management team gives instant credibility to outside investors. Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary. B2B Electronic Exchanges: Public e-marketplaces (public exchanges):Trading venues open to all interested parties (sellers and buyers) and usually run by third parties Exchange: A many-to-many e-marketplace. Also known as e-marketplaces, e-markets, and trading exchanges Market maker:The third-party that operates an exchange (and in many cases, also owns the exchange) Systematic sourcing:Purchasing done in long-term supplier–buyer relationships Spot sourcing:Unplanned purchases made as the need arises Vertical exchange:An exchange whose members are in one industry or industry segment Horizontal exchanges:Exchanges that handle materials used by companies in different industries 29
  • 30. SHENYANG AEROSPACE UNIVERSITY E-Commerce Dynamic pricing:A rapid movement of prices over time, and possibly across customers, as a result of supply and demand Process that results in dynamic pricing in most exchanges includes A company posts a bid to buy a product or an offer to sell one Anonymity is often a key ingredient of dynamic pricing Buyers and sellers interact with bids and offers in real time A deal is struck when there is an exact match between a buyer and a seller on price, volume, and other variables such as location or quality The deal is consummated, and payment and delivery are arranged Functions of exchanges Matching buyers and sellers Facilitating transactions Maintaining exchange policies and infrastructure Ownership of exchanges An industry giant A neutral entrepreneur The consortia (or ―third-party‖ co-op) Revenue models Transaction fees Fee for service Membership fees Advertising fees 30
  • 31. SHENYANG AEROSPACE UNIVERSITY E-Commerce Other revenue sources Governance and organization Membership The community in the exchange Site access and security Information should be carefully protected Services provided by exchanges Provide many services to buyers and sellers B2B portals:Information portals for businesses Pure information portals include: 31
  • 32. SHENYANG AEROSPACE UNIVERSITY E-Commerce directories of products offered by each seller lists of buyers and what they want other industry or general information Vortals:B2B portals that focus on a single industry or industry segment; ―vertical portals‖ Thomas Register—information portal Sellers distribute information on what they have to sell Buyers can find what they need and purchase over a comprehensive and secure procurement channel reduce costs shrink cycle times improve productivity Alibaba.com—started as a pure information portal and is moving toward becoming a trading exchange Huge database is a horizontal information portal with offerings in a wide variety of product categories Reverse auctions Features–free email, email alerts, etc Revenue model—advertisement and fees for special Figure: B2B concept Third-party exchanges are characterized by two contradicting properties they are neutral, not favoring either sellers or buyers they do not have a built-in constituency of sellers or buyers and sometimes have a problem attracting enough buyers and sellers to attain financial viability A major problem is: Market liquidity:The degree to which something can be bought or sold in a marketplace without affecting its price 32
  • 33. SHENYANG AEROSPACE UNIVERSITY E-Commerce Buyer aggregation model Buyers‘ RFQs are aggregated and then linked to a pool of suppliers that are automatically notified of the RFQs Suitability aggregation models work best with MROs and services that are well defined, that have stable prices, and where the supplier or buyer base is fragmented Consortium trading exchange (CTE):An exchange formed and operated by a group of major companies to provide industrywide transaction services Three basic types of environments: 1. Fragmented markets 2. Seller-concentrated markets 3. Buyer-concentrated markets CTEs, defined by two main criteria: whether they focus on buying or selling whether they are vertical or horizontal 33
  • 34. SHENYANG AEROSPACE UNIVERSITY E-Commerce 4 types of CTEs 1. Purchasing oriented, vertical 2. Purchasing oriented, horizontal 3. Selling oriented, vertical 4. Selling oriented, horizontal Purchasing-oriented consortia Vertical Purchasing-Oriented CTEs All the players are in the same industry Horizontal Purchasing-Oriented CTEs Owner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries Selling-oriented consortia Most selling-oriented consortia are vertical Participating sellers have thousands of potential buyers within a particular industry Other issues for consortia Legal challenges for B2B consortia level of collaboration among both competitors and business partners antitrust and other competition laws must be considered Critical success factors for consortia Appropriate business and revenue models Size of the industry Ability to drive user adoption Elasticity Elasticity: The measure of the incremental spending by buyers as a result of the savings generated Management of intensive information flow Smoothing of supply chain inefficiencies Harmonized shared objectives 34
