Where the physical and virtual worlds are blurring, thanks to Alibaba.

alibaba-visual-plus-logoIf ever there is one company in my mind that is at the forefront of building ecosystems, platforms and customer engagement, that is the Alibaba Group.

They are so focused on building the fundamental infrastructure for modern commerce, presently comprising marketplaces, payment. logistics, cloud computing and big data that is ‘collectively’ empowering businesses of all sizes to leverage the internet for their own digital transformation.

So who is Alibaba?

“Alibaba Group is an internet company that aims to make it easy to do business anywhere. Alibaba operates a range of online marketplaces that connects buyers and sellers, with the company providing the technology infrastructure to help merchants, brands and small businesses all over the world reach Chinese consumers. Alibaba’s ecosystem includes e-commerce platforms, cloud computing, digital media and entertainment, payments and financial services, logistics, and local services.”

Alibaba is shaping and guiding Chinese consumer behavior and trends and is presently applying this vision on a global scale, to lift up small and medium businesses and ordinary consumers around the world. They have a vision that in 20 years they hope to serve 2 billion consumers around the world, empower 10 million profitable businesses and create 100 million jobs through this providing of the new models of how to engage in the new internet connected of undergoing business

Jack Ma, the founder, and executive chairman recently sat down with US President  Trump (elect at the time) promising a million jobs to be created in the US and global buyers of US goods. Presently they have a deal, requiring US regulatory approval, to buy MoneyGram for $880m. MoneyGram has a global network of more than 207,000 agent locations including retailers, international post offices, and financial institutions. This imprints a known brand within the US not trying to build a presence of one of the Chinese brand names.

So let’s firstly establish who Alibaba is. Firstly by the numbers..

alibaba-by-the-numbers

They are a very “mobile-first” focused company, offering seamless experiences online and offline to already half a billion mobile monthly active users as they build their ecosystems and platforms to seek out engagement of business and consumers anywhere, at anytime.

Of course Alibaba’s core today is in its Chinese base,but as it continues to grow it is focusing on taking this infrastructure understanding, its integrated commercial platforms, it’s entertainment platforms and social ones it continues to leverage ‘big data’ and constantly evolves their innovation and entrepreneurial flair, by turning this powerhouse into a fully scaled global business, connecting the world of internet commerce and consumer engagement.

Just imagine this – a one day Global Shopping Festival generated $17.4 billion through Alibaba’s network

For example, they hold one of the most famous Global Shopping Festivals ever. Each year it seems another record-breaking event occurs. The 2016 event, held on 11.11.16 pushed their series of connected infrastructure where their scale, capabilities, and strengths recorded in one day,  a remarkable record RMB120.7 billion (US$17.4 billion) in GMV, settled through Alipay (one of their platforms) from all their marketplaces and a staggering 82% was generated from mobiles. The technical infrastructure processed 175,000 peak orders per second and through their Cainiao Network that helps merchants and third-party logistic companies to process 657 million delivery orders, achieving an even higher consumer satisfaction than prior years,

This is a staggering achievement. Just go back and simply reflect on this, those figures in a day, those transactions per second and the delivery achievement just confirms the power of harmonizing technology built through having these multiple platforms and ecosystems. integrated on an incredible infrastructure and what they can possibly achieve.

They offer personalized platforms for customer engagement

They have a highly personalized platform for nurturing this customer engagement, Taobao. Its Apps and the platform enable customers to experience social commerce and obtain consumer information well beyond conducting transactions.Taobao split a few years back into three different companies: Taobao Marketplace (a C2C platform), Tmall.com (a B2C platform; then called Taobao Mall), and eTao (a search engine for online shopping).

For example, you have a rating system. To thoroughly investigate a Taobao shop, a good way is to view its feedback by clicking the shop’s rating icon. For Tmall.com shops, people click the stars to view their ratings. Taobao users usually spend time to read feedback and compare items of one shop with those of others. For every trade deal on Taobao, there must be a section of customer feedback, which is a determination factor of the sale volume for the shop. Therefore, the shop owners often put effort to maximize the positive comments and eliminate the negative ones. This is similar to PayPal or Ebay in its customer rating service, a driving force for raising standards.

Taobao is more community-based, more content-enabled and locally adapted, constructing a new ecosystem from content producing, to content propagating, and content consuming with Alibaba’s cooperating internet platforms like Youku, Weibo, Alimama and Alifilms are all being integrated to present a seamless experience for the consumer.

The aim is to fundamentally create the future of digital and physical commerce

To quote Jack Ma:

“We are not merely trying to shift buy/sell transactions from offline to online, nor are we changing conventional digital marketing models to squeeze out a little additional profit. We are working to create the fundamental digital and physical infrastructure for the future of commerce, which includes marketplaces, payments, logistics, cloud computing, big data and a host of other fields.”

