Research of Alibaba Group

This+research+study+focuses+on+the+booming+online+to+offline+business+dynamics+in+Chinese+market.+The+O2O+is+one+type+of+e-commerce+expressions%2c+which+has+is+different+than+what+the+B2C+and+C2C.+The+O2O+business+dynamics+is+more+service-oriented+and+start+from+the+online+serving.+It+is+one+type+of+marketing+strategic+operational+approaches+to+reach+the+target+group+more+effectively.+However%2c+this+specific+business+dynamics+lack+of+detailed+analysis+on+the+business+model+and+service+process.+Thus%2c+this+study+focuses+on+revealing+the+O2O+and+Chinese+e-commerce+market+with+a+case+study.+This+study+aims+to+provide+a+holistic+overview+of+Chinese+e-commerce+industry+and+detailed+analysis+on+business+model+canvas%2c+service+process+analysis+and+network+effect.+Under+each+section%2c+the+case ...

%09Introduction%0a1%09Business+model%0a1.2%09STOF+model%0a2.%09Service+domain+and+design%0a2.1%09Technology+domain+and+design%0a2.2.%09Organization+domain+and+design%0a2.3%09Finance+domain+and+design%0a2.4%09Multi-sided+platform+theory%0a2.4.1%09Network+effect+and+user+sensitivity%0a2.4.2%09Winner-take-all+dynamics+and+Multi-homing+costs%0a2.4.3%09Envelopment+threat+and+bundling+benefits%0a3.++++Chinese+e-commerce+analysis+with+case+studies%0a3.1%09Alibaba%e2%80%99s+Alipay+case+study%0a3.1.1%09+Alibaba+STOF+model+analysis%0a3.2.2%09Organization+domain%0a3.2.3%09Alibaba+and+Alipay+as+multi-side+platforms%0aConclusions%0aBibliography%0a

Alibaba%e2%80%99s+group+has+become+the+largest+online+and+mobile+commerce+company+in+the+world+in+just+a+few+years+and+barely+anyone+expected+it+to+be+so+successful.+It+has+provided+numerous+business+opportunities+for+small+and+medium+enterprises+to+leverage+the+innovative+technology+to+compete+more+efficiently+domestically+and+globally.+This+study+does+not+attempt+to+describe+Alibaba+as+a+perfect+business%3b+rather+it+discuss+the+marketing+strategies%2c+promotion%2c+distribution+channels+and+some+important+lessons+that+were+carried+out+by+Jack+Ma+to+achieve+success+in+this+complex+world+of+online+trading.+In+this+research+work%2c+we+examine+a+few+key+factors+of+Alibaba%e2%80%99s+success+such+as+its+specific+marketing+strategies%2c+various+challenges%2c+its+strong+branding+image%2c+superio r+customer+value+proposition%2c+better+shopping+experience%2c+huge+sales+volume+and+economies+of+scale.%0aOur++study+will+define+the+research+question+and+propose+the+research+objectives.+In+the+modern+technology+society%2c+the+e-commerce+innovations+have+enriched+the+business+development+opportunities+through+multi-access+networking.+Multi-access+networks+or+channels+are+promising+due+to+the+benefits+of+high+geographically+mobility%2c+qualified+services%2c+enlarged+capacity%2c+etc.+%5bJohansson%3bKlas+%3b+%26+Furuskar%2c+2005%5d.%0aNowadays%2c+the+e-commerce+is+prosperous+in+China%2c+which+mostly+observed+as+online+mobile+applications.+There+is+a+hot+trend+of+booming+online+to+offline+(O2O)+e-commerce+in+China+with+better+profit+gains%2c+increased+market+share+and+more+opportunities.+The+O2O+business+dynamics+usually+involve+online+platform+that+combines+offline+digital+business+opportunities+with+offline+products%2fservices+together+through+internet-connected+devices.+The+customers+are+directed+to+offline+products%2fservices+by+online+information+including+e-coupons%2c+store+locators+or+QR+codes+presented+on+e-shops+(Solution+O2O+Commerce%2c+2015).+The+customers+acquire+the+products%2fservices+information+through+QR+code+scanning+from+the+offline+physical+stores+and+paying+on-the-spot+or+later+stage+via+mobile+payment+system.+This+marketing+strategic+operational+approach+enlarged+the+benefits+for+its+stakeholders+through+third+party+online+payment+market.%0a

In addition, the e-commerce websites such as eBay and Amazon would price more towards the sellers than the buyers. The sellers extract more value than buyers and their price sensitivity are more inelastic.2.4.2Winner-take-all dynamics and Multi-homing costsWe have mentioned the network effects could create market dominance issue. Another features of network effect are the winner-take-all dynamics, which indicates that the successful market player would take all the market benefits as the platform dominator. They could be the pioneer market player, inspiring platform provider or highly reputation market player who grasp the customers’ interest. Their performance differentiates them with other competitors, which comes along with huge rewards. The winner-take-all battle rises due to the increasing return of scale in network. The platform always address the concern of collaboration or exclusiveness while hit the success. Furthermore, Eisenmann (2006) has introduce three conditions that a networked market to be served by a single platform: Multi-homing costs are high for at least one user side, Network effects are positive and strong - at least for the users on the side of the network with high multi-homing costs, neither side’s users have a strong preference for special features. Firstly, the users are not stay with only one certain platform. The users make their “home” on various platform including adoption, operation and the opportunity cost of time. The multi-homing costs are meant all the costs related to build up and maintain the platform. While the number of homes increases, the users increase their outlays accordingly (Eisenmann;Parker;& Alstyne., 2006). While the platform has established and became excellent market player, the network effect grows stronger which the multi-homing costs need to be allocated. The platform provider invests largely on establishing the platform in terms of resources, technology and financial inputs. These costs incurred will be allocated to users. Therefore, the users would gradually move towards one platform to minimize their multi-homing costs. Lastly, the