In this article, we will be discussing ways Alibaba group explores to make money and how the organization keeps its business going. Firstly we would look at Alibaba’s background and understand how the organization came to be. Besides, we will also look at the revenue segments that the business has invested in and then finally talk about the revenue sharing that the organization adopts. Alibaba Inc shouldn’t be strange to you as an individual; however, here is a quick rundown if you are new to Alibaba. Let’s know How does Alibaba make money?
Alibaba is a group holding company whose legal dominance is in the Cayman Islands but conducts its activities through the digital marketplace, Chinese markets subsidiaries, and other variable people of interest. The primary job of Alibaba is to offer a digital marketplace where users can shop for items of their preference and connect with sellers. The platform was created mostly for buying and selling purposes. The Alibaba business operates four-category of business segments which are considered as a subgroup of the global business.
After successful coordination of the online platform where buying and selling activities take place, Alibaba diversified into cloud computing, business, digital entertainment business. The Alibaba Company specializes in several business models, and we will be exploring these business offerings. First, this piece will have some key takeaway, mostly revolving around Alibaba’s digital marketplace for consumers and merchants.
Background information about Alibaba
Alibaba is considered the world’s largest online eCommerce business that provides a digital platform for consumers and merchants to meet and transact. Alibaba provides the technological infrastructure, marketing, and knowledge know-how for running the digital space where products and goods are displayed. The platform, however, helps businesses to maintain their online presence and conduct their business activities. Generally, the Alibaba group does not engage in sales or transactions; it only serves as the middle man between the merchants and the consumers looking to buy products or goods from the platform.
The Alibaba organization operates the following list of retail companies for physical consumers in China which include the Taobao marketplace, Tmall platform, and Juhuasuan for a buyer within the Chinese marketplace territory.
As of the financial year-end of 2015, which was March 2015, the three marketplaces above controlled and operated by Alibaba generated a combined GMV of $394 billion, obviously from combined users of 350 million. The GMV is the value of confirmed orders of products and services without considering if the buyer and the seller later settle their transaction at the end of the day. In addition to the market operated for the Chinese buyers, Alibaba also operates these additional three market places, which are Alibaba.com, Aliexpress.com, and 1688.com.
Alibaba Company files its financials with the United States Securities and Exchange Commission because it is a publicly traded organization and does this trading with the principles laid down by the SEC. The organization follows the fiscal year by filing its report at the March-end of every year. In addition, the company also reports some certain of its earnings before fulfilling the tax obligations interest and amortization through the no-GAAP methods. The reporting currency used by Alibaba is Renminbi, so the company converts its revenue to US dollars for proper documentation.
In the first quarter of the year 2021, the organization’s income increased to about 37 percent, which is about $33.9 billion increase as at the end of 2011 first quarter, for the year-end of 2020. This growth was slightly higher than what was recorded for the 2020 fiscal year, at 35.3 percent. The organization realized that increase was due to the net gain increase realized from the market prices and the equity of publicly traded investments on behalf of the business.
The Alibaba Business Segments that bring in the income
The Alibaba Company is running various business segments, and these business segments’ functionality differs from one another. The revenue generated by the Alibaba groups of the company comes from this major four core aspect of its business which is;
- Core Commerce (The transaction between the customers and merchants)
- Cloud Computing (Cloud computing is another aspect of Alibaba business where cloud solutions are provided)
- Digital Media And Entertainment
- Innovation and other technology-related developments
The company’s revenue comes from these four major categories of services, and Alibaba generates a huge sum of money through these services.
The core commerce aspects of business activity that Alibaba engages in provides a digitized platform where business merchants in China and many other countries in Asia display their goods and services for customers worldwide to access. This business segment comprises buying and selling, logistics of goods wholesale market provision, and local consumer’s satisfaction. Alibaba, however, generate income through the following means under the core commerce’s services it offers include;
- Marketing Services: Alibaba has created a platform where sellers can come and display their goods and persuade customers to shop from and buy from the merchants. However, Alibaba went as far as providing advertising services for some premium marketplaces which would help them gain many more customers to their stores and eventually upscale their sales.
- Membership fees: For merchants interested in selling on the digitized space that Alibaba has created, they would have to pay for membership to host a store on the platform. The membership fees would get sellers to access the features, customers, and exposure required to sell their goods on the Alibaba platform.
- Customer Management services: here is another service that the sellers would benefit from the Alibaba company after hosting their store on the Alibaba platform. The company provides a medium for the customers and the merchants to settle disputes that might have come up after a failed transaction.
- The Commission of transaction: Here is another benefit for Alibaba because commissions are charged on every transaction made between the merchants and the consumers.
