ANALYZING THE ALIBABA IPO AND THE SECRET OF ITS

SUCCESSSection C, Group 8

Archit Raj - 7CChaitanya Patil - 13CNimit Malhotra - 29CRuhi Gupta - 42CVikas Selwal - 54C

Agenda

• Alibaba: Timeline and Evolution• Alibaba: Porters Five Forces Analysis• Alibaba: Financial Analysis

• Alipay v/s PayZippy• Singles Day

• Battle of the Giants : Alibaba v/s Amazon

• Indian Perspective- Major players• Indian Perspective- Challenges and Growth

• ALIBABA : Future Growth Prospects• ALIBABA IPO IMPLICATIONS

Alibaba: Timeline and Evolution

1999 201120092003 2004 2007 20102008 2013

Alibaba Founded in Jack Ma’s Apartment

Taobao Marketplace Launched (C2C Portal)

Alipay separated from the company

Aliexpress launched

Alibaba Cloud computing launched

C2C portal launched to complement TaobaoAlipay Launched

Alimama Monetization platform launched

Singles day – Huge Success

• For Alibaba.com the customers are the small and medium size firms which don’t have the ability to build up their own websites

• To negotiate with the biggest B2B e-platform, these firms don’t have too many advantages to fight for lower cost and nearly all the standards are decided by Alibaba.com

• The most important substitute service is the self website of large companies.

• For the customers which prefer to make business with large companies, they will not turn to alibaba.com but directly contact these companies

• When customers require special customizations, they are less likely to switch to producers who have difficulty meeting their demands

• When there are large numbers of customers, no one customer tends to have bargaining leverage. Limited bargaining leverage helps Alibaba.

Barriers to Entry: Medium

Intensity of Competitive Rivalry: Low

Threat of Substitutes: MediumBargaining Power of Buyers: Medium

Bargaining Power of Suppliers: Low

• China’s online shopping market size was $295 billion in 2013 and Alibaba controlled 80% of this pie

• The most competitive firms of Alibaba are the search engines like Google.com, Baidu.com

• The potential customers may search the results through these free and simpler websites and not through the B2B platform

• High returns will draw firms. This results in many new entrants, which will decrease profitability.

• The most common way to enter B2B market is to try and position its target market to a single industry.

• Although these firms don’t have the broad market of Alibaba, they share a special market because they are more professional and targeted

Alibaba: Porters Five Forces Analysis

Alibaba: SWOT Analysis

StrengthsThe world's largest Chinese Forum has created a great convenience for traders around the globe to exchange, and also closer to the distance between the various traders, but also to enhance the visibility of the website. Weakness

Alibaba's business platform large and cluttered that it had 27 industries, 800 - 900 categories of industries as a business platform to optimize the greatest obstacles. Alibaba's Web site model is an intermediary form, and replicability of this model, is easy

OpportunitiesChina is now speeding up the development of e-commerce legal provisions, and actively creates a safe and regulated business environment. China's existing small and medium enterprises can not afford to start their own b2b business website, so that online intermediaries have large opportunities

ThreatsMore players coming up in the E-commerce segment like Amazon, Rakuten, Flipkart means the industry will be tremendously competitive in a few years

SWOT

Alibaba: Analysis of Product Categories

Alibaba: Financial Analysis

2) 31 million orders per day

5) $5.8 billion USD on singles day

1) $248 billion GMV

4) 136 million monthly active users

3) 5 billion packages

Key Figures for Analysis Alibaba’s 5 Big numbers

Key Takeaways:• Alibaba Revenue is lower than that of Amazon and eBay. • The primary reason is the business model, Alibaba makes money by charging merchants for advertisement on their

website and transaction fees. • While Alibaba’s revenue is less that Amazon and eBay, however, Alibaba is highly profitable company as compared to

Amazon or eBay.