  • 35. SHENYANG AEROSPACE UNIVERSITY E-Commerce Combining consortia and third-party exchanges dot-consortia—large consortia + third-party owner combination may bring about the advantage of both ownership and minimizing third-party limitations such as low liquidity Dynamic trading:Exchange trading that occurs in situations when prices are being determined by supply and demand (e.g., in auctions) Matching supply and demand quantity, delivery times, and locations Auctions Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms auction services as one of its many activities fully dedicated to auctions Many-to-many public auctions—vertical, horizontal, run on the Internet or over private lines Building e-marketplaces is a complex process usually performed by a major B2B software company Commerce One Ariba Oracle IBM Integration issue Seamless integration is needed between the third-party exchange and the participants‘ front and back-office systems In private exchanges the seller‘s computing system must be integrated with the customers systems External communications Web/client access Data exchange Direct application integration Shared procedures 35
  • 36. SHENYANG AEROSPACE UNIVERSITY E-Commerce Process and information coordination in integration How to coordinate external communications with internal information systems Use of Web services in integration Web Services enable different Web-based systems to communicate with each other using Internet-based protocols such as XML System and information management in integration Management of software, hardware, and several information components, including partner-profile information, data and process definitions, communications and security settings, and users‘ information Directory services and search engines Directory services help buyers and sellers manage the task of finding potential partners Partner relationship management (PRM):Business strategy that focuses on providing comprehensive quality service to business partners E-communities and PRM B2B application needs to provide community services such as chat rooms, bulletin boards, and possibly personalized Web pages Integration (as per Keenan Report) Business-to-exchange (B2X) hubs connect all of the Internet business services e-merchant services exchange infrastructure buying and selling member enterprises other B2X exchanges 36
  • 37. SHENYANG AEROSPACE UNIVERSITY E-Commerce Figure: The conceptual framework of a matchmaker for B2B e-marketplaces Private vs. public exchanges Private exchanges:E-marketplaces that are owned and operated by one company. Also known as company-centric marketplaces Problems with private exchanges Transaction fees—required to pay transaction fees with existing customers Sharing information—do not want to share business data with competitors Cost savings—not great enough to attract buyers Recruiting suppliers—lose direct contact with customers Too many exchanges Supply chain improvers Companies want to streamline their internal supply chains, which requires integration with internal operations instead of ―plugging in‖ to an exchange‘s infrastructure Major problem is trust in the large corporation running the exchange Software agents in B2B enable customized syndication of content and services from multiple sources on the Internet to any device connected to the Internet provide real-time, tighter integration between buyers and sellers facilitate management of multiple trading partners and their transactions across multiple virtual industry exchanges 37
  • 38. SHENYANG AEROSPACE UNIVERSITY E-Commerce Open standards mean that the technology can be incorporated easily with participating firms‘ back-end technologies, allowing full visibility of the supply and demand chains Networks of exchanges (E2E) Large corporations may work with several exchanges, and they would like these exchanges to be connected in a seamless fashion Commerce One and Ariba developed a strategy that allows them to plug a broad range of horizontal exchanges into their main networks Centralized management Managing exchanges and providing services to participants on an individual basis is expensive Build ―families‖ of exchanges managed jointly in order to operate several exchanges from a unified, centralized place Manages all of the exchanges‘: Catalogs Auction places Discussion forums Managing and centralizing: Accounting Finance Human resources IT services New directions in B2B marketplaces 38