The core commerce services offered by Alibaba are said to be the large source of income for the organization, with a total income of $30 billion, which amounts to 88 percent of the company’s total revenue. As of the end of FY 2021, the company accounted for 38.2 percent growth in the company revenue, which was the same as a year ago. More so, in terms of the income generated by the organization, the EBITA is nearly about 100 percent of the entire organization’s income. This is because the business segment accounts for the losses incurred in the Alibaba business, and the higher figure always comes from that segment.
The cloud computing Segment of the business
Aside from the core commerce of the business section where Alibaba makes the most of its money, the business also generates a good sum of money from the cloud computing services it offers. This service includes the complete suite of cloud services, data storage, and accessibility online, big data analytics, machine learning, and many other cloud-related services the giant Amazon Company provides. Cloud computing services are an aspect that generates income from the enterprise clients, business to business, and services. The service payment is based on the specific duration of the services they require.
Cloud computing is Alibaba’s second-largest source of income, which has amounted to about $2.5 billion or about 7.1 percent of their total revenue generated by the company. Although this aspect of the business is new, it has been recognized as one of the fastest-growing parts of the Alibaba group of business. The revenue realization from the firm grows about 50.3 percent as of the 2021 FY year compared to the past year Q3. Indeed the Q3 income was believed to be more than what has been realized over time that the business has been set up, and this growth is expected to be exponential and new innovation would drive more income for these aspects.
The Digital Media and Entertainment
The Alibaba business also has a section devoted to the media and entertainment within its organization group. The entertainment segment exists as an avenue to generate more revenue for the company aside from its business’s core commerce and cloud computing. This segment relies on the revenue from the membership subscriptions fees and customer management services provided by the organization.
The Digital media and entertainment aspect of Alibaba accounts as the third-largest form of revenue generation, which amounts to $1.2 billion or, say, about 4 to 5 percent of the total revenue realized by the organization. The revenue from this aspect of Alibaba business has also witnessed some growth and is against what was realized in the last FY year of 2020. There was a 0.6 percent growth as against the past year as of Q3 of 2021.
Innovation and other aspects of the business
There is some other sub aspect of the Alibaba group business, which is considered the innovation and initiatives to develop new products and services that would meet the customers’ demand. In the past, the innovative platforms that have been developed include digital navigation applications called Amap and DingTalk, a network communication app. However, this sector of Alibaba business only generates income through the services fees paid by the subscribers and the product sales to customers and enterprise organizations buying into the services.
The revenue generated by this least aspect of Alibaba organization is believed to amount to about 1 percent or less of the company’s income. A total of $207 million was the revenue realized at the end of FY year of 2021. The revenue for the segment increased to about 9.5 percent was realized at the 2020 FY year-end. This shows that the growth is a welcome development and has significantly increased the organization’s revenue in FY 2021.
A recent development by Alibaba
The organization announced some developments in the late days of September 2019. First, the organization aims to achieve about 1 billion subscribers on its consumer-based services by the FY of 2024. This figure is part of the five-year plans and strategy to be achieved by the company, and its annual consumer base, which is active, still stood at 221 million.
In the late month of December 2020, the Chinese market regulators stated that they had started an antitrust investigation into the Alibaba Company. It is believed that the watchdog organization would sniff through the reports of Alibaba group and which states that the organization was pressuring merchants not to sell on the platform of its competitors. As of February 3rd in 2021, the Chinese regulator agreed with the Alibaba group on how the financial technology company would be turned into a financial holding company. It is believed that the change would subject the Alibaba group business to face similar requirements that are subjected to the Fintech firms in China as well.
The Chinese-based company Alibaba has been a giant business that has been in existence for a long time. The mode at which it makes its income is very diverse and wide, categorized into four sections. However, the company has also started investing in other aspects, including app-based solutions, digital media, internet services, cloud-based solutions, and many more. These are a new segment of the business that has been witnessing consistent growth, as expected from the business services. In addition, there are some regulatory issues that Alibaba group is faced with; the group hopes to find its stability and continue to deliver excellence to its customers.
What Makes Alibaba Successful?
Alibaba was successful because of its strong brand and its ability to provide customers with outstanding value and a versatile shopping experience. More so, the variety of products and services offered on the platform makes it a stopping point for most customers worldwide. In addition, its innovation in the eCommerce world and the strategies implemented also make it stand above the competitors.
Is Alibaba Successful?
If revenue is considered as a factor for success, the Alibaba business is very successful. This is because the income earned by the organization can’t be compared to some other major business that has existed long before Alibaba has existed.