Alibaba.Com Case Essay

1. Alibaba.com was an early entrant into the B2B portal market in China. In about 100 words, explain how this might have created a lock-in effect, especially given the types of businesses he site attracts. Alibaba.com does translation as well as listings for small to mid-sized businesses who want to do business. In so doing there is a lot of time and effort put into this business venture by these businesses. Once they are established and have spent the money to get there they wouldn’t be looking at changing their site unless this one wasn’t working for them. Since this site really concentrates its efforts towards these businesses and it is working they are pretty much a lock-in. Other businesses startups that would try and gain their business would have to provide something they are not already getting in order to lure them away. 2. Alibaba.com currently charges foreign sellers an annual fee of about $400 for a TrustPass membership, but Chinese companies pay $8000 or more for their annual listings as China Gold Suppliers. In about 200 words, explain why the site has different listing charges for the two types of members and critically evaluate this practice. Foreign sellers are limited to the amount of items they can list on the site. The TrustPass isn’t necessary for them to buy it only pays for a credit check that assures companies wanting to buy for them that they have been checked out. It would be advantageous for companies to pay the fee for a TrustPass in order for the companies wanting to buy from them to know they are someone who can be trusted. Whereas, the money paid by the Chinese companies is paying for the translation and the listing of all their information on the site as well as marketing. Chinese companies are not limited to the amount of items they can list. Alibaba.com is also connecting small and mid-sized businesses from around the world with those small and mid-sized businesses in China who subscribe to them. Alibaba.com is doing marketing for these businesses that might otherwise not have the resources to do this. Most small or mid-sized businesses in China would look to such means as trade fairs and other such avenues to meet other suppliers and to attract customers to their businesses. There is such a wide gap between the pricing that it could be construed the Chinese companies are way over paying for the services. However, when you look at all they are getting for their money and the fact it is opening many more doors for them it seems it isn’t. With the growth of the company and the renewal rate – it seems to be working well for them and they aren’t arguing the price. 3. You learned in Chapter 5 that large companies, such as General Electric and Sears, often require suppliers to follow specific rules if they want to do business (such as using EDI or even a specific EDI VAN). Alibaba.com currently focuses on connecting SMBs with each other. In about 200 words, discuss opportunities that might exist for Alibaba.com to become an intermediary in relationships between Chinese SMBs and large global companies such as General Electric and Sears. Alibaba.com could be the site to use a value-added network (VAN) and have all the software, equipment and skills needed to do transactions with the bigger companies. By having only one EDI translator computer saving each of the SMBs it contracts with from each one of them having to have their own. By hooking up with a VAN provider Alibaba.com would have the advantages of that provider for all of the SMBs it has contacts with. By everyone using the same VAN the costs could be spread out over everyone and not be so costly, thus letting all the SMBs getting the advantages of the VAN. By doing this Alibaba.com becomes a supplier for not only SMBs to SMBs but can now help those SMBs by selling to larger and more retail companies who require that anyone they buy from have an EDI. By Alibaba.com moving to this next step they can up their membership fees to cover the cost of upgrading to this option. It is a win-win situation for both Alibaba.com and all of the SMBs it does business with. Alibaba.com grows and the SMBs are now able to contract with bigger industrial companies and retailers that they would not have the opportunity to do before. With these new contracting opportunities the SMBs also have the opportunity to grow. 4. In 2003, Alibaba.com launched Taobao.com to compete in the general consumer online auction market against eBay in China. After four years of an intensive and expensive battle, eBay withdrew from China completely. In about 200 words, describe the advantages Alibaba.com might have had over eBay in this new market, and then describe the advantages eBay might have had over Alibaba.com. Be sure to discuss lock-in effects where appropriate. Alibaba.com was already a well-known and trusted name in business dealings when it opened Taobao.com. Since Alibaba.com was pretty much a lock-in with its B2B portal for SMBs it would be a natural progression for Taobao.com under the Alibaba.com structure to become a lock-in for another market being the general consumer online auction market. By drawing off of the Alibaba.com name the Taobao.com site would become more valuable to people who already are aware of the company than in investing in a new company such as eBay trying to come in and start from scratch. The trust had already been gained and people are not going to willingly move from a company they already trust to a new company starting out. By being an established company Taobao.com could possibly be able to offer incentives, fairer prices and a larger buyer/seller base than eBay just coming in. People who are buying or selling would want the larger base in order to get what they want to buy or to get a better price for what they are selling. By winning against eBay this would pretty much lock-in Taobao.com and make it rather difficult for any other company wanting to try and compete against them in the future. 5. In 2005, Yahoo! Paid $1 billion for a 40 percent interest in Alibaba.com. Yahoo! was interested in the company’s Taobao.com auction site because Yahoo! had not been as successful as it would have liked in developing its own Chinese auction site. However, Yahoo! was also interested in using Alibaba.com’s strong reputation in China to help I compete with Baidu.com, the top Chinese search engine site. In about 200 words, describe the ways in which Alibaba.com’s reputation could help Yahoo! Compete more effectively as a search engine and Web portal in China. By Alibaba.com being an established business since 1995 and being a lock-in for the, SMB to SMB, B2B market worldwide and then being another lock-in for the general consumer online auction market in 2003 it’s competition in both areas were basically out of luck. By Yahoo! offering to buy into the company showed that they knew they weren’t going to be able to come in as a new company and beat out Alibaba.com or Taobao.com. It had already been tried by eBay and they had failed after spending years and money to do it and not making it. Therefore, by buying an interest in an already established company Yahoo! was able to get its name out there in the public sector and business sectors and start gaining the trust by becoming a part of an already trusted company. When a large company endorses another product or site it lends credibility to that product or site and its followers are more willing to take a chance on the new one. By Alibaba.com and Taobao.com putting their mark on Yahoo! as a reliable search engine and Web portal it was saying to all of their contract businesses and buyers and sellers that this was someone they should use and trust as well. Thus they gave Yahoo! that boost above any of the other search engines out their vying for people to use them.