winner-take-all dynamics occurred with market dominance of one platform with massive user base. Since the massive user base, one single platform cannot satisfy highly customized need. Hence, the winner-take-all dynamics rarely focusing on niche market.Eisenmann (2006) has pointed out the cost minimization and differentiate advantages are the crucial part in winner-take-all dynamics. The cost minmization would attract the low price seekers into their user base. This strategy emphasizes more on satisifying the public needs. On the contrast, the differentiation advantages focus on niche market for small scale of users. Additionally, theres are three crucial assets to generate winning power in market network. First, the platform provider would naturally gain advantage over other competitors by obtain pre-exisiting relationship. Second, a good reputation of the platform gives a great help in the intensive platform competition. Third, the money matters. The financial support seems as the greatest weapon in the competition battle expressing from price war, data science, market reasearch etc.2.4.3Envelopment threat and bundling benefitsIn the previous section, we have discussed the network effect leads to winner-take-all dynamics. This section would continue on reveal the envelopment threat. The network platform leadership changes due to various reasons. One of the threats is called platform envelopment phenomenon. Platform providers that serve different networked markets often employ similar components and have overlapping user bases. The platform envelopment is defined as entry by one platform provider into another’s market, combining its own functionality with the targets in a multi-platform bundle that leverages common components and/or shared user relationships (Eisenmann;Parker;& Van Alstyne, 2007). On the other hand, the market dominated platform provider would survive thanks to their strong network effect and high switching costs from the envelopment threat. The multi-platform envelopment threat enforces the platform providers to leverage their shared user relationships, which gain more powerful competition advantage. This collaboration always can be observed as multi-platform bundling. The mobile phone could be a great example to illustrate the multi-platform bundling. The mobile operator leverages their shared user relationships with music, video and online payment to their price bundles. These price bundles yield more functionality with lower prices would hinder other stand-alone platforms. Hence, this envelopment threat would be seems as a powerful force to shaping the platform evolution. (Eisenmann;Parker;& Van Alstyne, 2007)Continuing on explore the multi-platform bundling benefits, Eisenmann (2007) proposed three types of platform and six propositions for bundling benefits. The types of platforms are: unrelated platforms, weak substitutes and complements. The unrelated platforms indicates that two platforms do not have shared functionally, but obtained shared demographic or behavior traits. For example, the car owner needs both emergency roadside services and auto loan brokerage services. They companies could gain market power by bundling these two unrelated services. Due to the traits, the correlation of user preference could be very strong and the price discrimination gains will be available (Eisenmann;Parker;& Van Alstyne, 2007). The valuation of the bundle contains two weak substitutes is higher than two separate items for the users under the assumption of not overlapped platforms’ functionality. The complements are the economical concept of one good’s demand increases as another good price decreases. Therefore, the complements type users have strong demand of one platform would highly value the other one. The bundling potential benefits usually express as price discrimination gains, efficiency improvements and strategic advantages. First, the bundling simply reduces the valuation of the product or service set. For instance, the DVDs platform and video game platform bundling cannot largely improve the benefits since users will buy the product anyway. Therefore, the eager to pay is not as much as the first situation. As a user, this price discrimination package increases their willingness to pay. And the market powered selling side extracts more market surplus than separate selling approach. The first proposition has concluded that the multi-platform bundling would yield a better profit in two circumstances (Eisenmann;Parker;& Van Alstyne, 2007). Proposition 1: Assuming marginal costs are low, bundling two platforms is more likely to yield increased profits through price discrimination when:a. Platforms are functionally independent, and their use is not associated with common underlying demographic or behavioral traits.b. Platforms are complements, but their use is not reciprocally specific.Second, the bundling could improve the efficiency through four perspectives: economies of scope in initial marketing, economies of scope in production and ongoing operations, quality advantage and avoidance of double marginalization (Eisenmann;Parker;& Van Alstyne, 2007). The bundled package would reduce the costs for both customers and company. The customers save time on searching separate items and the company realizes customer acquisition and reduces delivery costs by one promotion. Moreover, the bundled package help to decrease the production cost by leveraging shared components. It also generates quality advantages by tighter management and component interfaces simplification via integrated platforms [Eisenmann;Parker;& Van Alstyne, 2007]. For example, the restaurant platform and entertainment service platform are weak substitutes. The single platform would bundle the food service with the cinema tickets together have better profit margin. The double marginalization caused by