What are the weaknesses of Alibaba Group: The Rise of a Platform Giant? Alibaba Group: The Rise of a Platform GiantAlibaba, a company founded in 1999 to facilitate export transactions for small Chinesebusinesses, grew to become a platform ecosystem with astonishing reach. Manydescribed Alibaba as being Amazon, Yelp, YouTube, and PayPal wrapped into onecompany. When the company went public in 2014 (its stock symbol is BABA), it raisedUS$25 billion, making it the largest IPO in history. For the fiscal year ending in March2018, Alibaba posted revenues of over CNY 250 billion, or $US 36 billion, and in August2018 it had a market cap of over $470 billion, making it the seventh highest valuedcompany in the world. In terms of gross merchandise volume moved, Alibaba was largerfinanciers, logistics providers, information technology providers, and more. As put by MingZeng, chairman of the Academic Council of Alibaba Group, "Alibaba does what Amazon,eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do inthe United States, with a healthy helping of financial services for garnish." Alibaba did notcharge transaction fees or fees to list goods; instead, its business model relied on sellingadvertising. The free listing service attracted sellers in droves, and by 2001 it already had450,000 users and had achieved profitability.Expanding Alibaba's Market ReachIn 2002, eBay entered the Chinese market by purchasing a large stake in EachNet, aChinese consumer-to consumer sales platform, and Ma sensed the threat eBay andEachNet posed. Much of Alibaba's business came from small firms that could just aseasily use a consumer-oriented platform like EachNet, and if EachNet grew quickly, itmight lure Alibaba users away. Furthermore, individual consumers were already placingorders on Alibaba when they wanted to buy goods in bulk, revealing the potential for aconsumer market for Alibaba. Thus, in 2003, Alibaba created a subsidiary platform calledthan Amazon, Wal-Mart, and eBay combined.The History of AlibabaAlibaba was founded in 1999 by 18 friends led by Jack Ma. Ma's story is an inspiring,rags-to-riches tale. He was born in Hangzhou, China, in 1964 to a poor family. He wasslight in build, and often got into fights with classmates. Ma struggled both to get intouniversity and to find a job. As he told Charlie Rose in an interview in 2015:Taobao ("treasure hunt"), focused on consumer-to-consumer sales. Unlike eBay, Taobaodid not charge fees, and because Chinese users were more comfortable with face-to-facetransactions, it created Taobao WangWang, an instant messaging service that simulatedface-to-face negotiations between buyers and sellers. The strategy was successful-by2004, Alibaba controlled most of the consumer-to-consumer ecommerce market in China,and eBay announced its exit from the company. In 2004, Alibaba partnered with four ofChina's largest banks to create an e-payment system called Alipay. Though initially Alipaywas designed just to work with Taobao and Tmall, soon the payment system evolved tobe a complete mobile-payment service. Using a smartphone, Alipay users can makepayments online and at bricks-and-mortar stores. They can also use it to make person-to-person money transfers, purchase bus and train tickets, hail taxis, and as digitalidentification for many public services. The company grew rapidly. By 2008, Alibaba'sannual revenues were 3.9 billion yuan (or $US 562 million). Unfortunately, the free andopen nature of Taobao was both a strength and a weakness. While sellers of any sizecould join easily, Taobao also began to have a reputation for having counterfeit products.To counter this, Alibaba launched a business-to consumer retail platform, Taobao Mall,later referred to simply as Tmall. Unlike Taobao, TMall screened sellers, and setstandards for quality and reliability. It also collected annual fees and transaction fees fromsellers. The combination of standards and fees effectively limited sellers to larger, moreestablished players. This, in turn, gave consumers more confidence in the products andtransaction process.