By Andy Rooks, Senior Analyst, Insights & Planning at 360i. Claire Charron, Manager, Global Insights & Planning at 360i contributed to this report.
While Alibaba Group, one of the world’s largest ecommerce companies, recently made financial headlines for its historic IPO, the emergence of the group also has substantial implications for the future of global online marketing. Unlike other ecommerce networks, Alibaba Group consists of subsidiaries that encompass the full purchase cycle: an online destination where consumers discover, shop for, and purchase goods and services. Its ecommerce platforms span C2C, B2C, B2B and wholesale, providing a level playing field for small businesses and consumers to compete with major global suppliers. With a “freemium” business model, as well as an increase in ecommerce purchases in China, Alibaba has achieved a higher sales volume than Amazon and ebay combined (Source: Forbes).
More importantly, Alibaba Group provides this marketplace for free, with the majority share of its revenue coming from a combination of advertising and web services. Given the effectiveness of full-funnel integration that Alibaba platforms provide, the ad network and commerce platform poses a serious threat to networks that only service a piece of the consumer journey such as Google, Amazon and ebay. However for marketers, Alibaba Group’s meteoric rise opens new potential to reach consumers throughout the entire purchase funnel with a truly global scale.
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Site ranking by traffic volume (source: Alexa, August 2014)
How Alibaba Works
Out of Alibaba Group’s many holdings, Taobao (A C2C business model similar to ebay and Craigslist), Tmall (A B2C model similar to Amazon) and Alibaba (A B2B wholesale-like business model) are the three main marketplaces – and all rank among the most visited sites in both China and the world. While businesses are allowed to list their products for free on the platform, Alibaba Group provides a range of advertising and web hosting services that help build exposure and provide legitimacy to acquire potential new customers. Advertisers also have access to advanced targeting features using Alibaba Group’s own data management platform (DMP), Alimama. Other subsidiaries such as Alipay (similar to PayPal) and Cainiao (a logistics platform) serve to ensure secure payment and delivery of goods, creating a desirable and legitimate marketplace for buyers and sellers alike. Despite these efforts, counterfeit listings and fraudulent buyers still remain a challenge for the ecommerce giant.
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Alibaba Properties matched to platforms & US equivalents (source: 360i Insights, August 2014)
Moreover, Alibaba Group has made efforts to control the full path-to-purchase by blocking major search sites, notably Baidu. As a result, consumer behavior in China has effectively shifted to circumvent third party search sites when shopping online. This is especially valuable to marketers, as Alibaba sites have become a singular force in consumer discovery, consideration and purchase. In theory this would also create efficiencies for search and display advertisements, with multiple touchpoints on one platform.
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Percent web traffic to site by search referrals (source: Alexa, August 2014)
A Growing Impact
Currently China is Alibaba’s primary market, although its global consumer base is rapidly expanding. Alibaba Group has already made moves for expansion into Russia, Brazil and North America with AliExpress, which allows consumers to buy direct from Chinese suppliers. The ecommerce giant has also begun the slow rollout of a design-centric local marketplace site similar to Etsy called 11main. Alibaba properties in the USA are currently seeing significant traffic with approximately 10 million site visits per month — close to other major online retailers such as Best Buy (16 million site visits per month) (Source: comScore).
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Demographic breakdown of Alibaba properties* users compared to general population
(source: comScore USA, August 2014)
Alibaba Group has worked with small and large businesses alike, including companies from the USA. Alibaba’s founder Jack Ma has repeatedly stressed his commitment to empowering small businesses, helping to connect merchants to new customers in China and the rest of the world. Additionally, multinational brands have already taken advantage of ad inventory on Alibaba Group’s Taobao Affiliate Network. Linking full-funnel consumer data with mobile (Alibaba offers a mobile OS business called Aliyun) has allowed brands to leverage integrated ad targeting and insights. One notable example comes from Alibaba Group’s work with Mercedes Benz, which the company outlined in its SEC filing:
“By matching data collected from visitors to their physical showrooms to our DMP, we were able to identify the showroom visitors who also visited our China retail marketplaces and our partner websites and to add additional attributes to the data set using our proprietary algorithm. We then ran an online marketing program on behalf of Mercedes Benz to deliver targeted advertisements to a much larger set of potential customers with similar attributes without disclosing personally identifiable information. Mercedes Benz reported to us a noticeable increase in foot traffic following launch of the campaign.” (Source: AdExchanger)
While Alibaba sites have demonstrated huge potential for global success, their greatest achievement has been unlocking markets that are relatively new to ecommerce. Consumers are more likely to transact on a platform that they deem legitimate, and Alibaba Group has worked with its partners to effectively erode skepticism and to build trust. The results speak for themselves.
Implications for Marketers
The Alibaba Group is competing in all spaces of Internet commerce with ad networks, ecommerce, and payment/logistics companies all facing a potential impact. Nonetheless, how Alibaba uses its global scale and reach has yet to be seen, as market penetration outside of China is still developing. This creates an opportunity rather than a threat, as Alibaba Group’s services have lowered the barrier to entry to new markets, especially in China. For marketers, there are three major implications to consider:
An opportunity to reach new markets — Alibaba sites have worked incredibly well at meeting the needs of consumers in developing markets, and the network provides an opportunity to reach customers in China, and increasingly Russia and Brazil.
Staying ahead of competitors — Alibaba Group’s ad network provides marketers the opportunity to reach consumers across all purchase stages. Brands should consider how they might be able to work with the ecommerce giant to explore first-to-market opportunities.
Advanced targeting and consumer insights — With access to full-funnel consumer data, Alibaba and its affiliate brands have the opportunity to leverage unparalleled insight into path-to-purchase attribution modeling. With access to robust, global data, this presents the potential to change how companies spend and measure success in online advertising.
The Alibaba Group IPO signals great opportunity not only for investors, but also for marketers with an eye for global expansion. For now, the Alibaba network provides a chance for marketers to access new markets in China and beyond. In the future, the commerce network has even greater potential to reshape online advertising as we know it, and to unlock a wealth of consumer insight.