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China 2015: BRAND PROFILE | 2. Alibaba

COMPANY Alibaba Group Holding, Ltd. 

BRAND VALUE US$ 59.7 Billion 

YEAR-ON-YEAR CHANGE New 

HEADQUARTERS Hangzhou

INDUSTRY Retail 

YEAR FORMED 1999

 

New this year to the BrandZTM Top 100 Most Valuable Chinese Brands, Alibaba rose to the top of the ranking, appearing at number two.

Also new to most of the world outside of China, the ecommerce giant launched the world’s most successful IPO ever, in September 2014, raising $25 billion on the New York Stock Exchange.

That stunning success reaffirmed how much the future of retail is tied to ecommerce and how much ecommerce is a borderless world where buyers and sellers from anywhere can connect. As a publicly traded company, Alibaba met the criteria for inclusion in the BrandZTM China ranking.

The Alibaba IPO also improved the stature of Brand China, the popular perception of brands that originate in China. Implicit in the investor excitement around Alibaba was the notion that China, often perceived as a competent maker of low cost goods, could be a world-class marketer of consumer products.

What seemed in the West like an instantaneous magical feat, eminiscent of the original Ali Baba story, actually was the culmination of 15 years building a business to serve China’s burgeoning online community, connecting buyer and seller with consumer-to-consumer, business-to-consumer and business-to business ecommerce sites.

THE ALIBABA DIFFERENCE

Taobao Marketplace and Tmall are well-known Alibaba sites. Similar to eBay, but without the auction aspect, Taobao offers around 760 million items from seven million sellers, mostly consumers and small businesses. Tmall is a business- to-consumer site specializing in branded products. It offers around 70,000 brands, including many major global names like Apple, which joined the site this year.

Alibaba active buyers totaled 307 million at the end of September 2014. This scale alone is not what separates Alibaba from eBay, Amazon and other western peers to which it’s compared, however. Its business model is different. How Alibaba makes money varies by product or service. On Taobao, for example, Alibaba makes money from advertising sales, similar to Google. On Tmall the participating merchants pay an annual fee and a commission on sales.

In addition, Alibaba’s portfolio of businesses differentiates the brand. Alibaba combines into one ecosystem the ecommerce and social network equivalents of Amazon, eBay, PayPal and WhatsApp, along with a music streaming service called, Xiami, similar to Spotify. Its Alipay online payment system has contributed not only to the success of Alibaba but also to the growth of ecommerce in China.

EXPANSION CONTINUES

And the company continues to diversify into new online businesses, often through acquisitions. Recent purchases include: First Dibs, a luxury site for furniture and home furnishings, jewelry and other items; Tutor Group, an online educator; and ChinaVision, producer of movies and TV shows. Alibaba also bought a 50 percent stake in a soccer team, Guangzhou Evergrande.

Because consumers today are most likely to engage online with mobile devices, Alibaba also purchased a stake in Sina Weibo, a Twitter-like site. Now Weibo’s 500 million active users can move relatively seamlessly between their social network and ecommerce activities. Mobile produces around one-third of Alibaba’s retail volume.

One of Alibaba’s most notable success happens on China’s Double Eleven Day. The holiday for single people, which takes place annually on November 11, has become a day devoted to shopping. Every year Alibaba generates consumer excitement with special promotions and sales on its Tmall site. Sales increase almost 60 percent year- on-year in 2014, to a new record of $9.3 billion for the day.

MANY SUCCESSES AND CHALLENGES

Jack Ma and a group of investors launched the first Alibaba site in 1999. Alibaba.com was an English language global marketplace, intended to connect Chinese manufacturers with overseas buyers.

The idea came to Ma, a former teacher, during his first trip to the US, in 1995, when the lack of Internet results for companies from China surprised him. The company then moved rapidly, launching Taobao in 2003 and Tmall, in 2005, the same year that Yahoo bought a 30 percent stake in the company.

Although China’s Internet boundary has insulated Alibaba from most western competitors, it succeeded against eBay and fierce competition from other Chinese Internet brands. Like any company, Alibaba has faced challenges and it’s been slower than competitors to develop its own logistics business.

Alibaba earned $1.5 billion in net income on revenue of $3.5 billion in the first half of 2014. For the full year 2013, net income improved 105 percent to $1.4 billion on a 75 percent revenue gain to $5.5 billion. Alibaba became publicly traded, on the Hong Kong Stock Exchange, in 2007, and delisted in 2012. It’s now traded on the New York Stock Exchange.