“There's an examination for young people to go to university. I failed it three times.I failed a lot. So I applied to 30 different jobs and got rejected. I went for a job with thepolice; they said, "You're no good." I even went to KFC when it came to my city. Twentyfour people went for the job. Twenty-three were accepted. I was the only guy [whowasn't)."ecommMa was also rejected by Harvard ten times. He ultimately accepted a job as an Englishteacher that paid $12 month. In 1995, Ma traveled to the United States for the first time,serving as an interpreter for a Chinese government trade delegation. There, on a lark, hedid an online search for "beer" and "China." and was surprised to find that no Chinesebeers came up. He decided at that moment to form a company called China Pages, whichwould help Chinese companies build websites. China Pages would eventually merge intoan unsuccessful joint venture with China Telecom. Ma next headed up an Internetcompany backed by the Chinese Ministry of Foreign Trade and Economic Cooperation inBeijing. Ma worried, however, that being connected to the government would keep himfrom capitalizing on the rapid change and opportunities created by the Internet. Ma thuspersuaded his team at the ministry to return to Hangzhou with him. There they foundedwereloundedAlibaba. The company began as a business-to-business wholesale platform that enabledcompanies around the world to easily buy products from China. The platform wasparticularly useful for small to medium sized Chinese businesses that would normally notbe able to easily tap the export market. Ma had the objective of democratizing businessin China by helping small businesses overcome the advantages large businesseswielded. As he noted, "What we do is give small companies e-commerce ability by helpingthem source partners and information around the world." Unlike Amazon, Alibaba wouldnot take ownership over inventory; instead it would provide access to all the resourcesthat an online business would need to succeed. It would serve as a platform hub at thecenter of an ecosystem of interacting partners of all types: suppliers, buyers, advertisers,Deepening the Platform StrategyTransaction volume grew quickly, and the firm turned its focus from growing its user baseto improving the efficiency of its logistics, finance, and data infrastructure, and providingadditional services to members of its ecosystem (see Figure 1). In 2011, the companyspent over US $4 billion on logistics and an integrated network of warehouses across China, and in 2013, Alibaba and a consortium of logistics companies formed Cainiao, alogistics network that links warehouses, distribution centers and delivery companies.Mirroring Alibaba's strategy for e-commerce, Cainiao owns no warehouses and employsno delivery personnel; instead, it just coordinates them efficiently, enabling participantsto confidentially exchange information, provide real-time status on deliveries, and more.late 2017, Cainiao was coordinating over 57 million deliveries a day. Alibaba alsoengines that yield increasingly precise predictions about things like consumerpreferences, inventory needs, and investment returns. In the same way that each Googlesearch makes the Google search engine more accurate at gauging what a user is lookingfor, each transaction in Alibaba's rapidly growing ecosystem makes its platform smarter.In systems based on data and networks, size matters; the volume of data input into thesystem can create a self-reinforcing advantage. This raised important questions aboutthe future of companies like Alibaba, Amazon, Tencent, and Google. Would thesemarkets tend to become natural monopolies? Would they hold dangerous amounts ofpower over consumers? And would they ultimately try to unseat each other? Thoughthese companies have largely avoided direct competition by dominating different parts ofthe world, each is becoming increasingly global. Analysts also noted that, althoughAlibaba's sales were only about one-fifth of Amazon's in 2017, Alibaba was far moreprofitable than Amazon, with Alibaba earning $9.7 billion in net income, over three timesAmazon's $US 3 billion (see Figure 3 and financial statements in Exhibits 1 and 2). Thefinancial ratios told a powerful story about Alibaba's strategy of owning the platform butnot the products: Alibaba was significantly more profitable, and it enjoyed much higherreturns on invested capital.Bystarted two microfinance subsidiaries that would provide microloans to small sellers onTaobao and Alibaba.com. At banks in China, the minimum loan amount was typicallyabout 6 million RMB (about $1 million), which was well above the needs of a typical smallbusiness. Furthermore, most small businesses lacked the credit history anddocumentation of their business performance needed to apply for such loans. This meantthat tens of millions of small businesses in China were struggling to gain access to thecapital they needed to grow their businesses. Alibaba realized it already had real-timeaccurate data on the performance of millions of small businesses on its platform, and itcould use