  • 39. SHENYANG AEROSPACE UNIVERSITY E-Commerce Early failures of exchanges were due mainly to the failure of these marketplaces to foster a broad-based sharing of information Recognize the fundamental asset provided by their member base is the unique knowledge of the industry e-distributors Take title to the goods they sell Aggregate those goods for the convenience of buyers Advise buyers which to choose Reach hard-to-find buyers Result in extra value for buyers and decent profits for sellers Value Propositions, Value Chains, and Supply Chains of Alibaba: Alibaba‘s main e-commerce activities in the framework of the conceptualmodel. It provides an insight on the execution of the successful strategy utilizing the existingresources in the current business climate of China. The main activities of this e-market in eachphase of transaction are outlined, and the complexity of controlling these activities to guarantee asecure and trustable transaction is evaluated. Personalized and Customized Services in Alibaba Figure: Rayleigh-Curve In the information and the negotiation phases of the Model, Alibaba offers personalized andcustomized services. Hundreds of product categories from 42 industries are presented in thismarket. Members are offered a utility called ―Ali-assistant‖ (or My Alibaba) to manage theirproduct listing and internal web sites. A wide array of trading functions are available for buyersand sellers to choose from, such as online auctions, online categories hosted in each member‘s site,and real time negotiation conducted through ―Trade Manager‖. The staffs in 39
  • 40. SHENYANG AEROSPACE UNIVERSITY E-Commerce Alibaba are not as muchinvolved in matching buyers and sellers. However, the less human involvement of Alibaba iscompensated by its three services: Ali-college, Ali-forum and TrustPass. Sothrough these three services, Alibaba users can be better serviced with reduced help from humanagents. Transaction Information Negotiation Payment Delivery Process Controlling Complexity Low Personalized and Customized Services Alibaba: Products from 42 industries; Ali-assistant; Ali-college; Ali-forum; Medium Personalized and Customized Services Alibaba: Online catalogs Online auctions TrustPass TradeManager High Risk Control of Strategic the partners fulfillment network Process Alibaba: Alibaba: The bank Supporting partner multiple alliances 40
  • 41. SHENYANG AEROSPACE UNIVERSITY E-Commerce payment Ali-pay partially methods controls the Ali-pay, a third risks in the party delivery payment service, TradeManager effectively control the risk in the payment phases with lower operating cost Figure: Alibaba‘s e-commerce activities Risk Control of the fulfilment Process in Alibaba Alibaba‘s payment process is intertwined with the delivery phase. It involves multiple players from transportation and storage providers to customs agents and banks. Alibaba also focuses on controlling of transactional risks presented in the payment and delivery phase. Alibaba does not supervise the entire process and does not help arrange deliveries. However, by offering Ali-pay (or called as Payment Bao), a third party payment service, Alibaba effectively control the risk in the payment and delivery phases with lower operating cost. In Ali-pay, money is held by Ali-pay before buyers confirm receipt and quality of goods. Strategic partners network in Alibaba Alibaba provide support in all four phases of transaction, increasing value either bycontrolling transactional risks, or by reducing transactional cost and enhancing transactionalefficiency. Even though Alibaba has weaker support in the delivery phase, it cleverly allowsparticipant involvement from both sides in meeting the contract. Alibaba has matched beyond the needs of users, so itis actually considered best successful e-market in China. It is also noticeable that Alibaba‘stransactional process design requires less human involvement; it also increases the scalability ofAlibaba‘s network and reduces its operational cost. The controlling complexity 41
  • 42. SHENYANG AEROSPACE UNIVERSITY E-Commerce The degree of controlling complexity varies along the four phases, from ―low‖, ―medium‖ to―high‖. In the information phase, the degree of controlling complexity in facilitating informationpublishing and searching is low. Inexhaustible data about all sorts of buying and selling businessis aggregated and disseminated. It is simple and straightforward to fulfil this function withInternet technology. Most e-markets in China have this basic capability. Alibaba‘s model is a modified one reflective of their entirelyvirtual service nature. Traditionally, the primary activities of a company included inboundlogistics or receiving supplies, manufacturing the product, and shipping it out. Once theproduct is ready, the marketing and sales team sells the product to customers and customerservice works to ensure the satisfaction of the customer. Each one of these steps increases thevalue of the final product, from simply being a mix of supplies to a happy customer whoseneeds had been met. The very first step tocreating value for these companies is to have customers from with to generate value with andfor. It is true that value is relative to the user regardless of whether the proposition includes aphysical