Chapter 12 Exclusive decryption: Why does Alibaba make money?

Today, Alibaba, the world's largest B2B website with 6 million online members and 300,000 fee-paying members, has a very simple origin. In 1995, Ma Yun, an English teacher at a university in Hangzhou, went to Seattle, USA because he participated in a negotiation, and saw the Internet, which was still a new thing at that time, by chance.At that time, he set up a webpage with his own translation agency as the theme. That night, he received five emails from different parts of the world, all of which said that the webpage he had just created could be found on the Internet by the other party. The first web page with China as content, so they have a need to find him.This made Ma Yun very interesting. He just wanted to start his own business, and soon he decided to use the Internet as his business content.

The first company founded by Ma Yun after returning to China is a company whose main content is to help companies build their own websites. He believes that his behavior is a bit like building a yellow page book of phone numbers. Create a number on it and do some advertising.So he called his company China Yellow Pages. This company was very difficult at the beginning, firstly because he and his entrepreneurial partners did not have much capital, like his fellow Zhejiang, he did not get venture capital, but borrowed 20,000 yuan to start his company; Secondly, in 1995 and the following months in Hangzhou, where he started his business, the Internet was still only in books and was not connected.Therefore, Ma Yun and his partners have to spend a lot of energy to persuade his customers to spend money to build a website that they can't see; The pictures were sent to the United States by express mail, and Ma Yun's friend built the website in Seattle.The customers of China Yellow Pages doubt whether there is such an Internet, and of course they doubt whether this person named Ma Yun has put their company's things on the Internet he said.

But soon Ma Yun had the opportunity to let customers understand that what he said was not nonsense, because Shanghai opened the Internet a few months later, Ma Yun connected to the Internet by phone at home, and spent three hours downloading his client's website material. Jack Ma stayed in China Yellow Pages Company for more than two years. By 1997, building a website for his own business had gradually become a trend, so the business of China Yellow Pages Company also improved. By the time he left At that time, the company already had an annual operating income of about 7 million.At this time, the foreign trade management department of the Chinese government wanted to use the Internet to establish a foreign trade website, and thus set up a company.They knew that Jack Ma was one of the first people in China to access the Internet, so they found him and asked him to be the general manager of the company.So Jack Ma left Hangzhou with a dozen of his companions from the company and arrived in Beijing.

Jack Ma didn't find what he was looking for in this company called "EDI" in English, which is a subsidiary of the government department.According to what Jack Ma told the media later, what the government wants to do is a controlling website, but he believes that the nature of the Internet is open, and it is difficult to control it on the Internet.So after two years, he decided to give up everything he had done in the government department, go south alone, and return to Hangzhou to start a company. But obviously this experience in Beijing is still very good for him.At this time, it was the peak period of the initial stage of China's Internet development. In Beijing, he met a large number of companies and figures who would play a leading role in China's Internet field in the future, and he also had an understanding of the entrepreneurial model of Internet companies.

Unlike many companies that started businesses on the Internet at that time, the company Jack Ma wanted to create did not focus on Internet applications for ordinary consumers.His early entrepreneurial experiences taught him that if he wanted to make money quickly, he had to start with business and merchants, because merchants were the most generous in paying if his website was actually useful.Therefore, although he didn't think clearly about where the profit point of his future company would be, he instinctively built the company as a businessman's website. Because the Internet application in the United States was earlier, when Jack Ma started his business in 1999, the initial idea of ​​Jack Ma's entrepreneurial partners was to imitate the practice of B2B websites in the United States.But Ma Yun believes that there are still big differences between China and the United States.American companies are bigger, so B2B companies don't have much room to survive except to help big companies build their own e-commerce systems, while China has more SMEs, and they don't have much money to build their own e-commerce systems, especially because of fame Smaller, even if you build your own website, not many people visit it, so Jack Ma wants to make a public e-commerce website.Its core is a bit like a commercial BBS. Businessmen can post their own buying and selling information on this public platform, saving them the cost and money they had to spend to find a deal opportunity.