that data to create a credit assessment program. Alibaba was able to not onlyprovide microloans to businesses, but also performed all steps of its loan process online,making it fast and convenient. In the seven years since launching its microloan programs,now merged under the name Ant Financial Services, Alibaba has loaned more than 87billion RMB ($13.4 billion) to nearly three million small and medium-sized enterprises,with an average loan size of 8,000 RMB (about $1,200). As described by Ming Zeng: Antcan easily process loans as small as several hundred RMB (around $50) in a few minutes.THE FUTUREAlibaba's early growth had been primarily driven by the enormous underserved populationof Chinese consumers and small businesses, but in 2017 Jack Ma made it clear that itwas time for Alibaba to have a bigger presence in the United States and Europe. Whilemany pressed Ma to use Taobao and Tmall to sell to U.S. consumers, Ma demonstratedhis political savvy by turning the equation around and focusing on helping U.S.businesses reach the Chinese market. In a meeting with U.S. President Donald Trump in2017, Ma promised to sign up one million U.S. small businesses to Taobao and Tmall tosell to Chinese consumers over the next five years and predicted that each small businesswould likely hire at least one new employee as a result of increased sales, henceproviding one million new jobs in the United States. Trump was delighted by the promise,and declared to a roomful of press, "Jack and I are going to do some great things."13However, on September 10, 2018, Jack Ma's 54th birthday, he stunned the world byannouncing that he would be retiring as Alibaba's chairman in exactly one year. Ma wasnow China's richest man, with a net worth of $40 billion, and was determined to now focushis efforts on education and philanthropy. As he wrote in his letter to customers,employees and shareholders,"I still have lots of dreams to pursue. Those who know me know that I do not liketo sit idle. I plan on continuing my role as the founding partner in the Alibaba Partnershipand contribute to the work of the partnership. I also want to return to education, whichexcites me with so much blessing because this is what I love to do. The world is big, andI am still young, so I want to try new things- because what if new dreams can beCanHow is this possible? When faced with potential borrowers, lending institutions needanswer only three basic questions: Should we lend to them, how much should we lend,and at what interest rate? Once sellers on our platforms gave us authorization to analyzetheir data, we were well positioned to answer those questions. Our algorithms can lookat transaction data to assess how well a business is doing, how competitive its offeringsare in the market, whether its partners have high credit ratings, and so on. Alipay wasbrought under the umbrella of the Ant Financial Services group, and by 2018, Alipay hadgrown to become the second-largest mobile payment system in the world, with roughly500 million users in 2018, second to Chinese rival Tencent's WeChat Pay (see Figure 2)In 2016, Alibaba introduced an Al-powered chatbot, Ali Xiaomi ("Ali Assistant") that canhandle both spoken and written customer queries on Taobao and TmallI. Ali Xiaomi canhandle a wide range of customer requests, including product returns, making productsuggestions, and answering questions about delivery status. The chatbot uses machinelearning to continuously improve its ability to diagnose and fix customer issues, enablingit to handle increasingly complex problems over time. Automating customer serviceimproves the efficiency of both Alibaba and its merchants. As noted by Ming Zeng,"Previously, most large sellers on our platform would hire temp workers to handleconsumeconsumer inquiries during big events. Not anymore. During Alibaba's biggest sales dayin 2017, the chatbot handled more than 95% of customer questions, responding to some3.5i million consumers." Alibaba also created a spinoff company, Aliyun that offered cloud-based services to Chinese ecommerce vendors, banks, game developers, and others.Aliyun developed its own cloud-based smartphone operating system, Aliyun OS, whichenabled sellers to manage their online storefronts using a smartphone. The cornerstoneof Alibaba's advantage was data. All transactions handled by Alibaba, Taobao, Tmall,Alipay, Cainiao, and Aliyun generate data, and that data, in turn, is fed into algorithmicrealized?!hichThe one thing I can promise everyone is this: Alibaba was never about Jack Ma, but JackMa will forever belong to Alibaba.