the monopolistic supply and demand stream, which harm the total welfare. However, the bundled package could lower down the double marginalization effect by allocating resources to different platforms. The efficiency improvement benefit could be summarized into three following propositions for multi¬platform network market [Eisenmann;Parker;& Van Alstyne, 2007].Proposition 2: Bundling weak substitutes are likely to yield increased profits through economies of scope in production and ongoing operations.Proposition 3: Integrating reciprocally specific complements and weak substitutes may yield quality improvements compared to platforms provided by separate firms.Proposition 4: Bundling reciprocally specific complements otherwise supplied by separate platform providers with significant market power may yield increased profits through avoidance of double marginalization.Not only for the competitive market, Eisenmann (2007) also investigated the monopolistic market. For the monopolistic market, the bundled package requires exclusive suppliers, which create entry barrier, such as high cost premium, for the market. Furthermore, the market dominator could control their market power by weaken other existing competitors or potential new player through their bundled package. For instance, the dominant platform sells a bundled product packages. The rival platform could focus on gain competitive advantage in one of their product to increase profit. This strategic advantage benefits is concluded into two propositions in below (Eisenmann;Parker;& Van Alstyne, 2007).Proposition 5: Through envelopment, a platform provider can profitably extend its market power when its target supplies either: 1) a reciprocally specific complement; or 2) a unilaterally specific complement that is used mainly but not exclusively with the attacker’s platform.Proposition 6: Through envelopment, a platform provider can profitably weaken or deter rivals in its own market when its target supplies a reciprocally specific complement.The previous chapter established the theoretical framework based on various literature reviews. This chapter will continue on discussing the research methodology in the empirical case study along with the data analysis. Lastly, the validity and reliability issue will also be addressed.3.Case studyBesides the qualitative research method, this thesis applies an empirical case study to add a more realistic example to elaborate the discussed theories above. Case studies are useful when dealing with the relatively unknown research area. The case study research study is a pertinent on addressing either descriptive or explanatory questions (Yin, 2008). With it unique, real time features of case study, it explores more unrevealed fields or phenomena. The case study helps on illuminate a particular situation to produce an in-depth or first-hand understanding of people or events (Yin, 2008). Moreover, the output of the case study could serve as an empirical testing on extending the theoretical framework. On the contrast, a well- designed experiment follows certain research pattern, model, and analysis with updated data test.Among all the companies, the author has chosen Alibaba Group’s Alipay as the case company in empirical study. Alibaba is the leading company in Chinese e-commerce market in term of online retailing services including both B2C and C2C. As stated before, the online retailing takes the largest market contribution for Chinese e-commerce development. Picking Alibaba Group as a representative will offer a typical comprehension on Chinese e-commerce development. Since Alibaba maintains high market penetration rate, the business information and published figures are easier to extract as a researcher. Furthermore, the O2O concept gains market attention quite recently and Alipay as the third party payment system already keep abreast with this new market dynamics. However, this newborn concept has not directly revealed by any articles or journals. Thus, an empirical case study would perfectly illustrate this phenomenon with real time touch on this upcoming hot trend.3.1 Chinese e-commerce analysis with case studiesThe online e-commerce has become an intensive topic during the recent years. This chapter will first investigate the whole Chinese e-commerce industry. The e-commerce describes the buying, selling and exchanging of products, services, and information via computer networks, primarily the Internet (Turban;Rainer;& Potter, 2003). The e-commerce would apply to various area, such as direct marketing, stocks, online banking etc. The people are the focused group in the e-commerce and the public policy would influence the business environment. The marketing and advertisement are the company promotion methods in e-commerce and supply chain indicates the distribution channel. Moreover, the e-commerce obviously needs technical infrastructure to gain network influences. Lastly, the management includes the personnel management, sales management, branding etc.The e-commerce is proven to be a leading market power sector in Chinese economic environment including the Business to consumer (B2C), Consumer-to-consumer (C2C) and the Online-to-offline (O2O). The core essence of O2O is to initial the business from online, which can be seen as the marketing strategic operations. It starts the business online to release the grand investment constraint level. With the technical support on online platform development, the channel is established to attract both users and merchants. The whole operation process is a closed loop with payment features. The build in payment features differ the O2O business dynamics than other as a service oriented operation for the platform provider to survive. The online payment is a most important part for electronic commerce that realized the online consumption. This study will continue