Empowering businesses of all sizes to leverage the internet for digital transformation

They are working towards empowering merchants to transform and upgrade their business of the future though Alibaba Cloud, which today hosts 35% of total websites in China providing clients with integrated services and cloud computing and big data services. Today Alibaba ranks within the world’s top three cloud computing companies and as it evolves its cutting-edge technology, extends its extensive range of products it is a real force to be reckoned with.

Today Alibaba has an annual gross merchandise value transaction surpassing RMB 3 trillion making the Group the largest retail ecosystem in the world. Just go back and look at the number again, jaw-dropping but they are suggesting they will achieve in 2017 fiscal year guidance a 53%, year-over-year growth. Already in the last quarter in 2016, the mobile MAU’s in just the China retail marketplace reached 493 million, compared to the one I have shown above of 450 million.

Their aim is to eliminate the distinction between online and offline commerce

Already the Chinese consumer is today engaged in commerce anywhere (in the world) anywhere, anytime, just simply with the help of their mobile phones. Alibaba is partnering with brick-and-mortar retailers in different verticals through a combination of equity investments and deep operational integration which is allowing Alibaba to deploy their proprietary omnichannel solutions to create seamless shopping experiences for consumers. This enables Alibaba to exploit the entire US$4.8 trillion retail sectors in China by eliminating this distinction between online and offline commerce. They are experimenting with new shopping formats to allow local stores (and small businessmen) to enhance the shopping experience for fresh and perishable products.

They are chasing a digital media and entertainment world equally well

They have brought together licensed premium content as well as rapidly expanded in self-produced and joint-produced programming using their entertainment platforms on both mobile and living room screens. They are investing in studio’s both in China and in Hollywood to develop and market films.

Gathering all the data from their ecosystems and platforms

Data is distinctly an Alibaba competitive edge compared to other technology companies,, they have different kinds of data, drawing not only from Alibaba Group’s own e-commerce platforms (including the Taobao consumer-to-consumer shopping site and TMall business-to-consumer site) but also companies it has a stake in, such as Sina Weibo (the hugely popular micro­blogging site similar to Twitter) and Ant Financial (finance and payments). As they possess all these data insights from their ecosystem, it becomes rich and diverse with a scale of business that generates vast amounts of data that reach into everything from social media to financing and payment, navigation to digital entertainment.

So can we compare Amazon to Alibaba?

Of course many do compare Amazon to Alibaba but I’d say Amazon are “asset heavy” whereas Alibaba remains “asset light”. They might be operating at the two ends of the current internet trading spectrum and are coming from different market maturity positions, China and the US, yet they will increasingly meet across both, with their ambitions for global scale.  Amazon, which mostly sells directly to consumers and does some hosting of third-party merchants on its sites, Alibaba’s e-commerce platforms mainly act as middlemen between buyers and sellers.

Amazon, in comparison, brought in far more in net sales (all US dollars) but less in profit, 107 billion sales and 590 million net income whereas Alibaba, although a growing giant remains small in comparison in sales, only 21.9B but far more highly profitable in net profit last year. The market cap for Amazon is US$ 399B and Alibaba at US$252B. Amazon has a profitability (profit margin) of 1.64% and Alibaba of 26.6%.

Recognizing the differences of ‘asset heavy’ and ‘asset light’ for investment

The difference between “asset heavy” and “asset light” is this positioning by Alibaba of being the middleman between buyers and sellers perhaps, whereas Amazon continues to build a growing bricks-and-mortar present, moving beyond “pure” technology, building its own hardware solutions and managing the supply chain, as it has this greater wish to own and control far more beyond the internet. Amazon is trying to be more vertical in its business approach whereas Alibaba is more horizontal by sticking more to fundamental infrastructure for modern day commerce.

So there seems a big difference in their business model. Others I am sure others have analyzed this far more than this rudimentary comparison but bottom line profit makes a real difference on future options on where to invest and placing those increasingly important “big future bets”.

In the future business world, “asset-light” is far more agile, adaptive and nimble in my opinion in the way the world of technology and how we adapt and connect constantly in different ways is presently evolving, then it seems Alibaba is better positioned. Although it becomes a radically different proposition to grow the international business and that is very likely to mostly come from acquisitions and strategic investments for the next few years.

How Alibaba manages its international ambitions will be critical and the management of the ‘front end’ (consumer facing)’ and ‘back end'(data integration) becomes key.   Organic growth needs its own platform and these seemingly will be local but connected globally by this back end. If they are forced to move from this ‘asset light’ strategy to gain deepening access to global markets, they might lose their present positioning, current seemingly agile and nimble, then it shifts the battle of ecosystems and platforms again, due to global scale ambitions, and the needs to achieve this.

The future is harnessing the existing, applying the new technologies

As Alibaba continue to grow their ecosystem out (mainly in China, increasingly global) and plug this into the internet of the global commercial trading they are looking to include augmented reality and virtual reality (AR/VR), voice recognition and artificial intelligence.