Question

What are the weaknesses of Alibaba Group: The Rise of a Platform Giant? Alibaba Group: The Rise of a Platform GiantAlibaba, a company founded in 1999 to facilitate export transactions for small Chinesebusinesses, grew to become a platform ecosystem with astonishing reach. Manydescribed Alibaba as being Amazon, Yelp, YouTube, and PayPal wrapped into onecompany. When the company went public in 2014 (its stock symbol is BABA), it raisedUS$25 billion, making it the largest IPO in history. For the fiscal year ending in March2018, Alibaba posted revenues of over CNY 250 billion, or $US 36 billion, and in August2018 it had a market cap of over $470 billion, making it the seventh highest valuedcompany in the world. In terms of gross merchandise volume moved, Alibaba was largerfinanciers, logistics providers, information technology providers, and more. As put by MingZeng, chairman of the Academic Council of Alibaba Group, &#34;Alibaba does what Amazon,eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do inthe United States, with a healthy helping of financial services for garnish.&#34; Alibaba did notcharge transaction fees or fees to list goods; instead, its business model relied on sellingadvertising. The free listing service attracted sellers in droves, and by 2001 it already had450,000 users and had achieved profitability.Expanding Alibaba's Market ReachIn 2002, eBay entered the Chinese market by purchasing a large stake in EachNet, aChinese consumer-to consumer sales platform, and Ma sensed the threat eBay andEachNet posed. Much of Alibaba's business came from small firms that could just aseasily use a consumer-oriented platform like EachNet, and if EachNet grew quickly, itmight lure Alibaba users away. Furthermore, individual consumers were already placingorders on Alibaba when they wanted to buy goods in bulk, revealing the potential for aconsumer market for Alibaba. Thus, in 2003, Alibaba created a subsidiary platform calledthan Amazon, Wal-Mart, and eBay combined.The History of AlibabaAlibaba was founded in 1999 by 18 friends led by Jack Ma. Ma's story is an inspiring,rags-to-riches tale. He was born in Hangzhou, China, in 1964 to a poor family. He wasslight in build, and often got into fights with classmates. Ma struggled both to get intouniversity and to find a job. As he told Charlie Rose in an interview in 2015:Taobao (&#34;treasure hunt&#34;), focused on consumer-to-consumer sales. Unlike eBay, Taobaodid not charge fees, and because Chinese users were more comfortable with face-to-facetransactions, it created Taobao WangWang, an instant messaging service that simulatedface-to-face negotiations between buyers and sellers. The strategy was successful-by2004, Alibaba controlled most of the consumer-to-consumer ecommerce market in China,and eBay announced its exit from the company. In 2004, Alibaba partnered with four ofChina's largest banks to create an e-payment system called Alipay. Though initially Alipaywas designed just to work with Taobao and Tmall, soon the payment system evolved tobe a complete mobile-payment service. Using a smartphone, Alipay users can makepayments online and at bricks-and-mortar stores. They can also use it to make person-to-person money transfers, purchase bus and train tickets, hail taxis, and as digitalidentification for many public services. The company grew rapidly. By 2008, Alibaba'sannual revenues were 3.9 billion yuan (or $US 562 million). Unfortunately, the free andopen nature of Taobao was both a strength and a weakness. While sellers of any sizecould join easily, Taobao also began to have a reputation for having counterfeit products.To counter this, Alibaba launched a business-to consumer retail platform, Taobao Mall,later referred to simply as Tmall. Unlike Taobao, TMall screened sellers, and setstandards for quality and reliability. It also collected annual fees and transaction fees fromsellers. The combination of standards and fees effectively limited sellers to larger, moreestablished players. This, in turn, gave consumers more confidence in the products andtransaction process.“There's an examination for young people to go to university. I failed it three times.I failed a lot. So I applied to 30 different jobs and got rejected. I went for a job with thepolice; they said, &#34;You're no good.&#34; I even went to KFC when it came to my city. Twentyfour people went for the job. Twenty-three were accepted. I was the only guy [whowasn't).&#34;ecommMa was also rejected by Harvard ten times. He ultimately accepted a job as an Englishteacher that paid $12 month. In 1995, Ma traveled to the United States for the first time,serving as an interpreter for a Chinese government trade delegation. There, on a lark, hedid an online search for &#34;beer&#34; and &#34;China.