At the start of the year Alibaba announced that they had crossed the RMB 3 trillion mark in gross merchandise volume (in excess of $450 billion USD). Founder and CEO Jack Ma has now announced that the company's dream is to reach 2 billion people around the world with his business and hit a transactional volume of $1 trillion. That would make them the equivalent of being the fifth largest country in the world by GDP.
Overview.
China's e-commerce market is dominated by Alibaba. Though the company operates through a unique combination of business models, Alibaba's core business resembles that of eBay. Alibaba acts as a middleman between buyers and sellers online and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free marketplace where neither sellers nor buyers are charged a fee for completing transactions. Instead, the nearly 7 million active sellers on Taobao pay to rank higher on the site's internal search engine, generating advertising revenue for the company.
While the majority of sellers utilizing the Taobao website are smaller merchants, Alibaba also has a dedicated space for larger retailers: Tmall is the e-commerce site owned and operated by Alibaba that caters to well-known commercial brands that would normally operate on the high street. Even though Tmall has a fraction of the number of active sellers listed on Taobao, Alibaba is able to generate revenue from deposits, annual user fees and sales commissions charged to retailers utilizing the site.
In addition to its e-commerce sites, Alibaba has emerged as a player in the Chinese financial system. To combat customer concerns over the security and validity of transactions completed online, Alibaba created Alipay. As a secure payment system, Alipay protects buyers in the event sellers are unable or refuse to deliver goods sold. In addition to this platform, Alibaba also generates revenue from its newly launched micro-lending business arm that caters to individual borrowers.
The Alibaba Marketplaces
Alibaba's marketplaces are obviously their core revenue streams. As such, these will be the biggest drivers of growth. As of the most recent quarter, Alibaba had 423 million annual active buyers and 410 million monthly active users and transactional volume for the quarter was $115 billion - a 24% increase over the same quarter last year.
However the Chinese market is yet to be fully penetrated, by their own estimates they currently only reach about 55% of potential consumers. Furthermore it still does not have enough traction in international markets to claim the kind of long-term growth that they would require to become a truly global household name.
The future is Aliyun.
The next growth driver for the company is a brand that many do not recognise, but is nevertheless growing at a tremendous rate that may one day outdo its rivals: the cloud and specifically Aliyun Cloud. With data centers around the world having a first quarter of 2016 growth of 175% it is definitely a growing entity which Alibaba is well positioned to grow in part due to preferential government policy, regional focus and domain expertise. Aliyun certainly has the potential to become one of the growth drivers of Alibaba's future considering it currently accounts for less than 2% of its revenue.
Outlook.
The entire global market is potentially at their doorstep, not only for marketplace services, but also cloud capabilities. Not forgetting their other web and content properties like UCWeb with 400 million users, content distribution platform Youku Tudou (newly acquired) and web payment service Alipay, which has 400 million registered users and a transaction volume of $519 billion (as of 2015).