Alibaba: Growth Analysis

Alibaba sells advertising on its marketplaces, such as search ads on Taobao and TmallBut its revenue was dwarfed by Baidu’s market share, with the search engine hovering up around a

third (32.2%) of online advertising revenueGoogle China’s decline continued, with the company coming in third with 5.2%

Alibaba: Analysis of Advertisements

Alipay IPO

• 800 million userbase• Handled $660 billion worth

of transactions in 2012• The IPO will be listed in a

mainland Stock Exchange

• Shuts down after only 1 year of operations since it fails to achieve desired results

• Reason of shutdown: Indian consumers seem to have skipped e-payments and gone on straight to m-payments

Alipay vs PayZippy

• Sales of $9.3 billion in one day• Participation by 27,000 vendors• Vendors advertised prices as

early as October 15• Biggest Challenge: Shipping 260

million packages in 3 days

• First Indian online mega sale• Results in sales of over $100

million• Gets 1 billion website hits on 1 day• Plagued by technical errors• Leads to huge scandal and the

founders have to issue a written apology

Singles Day

Battle of the Giants : Alibaba v/s Amazon

Philosophy• Amazon is obsessed with the customer with a long standing goal to build the world’s most customer centric

company• Jack Ma and Alibaba want to help small businesses grow by solving their problems through Internet technology. They fight for the little guy.

Geographic FocusKey Aspects

Why Such a Difference?

Amazon had a 0.94% profit margin in 2013. Alibaba, by contrast, had a 49% profit margin in 2013 – more than 50x higher.So what explains this monumental difference? In a phrase, “warehouses vs. software”.

Bottom line? Software tends to scale better than warehouses do.

Battle of the Giants : Alibaba v/s Amazon Revenues and Profitability

Are these two powerhouses

destined to meet in a spectacular pay-per-

view battle for eCommerce supremacy?

As fun as that would be to watch, it’s unlikely in

the near future.

The Future So what will happen?• A potentially even bigger

opportunity for Alibaba would be to help Western merchants reach the massive – and still largely untapped pool – of Chinese consumers.

• Given Alibaba’s more profitable and scalable model – and their momentum –they have the advantage for any head-to-head battles in new markets.

• But Amazon does have a better track record of expanding internationally and, has never been one to shy away from a fight.

Whatever happens, it will undoubtedly be exciting to watch

Indian Perspective- Major players

• Made profits in two financial years since

entering India

• The Indian unit of Alibaba posted a profit of

more than Rs 1 crore on sales of Rs 20 crore-

March’13

• It bought Easy Business India E-commerce in

Dec 2010 to enter the market

• Gross Merchandise Value (GMV) of 248$

billion

• Continues to be in the red

after more than six years of

operations

• Has 6 warehouses

• GMV of $1 billion

• Launched “Flipkart Kaarigar

Ka Dwaar”

• Alibaba in talks with Snapdeal to enter India

• So far, Alibaba been linking Indian merchants

with overseas buyers and sellers.

• If it aligns with Snapdeal, it will be competing

directly against Flipkart and Amazon

• Snapdeal launched 40 warehouses across 15

cities

• GMV OF 1$ billion

Indian Perspective- Challenges and Growth

Growth avenues Financial services to small businesses

Semi-closed prepaid wallet

Expansion of high-speed internet and

communication infrastructure

Reducing the trust deficit between

Indian consumers and suppliers

Engaging with global players rather than

limiting to the local Indian market

ALIBABA’s STRATEGY• Launch of online marketplace like 11Main and

e-commerce site like AliExpress for foreign customers who want to buy retail goods from Chinese merchants.

• Investments in U.S. tech companies, and not just in the e-commerce sectors like the funding of ShopRunner, an online retail site with free two-day shipping, messaging app Tango and ride-sharing service Lyft

WHAT DOES IT MEAN ???

• Ready to buy its way into the U.S. market

• More interested in learning how things are done in the U.S. tech sector, rather than outright buying companies

Plan to “strongly expand” in the U.S. and

European markets after its U.S. listing

Focus on unlocking markets that are relatively

new to ecommerce

Working to effectively erode skepticism and

to build trust among customers

ALIBABA : Future Growth Prospects

PATH TO

SUCCESS

• IPO will help the Chinese company generate international public awareness among consumers, businesses and investors in the short run

• Funds raised may let Alibaba make capital investments globally in the areas of infrastructure, data centers and cloud computing

• As the firm attracts new users and businesses to its sites, and becomes active in more areas outside of e-commerce, the real gold for the company could be consumer data. It’s already been trying to expand in China, by launching its own mobile operating system, search engines and messaging app

• Analysts are also not ruling out the possibility that Alibaba could use the IPO dollars to make an acquisition or two

• Alibaba, like Google or Facebook, is broadening its scope, “branching out into all aspects of the Internet”

Alibaba IPO Implications