&#34; and was surprised to find that no Chinesebeers came up. He decided at that moment to form a company called China Pages, whichwould help Chinese companies build websites. China Pages would eventually merge intoan unsuccessful joint venture with China Telecom. Ma next headed up an Internetcompany backed by the Chinese Ministry of Foreign Trade and Economic Cooperation inBeijing. Ma worried, however, that being connected to the government would keep himfrom capitalizing on the rapid change and opportunities created by the Internet. Ma thuspersuaded his team at the ministry to return to Hangzhou with him. There they foundedwereloundedAlibaba. The company began as a business-to-business wholesale platform that enabledcompanies around the world to easily buy products from China. The platform wasparticularly useful for small to medium sized Chinese businesses that would normally notbe able to easily tap the export market. Ma had the objective of democratizing businessin China by helping small businesses overcome the advantages large businesseswielded. As he noted, &#34;What we do is give small companies e-commerce ability by helpingthem source partners and information around the world.&#34; Unlike Amazon, Alibaba wouldnot take ownership over inventory; instead it would provide access to all the resourcesthat an online business would need to succeed. It would serve as a platform hub at thecenter of an ecosystem of interacting partners of all types: suppliers, buyers, advertisers,Deepening the Platform StrategyTransaction volume grew quickly, and the firm turned its focus from growing its user baseto improving the efficiency of its logistics, finance, and data infrastructure, and providingadditional services to members of its ecosystem (see Figure 1). In 2011, the companyspent over US $4 billion on logistics and an integrated network of warehouses across China, and in 2013, Alibaba and a consortium of logistics companies formed Cainiao, alogistics network that links warehouses, distribution centers and delivery companies.Mirroring Alibaba's strategy for e-commerce, Cainiao owns no warehouses and employsno delivery personnel; instead, it just coordinates them efficiently, enabling participantsto confidentially exchange information, provide real-time status on deliveries, and more.late 2017, Cainiao was coordinating over 57 million deliveries a day. Alibaba alsoengines that yield increasingly precise predictions about things like consumerpreferences, inventory needs, and investment returns. In the same way that each Googlesearch makes the Google search engine more accurate at gauging what a user is lookingfor, each transaction in Alibaba's rapidly growing ecosystem makes its platform smarter.In systems based on data and networks, size matters; the volume of data input into thesystem can create a self-reinforcing advantage. This raised important questions aboutthe future of companies like Alibaba, Amazon, Tencent, and Google. Would thesemarkets tend to become natural monopolies? Would they hold dangerous amounts ofpower over consumers? And would they ultimately try to unseat each other? Thoughthese companies have largely avoided direct competition by dominating different parts ofthe world, each is becoming increasingly global. Analysts also noted that, althoughAlibaba's sales were only about one-fifth of Amazon's in 2017, Alibaba was far moreprofitable than Amazon, with Alibaba earning $9.7 billion in net income, over three timesAmazon's $US 3 billion (see Figure 3 and financial statements in Exhibits 1 and 2). Thefinancial ratios told a powerful story about Alibaba's strategy of owning the platform butnot the products: Alibaba was significantly more profitable, and it enjoyed much higherreturns on invested capital.Bystarted two microfinance subsidiaries that would provide microloans to small sellers onTaobao and Alibaba.com. At banks in China, the minimum loan amount was typicallyabout 6 million RMB (about $1 million), which was well above the needs of a typical smallbusiness. Furthermore, most small businesses lacked the credit history anddocumentation of their business performance needed to apply for such loans. This meantthat tens of millions of small businesses in China were struggling to gain access to thecapital they needed to grow their businesses. Alibaba realized it already had real-timeaccurate data on the performance of millions of small businesses on its platform, and itcould use that data to create a credit assessment program. Alibaba was able to not