Alibaba: The House That Jack Ma BuiltOverview
Jack likes to say that his company’s success was an accident: “Alibaba might as well be known as ‘one thousand and one mistakes.’”
In its early years, he gave three explanations as to why the company survived: “We didn’t have any money, we didn’t have any technology, and we didn’t have a plan.”
But let’s look at the three real factors that underpin Alibaba’s success today: the company’s competitive edge in e-commerce, logistics, and finance, what Jack describes as Alibaba’s “iron triangle”.
The E-commerce Edge
Unlike Amazon, Alibaba’s consumer websites Taobao and Tmall carry no inventory. They serve as platforms for other merchants to sell their wares.
Taobao consists of nine million storefronts run by small traders or individuals.
Attracted by the site’s huge user base, these “micro merchants” choose to set up their stalls on Taobao in part because it costs them nothing to do so.
Alibaba charges them no fees. But Taobao makes money—a lot of it—from selling advertising space, helping promote those merchants who want to stand out from the crowd.
The Logistics Edge
On Singles’ Day 2015, orders placed on Alibaba’s websites generated 467 million packages, requiring more than 1.7 million couriers and four hundred thousand vehicles to deliver the goods.
China today has a veritable army of couriers. On foot, bicycles, electronic bikes, trucks, and trains they are the unsung heroes of the country’s e-commerce revolution.
Chinese consumers spent more than $32 billion on package deliveries in 2014. The number increased by more than 40 percent in a year.
Without the low-cost delivery that the courier services provide, Alibaba would not be the giant it is today. To survive in a cutthroat industry, some of the courier firms have adopted clever methods to keep costs at rock bottom. In Shanghai, for instance, couriers shuttle back and forth on the subway, passing packages over the barriers to one another to avoid buying multiple tickets.
In response to the inefficiency of what was then the United States Post Office. In China, the e-commerce gold rush has stimulated the rise of more than eight thousand private courier firms, of which twenty major companies stand out.
Together they handle more than 30 million packages a day and employ more than 1.5 million people across six hundred cities.
Cainiao is building a propriety information platform that knits together logistics providers, warehouses, and distribution centers across the country. Alibaba owns 48 percent of Cainiao,
Yet with Cainiao Alibaba has shored up the most important asset of all: trust. Customers and merchants know they can count on the products getting where they need to be, on time.
The Finance Edge
In financial services, Alibaba’s most important asset is Alipay, its answer to PayPal.
Alipay handles more than three-quarters of a trillion dollars a year in online transactions, three times the volume of PayPal and one-third of the $2.5 trillion global online payments market.
As a form of escrow, Alipay diffuses trust throughout Alibaba’s e-commerce empire.
Twenty percent of all Alipay transactions involve paying for utilities, such as water, electricity , and gas bills. Customers can also buy train tickets, pay traffic fines, or purchase insurance using Alipay, making it the de facto currency of an increasingly digital China.
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