Alibaba Group: birth of an Internet empire with a real-world business model

Last March, Taobao joined with more than 10 shipping companies to create a global first: an “online product logistics recommendation index.” The system allowed consumers to rate logistics providers, which helped enhance the integrity of the online shopping environment.

Alibaba, Taobao, and Alipay have also created a sense of order in China's B2B, B2C, and C2C e-commerce sectors.

Strategy No. 3: Helping Customers with Value Innovation

Alibaba CEO Ma clearly realizes that the core competence of e-commerce businesses is not technical prowess as some may believe, but service.

In targeting SME e-commerce, Alibaba developed a “Trust Pass” service out of consideration for both buyers and sellers to overcome the sense of mistrust some have toward online transactions.

Jackel Sheng, director of technical and product development at large format digital signage provider Collevo Inc., says Alibaba's safety and security system protecting buyers and sellers is unique. Alibaba's website is the first hurdle. Suppliers must constantly update information on new products for them to remain featured on Alibaba. In contrast, conventional Internet service providers often host obsolete websites as long as the fees are paid, leading to foreign buyers placing orders for samples displayed on the site only to find that the company no longer exists.

Also, after Alibaba signs a contract with an SME, it immediately sends somebody to photograph the company's production line and products and directly posts the photos on its website for buyers around the world to see, a program designed to prevent scams by shell companies. Alibaba's customer service department also calls its contracted members weekly for suggestions on the operating system and adjusts the transaction platform accordingly.

By helping customers solve problems, Alibaba has created commercial opportunities for itself. Ma clearly realized that financing and training were the main weaknesses of most SMEs, so in 2007 Alibaba joined with a number of banks in China to form the Ali-loan program to ease the financing bottleneck faced by small companies. As of June 30, 2009, the program had processed in excess of 2.6 billion in loans to around 1,400 SMEs in Zhejiang Province, according to the company.

Cultivating Talent, Collecting Intelligence

To help SMEs overcome their lack of e-commerce talent, Alibaba set up the Ali-Institute in Hangzhou in conjunction with 300 schools. The institute, which trains the e-commerce staff of Alibaba members for free, has already instructed more than 50,000 people. “And in the next five years, we expect to expand to 1 million students,” Alibaba.com CEO David Wei proudly asserts.

Accurate market intelligence and analysis is the secret weapon to Alibaba's lightning attacks that continuously frustrate rivals.

Alibaba currently has 45 million SMEs using its system, but Ma still insisted on founding the Alibaba Group R&D Institute to study the latest global and Chinese market trends. The research reports generated by the 100-person staff are fed to company managers to help them make decisions.

“The R&D Institute is Alibaba's brain, researching industries at any time. The institute was integrated with the company's software unit Alisoft to develop e-commerce software, making Alibaba smarter,” says Tzong-Ru Lee, a professor in Chung Hsing University's Department of Marketing.

In contrast, many big Taiwanese electronics vendors with annual sales exceeding NT$100 billion are unwilling to spend even NT$1 million a year on industry research reports, leaving them far behind Alibaba in their grasp of market intelligence.

Ma's tone is full of ambition, but then, in the Internet world, nothing is impossible.

Translated from CommonWealth Magazine by Luke Sabatier

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