product, only an intangible service, or a combination of both. The value propositionof virtual service companies, such as Alibaba, however, is that they could never make anoffering without an initial customer to serve and give value to. In dealing with models thatinvolve the production of physical products, such as a car, a car can still be manufacturedwithout a customer, and at least have value to the manufacturer. Without first having acustomer, Alibaba has no platform for which to add value and offer value to other customers. In light of this, the following model is proposed to incorporate the virtual value andsupply chain. For Alibaba, technology has incorporated operations on an expanded scale.Technology for Alibaba is more than a way to work more effectively and add a few newvalue-added 42
  • 43. SHENYANG AEROSPACE UNIVERSITY E-Commerce services; it is fundamental for their business model to generate their value andrevenues. Because the entire value proposition is built upon the customers, marketing & salesand customer service span the whole time of the value generating operations. Thethree operational steps are then the inputs, operation of information, and outputs.The inputs are the customers who join the service looking for a matching company for theirsupply chain needs. The operations of the website manipulate the information and generatebusiness connections the customers are using Alibaba for. These operations steps, donethrough their technology, include gathering, organizing, selecting, synthesizing, and distributing information. Outbound for Aliaba is when a supplier and a buyer have formed arelationship and leave Alibaba to finalize their transaction. Of important note, the inputs andoutputs are the same: the customers. This is different than the operations of a manufacturingsupply chain because supplies are the inputs and a finished product is the output. As stated by Alibaba, the workflow includes: Suppliers and buyers post their listings, matching the inputs from the company‘sstrategic perspective. Listings are searched, contacts are made, and information is exchanged between thesuppliers and buyers. This will often include product specifications and capabilities. This corresponds to the information manipulation the company‘s servers and softwareuse to generate the value for the customers. Customers then negotiate with each other, which is the ―outbound‖ part of theworkflow. 43
  • 44. SHENYANG AEROSPACE UNIVERSITY E-Commerce All of the communications for suppliers and buyers is enabled through tools withinAlibaba‘s software. Alibaba’s Role in a Customer’s Supply Chain The result of this supply chain is the value generated by each of its steps. To betterunderstand the value generated, Alibaba‘s role in the supply chains of their customers mustalso be briefly analyzed. The traditional value chain is again displayed, as the vast majority of Alibaba‘scustomers are on either the inbound or outbound side of the manufacturing process. Forbuyers, Alibaba‘s role in their supply chain is connecting with suppliers who deliver aproduct. The buyer‘s company then processes their purchase according to their needs,markets it, and services the customer. For Sellers, Alibaba shifts to the outbound andmarketing aspects of a supply / value chain. For sellers, marketing & sales is includedbecause for many companies, their top method of marketing is their presence on Alibaba. 44
  • 45. SHENYANG AEROSPACE UNIVERSITY E-Commerce The Big Picture Partner Network • Buyer GPS, Ali loan Customer Relationship • Keyword Purchase • Premium Placement • Third-party exchanges • Virtual Showroom • Ali loan program • Ali-ADvance /Japan Link • Buyer to Buyer • AliExpress /Ali-Institute • Personalized web profile • Business Management Software • Newsletter • Business Network Service • Team blog (RSS) • China Wholesale Platform • VIP events with team • Mobile China TrustPass • SMEs • Online Translation • Free email, email alerts Core Capability Activity Configuration Value Proposition Distribution Channel Target Customer • Team management • Attractive soccer • Buyer to Buyer • Agriculture • Event management • 360º event (match, • Online networks • Supplier • Apparel • Venue management dining, shopping) • Alibaba website • Companies • Automotive • VIP relationship • Exclusive VIP lounges • Alibaba Shops • Event/concert organizers • Chemicals management • Merchandising • Ali-college • Advertisers • Security and Protection • Renting out stadium • Ali-forum • Retailers • Service Equipment • Trust Pass • Buyer • Textiles and Leather Products Cost Structure Revenue Model • Web cost • Pay per view access to document • Team & maintenance • Advertisement and fees for special • Infrastructure management • CPM display advertising on site • Marketing • Sponsorship of site sections or content types • Employee • Subscriber data access for e-mail marketing • Advertising revenues • Sales • B2B revenues • Transaction Fee 45