onlyprovide microloans to businesses, but also performed all steps of its loan process online,making it fast and convenient. In the seven years since launching its microloan programs,now merged under the name Ant Financial Services, Alibaba has loaned more than 87billion RMB ($13.4 billion) to nearly three million small and medium-sized enterprises,with an average loan size of 8,000 RMB (about $1,200). As described by Ming Zeng: Antcan easily process loans as small as several hundred RMB (around $50) in a few minutes.THE FUTUREAlibaba's early growth had been primarily driven by the enormous underserved populationof Chinese consumers and small businesses, but in 2017 Jack Ma made it clear that itwas time for Alibaba to have a bigger presence in the United States and Europe. Whilemany pressed Ma to use Taobao and Tmall to sell to U.S. consumers, Ma demonstratedhis political savvy by turning the equation around and focusing on helping U.S.businesses reach the Chinese market. In a meeting with U.S. President Donald Trump in2017, Ma promised to sign up one million U.S. small businesses to Taobao and Tmall tosell to Chinese consumers over the next five years and predicted that each small businesswould likely hire at least one new employee as a result of increased sales, henceproviding one million new jobs in the United States. Trump was delighted by the promise,and declared to a roomful of press, &#34;Jack and I are going to do some great things.&#34;13However, on September 10, 2018, Jack Ma's 54th birthday, he stunned the world byannouncing that he would be retiring as Alibaba's chairman in exactly one year. Ma wasnow China's richest man, with a net worth of $40 billion, and was determined to now focushis efforts on education and philanthropy. As he wrote in his letter to customers,employees and shareholders,&#34;I still have lots of dreams to pursue. Those who know me know that I do not liketo sit idle. I plan on continuing my role as the founding partner in the Alibaba Partnershipand contribute to the work of the partnership. I also want to return to education, whichexcites me with so much blessing because this is what I love to do. The world is big, andI am still young, so I want to try new things- because what if new dreams can beCanHow is this possible? When faced with potential borrowers, lending institutions needanswer only three basic questions: Should we lend to them, how much should we lend,and at what interest rate? Once sellers on our platforms gave us authorization to analyzetheir data, we were well positioned to answer those questions. Our algorithms can lookat transaction data to assess how well a business is doing, how competitive its offeringsare in the market, whether its partners have high credit ratings, and so on. Alipay wasbrought under the umbrella of the Ant Financial Services group, and by 2018, Alipay hadgrown to become the second-largest mobile payment system in the world, with roughly500 million users in 2018, second to Chinese rival Tencent's WeChat Pay (see Figure 2)In 2016, Alibaba introduced an Al-powered chatbot, Ali Xiaomi (&#34;Ali Assistant&#34;) that canhandle both spoken and written customer queries on Taobao and TmallI. Ali Xiaomi canhandle a wide range of customer requests, including product returns, making productsuggestions, and answering questions about delivery status. The chatbot uses machinelearning to continuously improve its ability to diagnose and fix customer issues, enablingit to handle increasingly complex problems over time. Automating customer serviceimproves the efficiency of both Alibaba and its merchants. As noted by Ming Zeng,&#34;Previously, most large sellers on our platform would hire temp workers to handleconsumeconsumer inquiries during big events. Not anymore. During Alibaba's biggest sales dayin 2017, the chatbot handled more than 95% of customer questions, responding to some3.5i million consumers.&#34; Alibaba also created a spinoff company, Aliyun that offered cloud-based services to Chinese ecommerce vendors, banks, game developers, and others.Aliyun developed its own cloud-based smartphone operating system, Aliyun OS, whichenabled sellers to manage their online storefronts using a smartphone. The cornerstoneof Alibaba's advantage was data. All transactions handled by Alibaba, Taobao, Tmall,Alipay, Cainiao, and Aliyun generate data, and that data, in turn, is fed into algorithmicrealized?!hichThe one thing I can promise everyone is this: Alibaba was never about Jack Ma, but JackMa will forever belong to Alibaba.

Accepted Answer

Alibaba Group Holding Limited, more often referred to simply as Alibaba, is a Chinese multinational…