Alibaba Group Holding Ltd (BABA)

The Chinese company Alibaba is the biggest online commerce company in the world. It has three main sites: Taobao, Tmall and Alibaba.com with hundreds of millions of users, and millions of merchants and businesses.

The Alibaba Group comprises several e-commerce platforms, including Alibaba, which is a business-to-business website that enables companies in China to sell to each other more efficiently. Additionally, there is Taobao, which is similar to eBay and allows individuals to buy and sell items. The Chinese name for Taobao, 淘宝, means “to find the treasure” and reflects the idea that consumers can discover valuable items on the platform. Originally, Jack Ma had considered naming it Ali Mama but ultimately decided against it.

Another platform is Tmall, which was initially called Taobao Mall and offers retailers the ability to set up online stores within the Alibaba “mall.” Transactions occur exclusively between consumers and retailers, but Tmall collects a portion of each sale. Finally, Yahoo owns 22% of Alibaba, and its name was chosen by its founders, Jerry Yang and David Filo, who used the acronym “Yet Another Hierarchical Officious Oracle” to represent their search engine’s database of categories and subcategories.

Alibaba: The name

The company’s founder and CEO, Jack Ma, came up with the name through brainstorming. As a former English teacher, Ma knew the story of Ali Baba and the Forty Thieves from the Arabic collection of stories One Thousand and One Nights. Ma revealed in a 2006 interview with CNN’s Talk Asia that he was in a coffee shop in San Francisco when he thought of the name. He asked a waitress if she was familiar with Alibaba, and she replied with the phrase “Open Sesame,” which is used in the story to open a secret door to a treasure trove. Ma liked the name because it represented a kind and smart business person who helped the village and opened opportunities for small to medium-sized companies. Ma then asked random passersby on the street if they knew the name Alibaba, and he found that everyone, regardless of where they were from, was familiar with it.

Alibaba Group: The beginning

In 1999, Jack Ma, a former English teacher from Hangzhou, China, led a group of 18 people to establish the Alibaba Group. The founders believed that the internet would provide small businesses with the opportunity to push innovation and technology and compete with other international businesses. Alibaba Group’s first website aimed to assist small and medium-sized enterprises in China to sell internationally, and since then, the company has expanded into a digital network including a variety of businesses, from international commerce to local consumer services, Cainiao, cloud, digital media and entertainment, innovation initiatives, and many others.

Online shopping and Alibaba

Alibaba has achieved the title of the world’s most rapidly expanding e-commerce market, with online transactions reaching a total of $248 billion in the previous year. This amount is higher than the combined transactions of eBay and Amazon.com. Following its U.S. IPO, Alibaba raised $25 billion and has since become one of the world’s most valuable tech companies. It also ranks among some of China’s state-owned enterprises as one of the country’s most valuable public companies.

Alibaba Revenue

Alibaba may be the biggest marketplace with a massive customer base but earns less revenue than its global counterparts. It makes money mostly by charging businesses for advertising and transaction fees.

Taobao

Founded in 2003, Taobao is considered to be China’s eBay and is the largest e-commerce platform in China. It targets buyers in mainland China, Hong Kong, Macau and Taiwan and promotes consumer-to-consumer retail.

Jack Ma and the potential of the internet

During a trip to the United States in 1995, while representing the Hangzhou city government, Ma discovered the Internet and realized the potential of creating Chinese websites. Upon his return, he founded China Pages, which provided web design services to Chinese businesses and became one of China’s first internet companies. However, due to strong competition from a rival company, Chinese Page, which was founded by Hangzhou Telecom, Ma left China Pages in 1997. He briefly worked for an internet company in Beijing that was supported by the Ministry of Foreign Trade and Economic Cooperation but left to pursue the economic opportunities offered by the internet. He convinced his team to join him in Hangzhou, where they founded Alibaba Group, which facilitated transactions between small businesses.

Alibaba charged small businesses a membership fee to become trusted sellers on the platform and created Alipay to act as a third party in transactions, instilling confidence in online sales. Alibaba experienced rapid growth, attracting investment from Yahoo! And raising $1.7 billion in its initial public offering in Hong Kong in 2007. Ma believed that the small-business-to-small-business internet market had greater potential for growth than the business-to-consumer market.

Who owns Alibaba?

Alibaba’s biggest shareholder is SoftBank with a 24% stake in Alibaba. Jack Ma is another major shareholder. He is Alibaba’s co-founder and former executive chair. In 2019, Ma retired as the company’s executive chair, while in 2020 he reduced his stake in Alibaba from 6.2% to 4.8%. Joseph Tsai is the third largest shareholder of Alibaba. He is Alibaba’s co-founder and vice-chair with 1.4% of the outstanding stock.

Since Q1 of 2022, global investment bank Goldman Sachs owns 0.84% of Alibaba.

The fifth-largest shareholder in Alibaba is Primecap. Primecap manages equity portfolios for mutual funds and other investors and owns 0.64% of BABA’s total outstanding shares.

The turn to mobile

With more businesses going mobile, Alibaba is facing competition from new rivals. China has more than 600 million Internet users who are now using smartphones. Alibaba’s biggest rival is Tencent. Tencent runs the WeChat mobile messaging application which has 355 million users. Both Tencent and Alibaba have invested billions of dollars in businesses to beat the competition.

Financial Services

Alibaba has expanded to include financial services. The Alipay payments app can be used by clients to buy or pay for services as well as invest in a money-market fund called Yu’e Bao which has already amassed $87 billion in assets.

Criticism

Many products sold on Alibaba’s sites, particularly Taobao, include many counterfeits.

The US government, for example, has added to its piracy and counterfeiting list both AliExpress and WeChat, which are operated by Alibaba and Tencent Holdings respectively. Alibaba has said that it spent millions to fight against fakes and many merchants have taken down suspicious listings.  

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