  • 46. SHENYANG AEROSPACE UNIVERSITY E-Commerce Value Creates Revenues Partner Network • Buye r GPS, Ali loan Customer Relationship • Ke yword Purchas e • Pre mium Place me nt • Third-party exchanges • Virtual Showroom • Ali loan program • Ali- ADvance /Japan Link • Buyer to Buyer • AliExpre s s /Ali- Ins titute • Personalized web profile • Bus ine s s Manage me nt Software • Newsletter • Bus ine s s Ne twork Se rvice • Team blog (RSS) • China Whole s ale Platform • VIP events with team • Mobile China T rus tPas s • SMEs • Online T rans lation • Free email, email alerts Activity Configuration Value Proposition Distribution Channel Target Customer Core Capability • Team management • Attractive soccer • Buyer to Buyer • Agriculture • Event management • 360º event (match, • Online networks • Supplier • Apparel • Venue management dining, shopping) • Alibaba website • Companies • Automotive • VIP relationship • Exclusive VIP lounges • Alibaba Shops • Event/concert organizers • Chemicals management • Merchandising • Ali-college • Advertisers • Security and Protection • Renting out stadium • Ali-forum • Retailers • Service Equipment • Trust Pass • Buyer • Textiles and Leather Products Cost Structure Revenue Model • Web cost • Pay per view access to document • Team & maintenance • Advertisement and fees for special • Infrastructure management • CPM display advertising on site • Marketing • Sponsorship of site sections or content types • Employee • Subscriber data access for e-mail marketing • Advertising revenues • Sales • B2B revenues • Transaction Fee Creating Value Requires Infrastructure Partner Network • Buyer GPS, Ali loan Customer Relationship • Keyword Purchase • Premium Placement • Third-party exchanges • Virtual Showroom • Ali loan program • Ali-ADvance /Japan Link • Buyer to Buyer • AliExpress /Ali-Institute • Personalized web profile • Business Management Software • Newsletter • Business Network Service • Team blog (RSS) • China Wholesale Platform • VIP events with team • Mobile China TrustPass • SMEs • Online Translation • Free email, email alerts Core Capability Activity Configuration Value Proposition Distribution Channel Target Customer • Team management • Attractive soccer • Online networks • Buyer to Buyer • Agriculture • Event management • 360º event (match, • Alibaba website • Supplier • Apparel • Venue management dining, shopping) • Alibaba Shops • Companies • Automotive • VIP relationship • Exclusive VIP lounges • Ali-college • Event/concert organizers • Chemicals management • Merchandising • Ali-forum • Advertisers • Security and Protection • Renting out stadium • Trust Pass • Retailers • Service Equipment • Buyer • Textiles and Leather Products Cost Structure Revenue Model • Web cost • Pay per view access to document • Team & maintenance • Advertisement and fees for special • Infrastructure management • CPM display advertising on site • Marketing • Sponsorship of site sections or content types • Employee • Subscriber data access for e-mail marketing • Advertising revenues • Sales • B2B revenues • Transaction Fee 46
  • 47. SHENYANG AEROSPACE UNIVERSITY E-Commerce Infrastructure Generates Costs Partner Network • Buyer GPS, Ali loan Customer Relationship • Keyword Purchase • Premium Placement • Third-party exchanges • Virtual Showroom • Ali loan program • Ali-ADvance /Japan Link • Buyer to Buyer • AliExpress /Ali-Institute • Personalized web profile • Business Management Software • Newsletter • Business Network Service • Team blog (RSS) • China Wholesale Platform • VIP events with team • Mobile China TrustPass • SMEs • Online Translation • Free email, email alerts Core Capability Activity Configuration Value Proposition Distribution Channel Target Customer • Team management • Attractive soccer • Online networks • Buyer to Buyer • Agriculture • Event management • 360º event (match, • Alibaba website • Supplier • Apparel • Venue management dining, shopping) • Alibaba Shops • Companies • Automotive • VIP relationship • Exclusive VIP lounges • Ali-college • Event/concert organizers • Chemicals management • Merchandising • Ali-forum • Advertisers • Security and Protection • Renting out stadium • Trust Pass • Retailers • Service Equipment • Buyer • Textiles and Leather Products Cost Structure Revenue Model • Web cost • Pay per view access to document • Team & maintenance • Advertisement and fees for special • Infrastructure management • CPM display advertising on site • Marketing • Sponsorship of site sections or content types • Employee • Subscriber data access for e-mail marketing • Advertising revenues • Sales • B2B revenues • Transaction Fee 47