to access the company case for risks and opportunities. After the industry overview analysis, the STOF model and SPA matrix analysis will be conducted with three iconic Chinese leading companies: Alibaba Group. Nowadays, the Chinese e-commerce market is growing rapidly under the wireless Internet construction and various platform influences. The whole e-commerce industry is booming since 2008. The Figure 12 indicates the market size of e-commerce from year 2008 till 2017 under predictions. We could observe a dramatic market growth trend for both B2C and C2C. A giant increase can be observed in year 2011. The Chinese e-commerce has developed starting from 2009 and end up with $300 billion in year 2013. The e-commerce market expands largely due to the online retailing increases, which can be seem from the Taobao’s early success in C2C, which most of the e-shops are operated by individuals. The early stage of Taobao platform is more like eBay style, which allows individuals direct transactions. However, Alibaba group launched Tmall on their platform that is a B2C based e-commerce. The early success of Taobao has attracted business patterns to affiliate their business in the platform. In order to separate the sellers, Alibaba has opened Tmall for the business partners to co-operate with under their pre-existing brand name. Under the market exploration in user bases, the B2C channel was driven to high growth in 2013. (Goh & CheeWee, 2014) In addition, another study shows the rural area generates more market contribution due to relatively poor retailing system geographically.Recently, the O2O business phenomena is a fast growing trend. It is hard to estimate the O2O market size from both market supply and demand side. There are thousands of mobile platform launches during these three years. It is been reported that only 5 percent of mobile applications can survive after using 5 month period (Zhao, 2015). There is an intensive competition to survive in the mobile protal in the supply side. The potential market demand is large, which comes from the massive mobile Internet users. Hence, this study will present the current condition of Chinese e-commerce and potential growth areas.E-commerce market size 2008 200920102011201220132014*2015201612017Note: Exchange rate i* 6 2 yuan per dollar. Totals may not resolve due to rounding.Sources: «Research. Analysys International; A.T. Kearney analysisVarious aspects trigger the Chinese e-commerce evolution. They can be summarized into three categories: economical reason, technical reason and social reason. According to Goh and CheeWee (2014), the purchasing power has increased for household. Thanks to the Chinese prospeous economic growth, the personal disposal income per capita reached $3000 in 2013 and is expected to grow up to $5000 in 2018. The stronger purchase power would largely increase the willingness to pay and the Chinese buying behavior would gradually switch to diversified, quality seeking pattern. Thus, it will benefits both the production and service industry with increaseing payment transactions. Moreover, the blooming e-commerce cannot leave without the technical development: internet infrastructure and online payment security. The wireless internet connection enables users to browse and conduct payment through smart phones. China obtain 600 million internet users in 2013 only with 46% internet penetration rate, compared with 83% in the US market. However, the average time spend online of Chinese users is longer and the most of the users are aged from 18 to 35 (Goh & CheeWee, 2014). This age group has the most buying power and willing to spend money online. Additionally, the more secured online payment envrionment guaranteed the safety of users experiences. The transparency of online credibility breaks through the users’ psychological barrier. Lastly, the social media enlarged the e-commerce influence. The Chinese social media platform, such as Wechat or Sina Weibo, already take large part in users daily life with high subscribe rate. The subuscribers use these social media platform to ask for advices on buying decisions. (Stanley & Ritacca, 2014)/ In addition, some of the users or company also use social media platform as selling channel, such as social media celebrity endorsement in Weibo and “Weishang” in Wechat. The “Weishang” is a phenomenon that Wechat users open online stores in Wechat platform, mostly are individual foreign product importers or dealers. The Figure 13 indicates the most popular Chinese social media applications among social meida users (Half of Consumers in China Use Social Media, 2016). The Chinese buying behavior gradually accepted the online payment system. The third party payment has got attention since 2010 along with the mobile application explosion, which established the bridge to connect the online shoppers and the customers. As a result, the online consumption raises can be observed last decades. Most of Chinese online services are connect with various payment methods: bank payment (credit card, debit card, online banking service), third party payment (Alipay, Tenpay, UnionPay etc.) and platform wallet (JD wallet). At the beginning, the bank payment system was the pioneer in online banking system. However, the public does not trust the online payment environment due to market immature and risk averse psychology.The raise of the B2C, C2C and O2O has brought massive benefits and opportunities, but they also come along with risks. First, this newborn business environment has high “fail fast” effect and missing regulations. The user preferences become much more complex than before to be traced. The platform design and innovation can be easily crushed due to lack of user subscription. In addition, the online environment still requires legislation on malignant market competitions and management issues.