Chinese e-commerce marketplace, Alibaba is about to reach the milestone of half a million users. With a number now as high as 493 million (100 million more than last year) the Hangzhou based online retail empire is not about to stop its incredible expansion. As the same time, Alibaba just released the astonishing results of its 4th quarter of 2016: 2.5 billion USD net income from total revenue – extensively beating what had been predicted. Estimated to be about 48%, Alibaba exceeded expectations with 54% of growth reached instead.
Those impressive benefits come from its core business (e-commerce) but also from the implementation of Alibaba’s diversification strategy. Indeed the firm decided that it was time to diversify its activities in order to stay competitive and insure its sustainability over time.
Alibaba’s Diversification Strategy for more Sustainable Growth
The current strategy of Alibaba to ensure a constant growth is to diversify the kind of services it can propose to its millions of users, trying to keep consumers engaged within its various services instead of them wanting to spend time (and money) elsewhere.
From an economic perspective, Alibaba’s diversification is usually key to a more stable profits, thus the Chinese e-commerce marketplace is actively diversifying its revenue streams in order to minimize its dependency on its core e-commerce services. If you look closely, you will see how Alibaba is somehow following the model of Amazon.com. At the end of 2016 it decided to consolidate its media and entertainment businesses into only one team, focusing more on its cloud and entertainment operations. This allows Alibaba to implement a cross-promoting strategy and the use of the money-maker e-commerce business to pay for production of content.
Even though most of the Chinese firm’s profits still come from core e-commerce (up to 87.5%), Alibaba’s fast growing revenues comes partly from newer areas, like its cloud service business, that provides internet-based computing and data storage.
Forging New Paths
During the recent World Economic Forum in Davos, Switzerland, Alibaba announced it is becoming the official partner of the Olympics, providing technologies such as cloud and e-commerce platform services for the next 12-years. Alibaba is then going to become one of the bigger Olympic sponsors, like Coca-Cola or Samsung.
The Chinese e-commerce marketplace’s involvement in this nearly $800 million deal to help better organize the next Olympics Games will include:
- Ultra performant cloud computing infrastructure and services: to offer the Olympics more efficiency, security, and big data analytics.
- The implementation of a global e-commerce platform that will propose official Olympic and sports products.
- The development of an Olympic-affiliated digital TV channel in China.
As we all know, China’s e-commerce market is growing very fast (it has generated $609 billion in online sales in 2015) and the implication of Alibaba could definitely participate to an increase of the Chinese consumption of Olympics goods. But first and foremost, it could help Alibaba reach crucial global growth objectives.
The Chinese e-commerce giant want to diversify not only its activities but also increase its presence outside China (it has been trying to get half its revenue internationally, which Alibaba has yet to do), bringing news customers and potential partners who were not previously exposed to its marketplace influence.
In order to succeed, the platform will have to overcome serious counterfeiting issues, but Alibaba showed recently it was ready to fight by removing millions of counterfeit items, which allowed some of its marketplaces to be back on the US Trade Representative’s notoriety list.
Consolidate Existing Sectors
To complete its digital expansion, Alibaba acquired China’s video streaming leader Youku in October 2015. It has not ceased to consolidate its offer ever since, benefiting from the continuous growth of its Aliyun cloud service.
Apart from its acquisition strategy, Alibaba doesn’t hesitate to create if the solution it wants to implement is not already available to the world. For example Koubei is a joint venture founded in 2015 by Alibaba and Ant Financial (Alibaba’s branch managing its Alipay service among others). It’s goal is to generate business for local retailers by bringing them online and attracting new customers to the digital sphere in the process.
Alibaba’s Ecosystem Overview
Alibaba’s universe includes various fields of executions like for example :
- BtoB historical business operates through Alibaba.com and 1688.com
- BtoC e-commerce with Taobao.com, Tmall.com, Juhuasuan.com, and Aliexpress.com websites
- Marketing technology platform for its Alibaba online sellers, Alimama.com
- Cloud and computing services called Aliyun
- CAINIAO Network, a logistic data platform for e-commercants
- Koubei, the search engine platform that brings local customers to their local retailers.
- ANT FINANCIAL services group that operates it Alipay and other financial matters
As a result of such amazing growth which was clearly induced by Alibaba’s diversification strategy ably implemented through creation and acquisitions Alibaba Group Holding Ltd. added $7.5 billion to its market value, proving that it is in the right direction.