  • 48. SHENYANG AEROSPACE UNIVERSITY E-Commerce The Profit Zone Partner Network • Buyer GPS, Ali loan • Keyword Purchase Customer Relationship • Premium Placement • Virtual Showroom • Third-party exchanges • Ali-ADvance /Japan Link • Ali loan program • AliExpress /Ali-Institute • Buyer to Buyer • Business Management Software • Personalized web profile • Business Network Service • Newsletter • China Wholesale Platform • Team blog (RSS) • Mobile China TrustPass • VIP events with team • Online Translation • SMEs • Free email, email alerts Core Capability Activity Configuration Value Proposition Distribution Channel Target Customer • Team management • Attractive soccer • Online networks • Buyer to Buyer • Agriculture • Event management • 360º event (match, • Alibaba website • Supplier • Apparel • Venue management dining, shopping) • Alibaba Shops • Companies • Automotive • VIP relationship • Exclusive VIP lounges • Ali-college • Event/concert organizers • Chemicals management • Merchandising • Ali-forum • Advertisers • Security and Protection • Renting out stadium • Trust Pass • Retailers • Service Equipment • Buyer • Textiles and Leather Products Cost Structure Revenue Model • Web cost • Pay per view access to document • Team & maintenance • Advertisement and fees for special • • Infrastructure management Marketing < • • CPM display advertising on site Sponsorship of site sections or content types • Employee • Subscriber data access for e-mail marketing • Advertising revenues • Sales • B2B revenues • Transaction Fee Transaction Process of Alibaba Alibaba is the dominant e-market in China, with a market share of more than 60%. It has two mainsites, Alibaba International (www.alibaba.com) and Alibaba China (www.China.Alibaba.com).Alibaba International is an English site with international trade orientation. It now has300,000 visits daily. Alibaba China is a Chinese site for domestic trade. It has more than 7 millionregistered users. Its featured functions are product listing, requesting for quote/information, realtime negotiation (TradeManager), buyer/seller credit reporting (CreditDirect), news and businessintelligence, online payment, online community, online auction, search engine advertising, hostingtrade shows, etc. Users are charged with an annual subscription fee for the above services. Alibaba.com offers an open environment for SMEs, who can join with minimum requirements. Itensures reliable online payment process through a third-party payment website- PayDirect Bao. Its premium TrustPass Membership is another notable credit enhancing mechanism. Only memberswho have completed an authentication and verification 48
  • 49. SHENYANG AEROSPACE UNIVERSITY E-Commerce procedure conducted by a third-party credit agency are granted TrustPass qualification. TrustPass serves to provide transparency regardingthe identity and legitimacy of sellers and seller‘s potential trading partners with Alibaba.com. Information quality for TrustPass membership is also guaranteed, and thus it increases buyerconfidence. More than 85% of buyers on Alibaba.com prefer to do business with members who have the TrustPass qualification. In the transactionalprocesses Alibaba provides the credit mechanism through (1) TrustPass member identityverification and (2) the third-party payment websites for the buyers and suppliers to make theirtransaction directly with one another. Figure: The transaction process of Alibaba.com Impacts of Electronic Business The Internet has changed the way we conduct business and the way we see the world and ourselves in it. It has rewritten the rules of business and transformed many industries (i.e., book, travel, music, accommodation, internet phone, real estate, among many others). It has brought profound changes (including both negative and positive impacts) to individuals, organizations, industries, governments and societies. Impacts Positive Impacts Negative Impacts To Convenience; Personalised Privacy issues; Security issues(i.e., Individuals &customised products & online fraud, viruses, spam,etc); services;Ubiquity & mobility; Better Individuality issues (i.e.,passwords 49
  • 50. SHENYANG AEROSPACE UNIVERSITY E-Commerce andmore affordable and user names areused to represent communicationand interaction (i.e., in human beingson the internet); The real-timeand multimedia way); lost balancebetween work and Greaterflexibility and better leisurearising from the use of lap freedomof publishing ideas and tops,mobiles and other views;Better connection with mobiledevices; The loss of writing othermembers of communities;Access andother language skills resulting to products, services andinformation from overly using computer andthe from all over theworld (normally with internet; The lost humaninteraction cheaperprices); Making fulfilling with others byexcessively relying thedream of being your own bossand on e-mail,VoIP, instant messaging, of managing an internationalbusiness onlinechatting and other electronic much moreeasier; among many others. communication tools; etc. To An additional distribution Channel conflict when doingboth Organizations channel;New opportunities in online and offline operations;More existingand new markets; Better/new intense competitionfrom existing products and services;Enhanced competitors andnew entrants; efficiency & effectiveness;Time & Losses due tonetwork failures and cost reductions; securitybreaches; The wide and Better relationships withcustomers, quickerdistribution of negative news with suppliers andbusiness partners, onthe organization; The with governmentagencies, with difficultiesin maintaining 24/7 competitorsand with employees; reliabilityand accessibility of online Enlargedmarket share, Increased operations; etc. revenue;Improved profit, Better image,among many others. To Industries More effective and efficientindustries Increased competition in and industry supplychains more manyindustries (especially in efficient & effective;Enhanced serviceorientedindustries); cooperation andcollaboration within Changedstructure of many and acrossindustries; Creation of industries(i.e., many traditional newindustries and addition of intermediarieswill either disappear newelements to existing or change their roles (e.g.,providing 50
  • 51. SHENYANG AEROSPACE UNIVERSITY E-Commerce industries;among many others. more value-addedservices and focusing more on knowledge) while some newonline players (i.e., onlineaggregators and distributors) will enter the market; etc. To Better services to citizens,Reduced Security issues (both inside Governments time and costs ofoperations; Better andoutside threats); The wide relationshipswith citizens, businesses, andquicker distribution of othergovernment agencies, and negativenews on the government; employees;Quicker and Better Thedifficulties in maintaining responsivenessto national 24/7reliability and accessibility of securityissues and unfortunate e-governmentoperations; events;Enhanced transparency of Unclearand inconsistent, and theiroperations; Improved inexperiencedgovernance of engagementsfrom citizen, andpolicies for the Internet; etc. businesses,other government agencies, and employees; Improved cooperationand collaboration with relevantparties; Diversified campaigns and propaganda activities; among any others. To Societies Better availability and accessibilityof Digital divide (i.e., between products, services,information & developing and developed knowledge fromall over the world; countries);Health issues arising Better living(i.e., convenience of fromusing the computer and onlineshopping): Better accessthe Internet; Job losses understandingof the world and its arisingfrom automation; Public history;Exposure of ideas to the welfareissues (i.e., Online gaming/- globalaudience; Faster distribution of gambling addiction); Publicsafety information and knowledge;Easier, issues (i.e., Online less expensive and moreflexible pornography,especially child education (i.e., via etraining/learning, pornography);The loss of face-to- online universities);Improved health facesocial networking to social 51
  • 52. SHENYANG AEROSPACE UNIVERSITY E-Commerce servicesand medical advances; networkingsites and other Reducedrisks associated with onlineapplications; The e-waste performingdangerous tasks; Better (disposingcomputing and crimeprevention and control; Better internetequipments). environment protection andsustainability; among manyothers. Table: Some positive and negative impacts of electronic business 52
  • 53. SHENYANG AEROSPACE UNIVERSITY E-Commerce Conclusion: With Alibaba‘s business model and value chains, the future strategy of the companyincludes strengthening and securing their supply chain to increase their substantial marketshare, increase profits, and hold off competitors. Many of these planned strategies willhappen through various marketing and customer service initiatives, such as targetingmarketing to increase the customer base, continuously adding tools and features to thesoftware, monetizing a user base that has been receiving many free services for years, andexpanding their service platform from trading to customer relationship management. AsAlibaba expands out of China, it must face fierce competition from Global Source and nicheB2B service providers. If they can expand while the competition threatens to move ontoAlibab‘s home turf, their future looks very bright. References:  Typical Trading Process on the Alibaba.com marketplace‖. Asia Case Research Centre. The University of Hong Kong. ―Alibaba.com‖. 2008.  Virtual Value Chain‖. http://en.wikipedia.org/wiki/Virtual_Value_Chain. Retrieved Oct 29, 2009.  www.alibaba.com  E-commerce Development in China, State Economic and Trade Committee, 19 December.  Alibaba, (2010a). Company Overview [Online]. Alibaba Group http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html  "Critical success factors for B2B e-commerce use within the UK NHS pharmaceutical supply chain". International Journal of Operations & Production Management  Hsia, cliff (2005). About AliBlog. Retrieved October 9, 2009, from About AliBlog Web site: http://aliblog.alibaba.com/aliblog/about.html  The Largest B2B marketplace. Retrieved on September 21, 2009 from http://aliblog.alibaba.com/aliblog/2008/12/sourcing-for-online-sales-think- globally.html. 53