Their evolutionary strategy for technology and building the connected infrastructure, platforms and ecosystem will seemingly grow and encompass an even-wider range of transaction fields as it explore all the connected possibilities. Their vision is way beyond traditional e-commerce

Alibaba are making the switch to “data company” away from being seen as an e-commerce business This is because, (I quote) in a nutshell, “Data is the blood of the new economy,” explained Alibaba Group CEO Daniel Zhang recently. Alibaba collects massive amounts of data on its e-commerce marketplaces, through mobile wallet Alipay, and from digital entertainment sites and social media properties operating within in its ecosystem. “We use data to refuel (our) business and refuel the participants in the ecosystems to help our partners to do business easier anywhere in this fast-changing digital world,” Zhang said.

Effectively mined and analyzed, data enables businesses large and small to better understand markets and consumer behavior, improve products and user experiences, and even anticipate the wants and needs of individual customers. As a Morgan Stanley analyst recently noted, Alibaba has laid the foundation to transform itself into “a leading data commerce company that leverages big data/cloud computing to upgrade all of its businesses, ecosystem partners, and customers.”

There are five data points to be explored. User Experience, Empowering Brands, Digital Marketing, Logistics beyond trains, planes and trucks and finally, Financial Services.

Let me take one data point- financial services.

Alibaba affiliate company Ant Financial uses data to develop financial products such as consumer loans and insurance products, but it also parses that information to manage fraud risk and minimize its loss ratio. Ant Financial’s Alipay unit has a “payment graph”—much like Facebook’s social graph—that identifies patterns in relationships among users who make payments to each other. With this payment graph, along with algorithms Alipay uses to measure the credit risk of applicants, the online payments provider is able to maintain its bad-loan loss ratio at less than 1 out of 100,000, or less than 0.001 percent.

Competition is everywhere

Alibaba (BABA) has a dominating China’s e-commerce market position, it faces stiff competition from JD.com (JD) in the domestic market, creating the need and to fulfil its stated global mission to pursue new markets outside China. But expanding abroad also exposes Alibaba to competition from eBay (EBAY) and Amazon.com (AMZN). Yet it will be the market place and consumers that will determine the ecosystem and platform battle ahead.

To finish on my review of the most exciting example of an ecosystem, platform, and customer engagement company

Alibaba Group’s mission is to make it easy to do business anywhere. To quote:

“We provide the fundamental technology infrastructure and marketing reach to help merchants, brands and other businesses that provide products, services, and digital content to leverage the power of the Internet to engage with their users and customers. Our businesses are comprised of core commerce, cloud computing, digital media and entertainment, innovation initiatives and others that comprise of marketplaces, payment, logistics, cloud computing and big data that leverage the internet for digital transformation. Through investee affiliates, we also participate in the logistics and local services sectors” They are investing in incubating the future by nurturing and growing next generation businesses.

Alibaba is training its sights on a global scale by building a consumer retail industry as a whole new experience, offering ways that radically disrupt the existing driven by digital transformation. It is creating new marketing model through its synergies being unleashed in the integration of a digital marketing matrix alongside its consumer media platform. It sees cloud computing as the new ‘engine’ powering commercial operations for everyone and big data as ubiquitous and the new “natural resource”. They will continue to invest in providing an evolving comprehensive infrastructure serve and “eventually” become a diversified ecosystem for the transformation of commerce where we all become increasingly dependent on innovation in new technologies to continue to grow this global digital phenomenon of connecting the world.

In Summary

As Jack Ma has outlined: “Alibaba is positioning itself as the ‘go-to place’ for merchants to be empowered with the ability to transform and upgrade their businesses for the future and bring us ever-closer to a level playing field for young people and small businesses”

I wrote about the Dynamism in Chinese Ecosystems and Platforms and the potentially different thinking mentality and operating conditions and mentioned within the article “they fish differently” Recently in an interview at the Davos WEF, Jack Ma confirmed just that point, he commented, in this: “people make money by catching shrimp, so we serve small business“. There is an awful lot of small businesses wanting to grow their business, digitally.

There is so much learning to take away from this ‘glimpse’ at Alibaba for why ecosystems, platforms, harnessing data, bringing trading partners in through building a robust, expandable and integrated infrastructure through the internet and connecting this into ultimately, the customer experience required today- anytime, anywhere, is giving us a clearer understanding of the future of connected trading.

Where does that leave today’s large established (traditional) businesses? Can they effectively compete with this digital onslaught?

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2 thoughts on “Where the physical and virtual worlds are blurring, thanks to Alibaba.

  1. Pingback: Old economy ecosystems signal innovation opportunities | Ecosystems4innovators

  2. Pingback: The New Game Or Is It? Asset Orchestration | Paul4innovating's Innovation Views

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