The idea ended up being backed by his entrepreneurial partners.Quite possibly they are used to supporting him because previous experience has proven him right in many predictions. Ma Yun felt that the company established by him and his entrepreneurial partners must be an international company in the future, because businessmen's trade has no borders, so it must have an international name accordingly.Before starting his business, he once had a good idea when he was eating in the United States. He wanted to name the company Alibaba, so he called the waiter in the restaurant and asked him if he knew the story of Alibaba. The waiter He replied that not only did he know about Alibaba, but he also knew that the spell to open the door to the treasure house in this story was Open Sesame.Ma Yun and his partners have done this experiment many times around the world, and the results are the same.So they think the name is international, and their company's name should be called Alibaba.

Like other Internet applications, Ma Yun's electronic bulletin board for merchants was also free at the beginning. As long as merchants register on the website and become members, they can post what they buy or sell on the bulletin board. Therefore, it has been welcomed by some businessmen.Jack Ma's wife, who is also his oldest entrepreneurial partner, used a notebook to record the changes in the number of active members on the company's earliest bulletin board. Almost within a few months, the number rose from zero to Tens of thousands. Although the increase in the number of members is a good thing, the following problem is that the funds to support such a website are also huge.Because a website with such a large number of members obviously needs more people and equipment to maintain, and Ma Yun and his entrepreneurial partners only have 18 people in total, and the initial capital is only 500,000 yuan. Work in residence.

Fortunately, the Internet, as a new economic form, was attracting worldwide attention at that time, and the rapid increase in the click-through rate of the Alibaba website first attracted the attention of the media.After the American Business Weekly reporter discovered this website, they quickly contacted them, and went to Hangzhou Ma Yun’s home to interview, and told the whole world what Ma Yun and his entrepreneurial partner were doing through their media. Then things started to go smoothly.At first, some people who paid close attention to China discovered Ma Yun’s model and paid close attention to him. A foreign Chinese who used to be an investment fund manager came to Ma Yun’s company to talk about his business with him, and then decided to give up his original job to become his financial manager. officials, and then venture capital began to inject funds into Alibaba.The first round of investment came from several companies such as INVESTAB in Europe and Goldman Sachs in the United States, and the investment amount reached 5 million US dollars.What is unusual is that, as the world's top investment bank, Goldman Sachs generally does not make initial round investments in small companies.They changed their routines undoubtedly because they are very optimistic about Alibaba's business model.

Because of the injection of funds from these big companies, Alibaba's reputation has further expanded. At the same time, because it is in the peak period of Internet investment, the capital trying to invest in Alibaba has also increased immediately.However, Jack Ma's appetite became stronger at this time. He declined a lot of funds because he wanted to get more things from venture capital. In addition to the money itself, he also wanted to gain fame from venture capital. He has tasted the sweetness in investment. That choice earned him investment from Masayoshi Son. In 2000, after Jack Ma met Masayoshi Son for the first time and talked with him for six minutes, the Japanese investor decided to give Ma Yun $20 million. My opinion is that the Internet needs leaders, and he thinks Jack Ma is such a leader.

Until Sun Zhengyi's investment, Alibaba told everyone that he hadn't figured out how to make money from the 80,000 members he already had.Obviously, these people have money to make. The reason why they registered on Alibaba and continued to be active on it proved that they used Alibaba to get orders and made money.However, at that time, a large number of Internet sites aimed at consumers appeared in China, and they launched a large number of free services, which made free become the first impression of the Internet for Chinese people. Any website that wants to charge its members during this period has become Very difficult.Because members are likely to stop using your site and turn to free competitors.At this time, Alibaba also has some competitors, such as Meishang.com in China, Global Sources in Hong Kong, and so on.

Therefore, at this time, Alibaba began to take a series of actions to reduce expenses for the company. They laid off many offices around the world, reduced a large number of high-paying foreign employees, strengthened offline services, and withdrew a lot of resources. to China.Trying to use offline services to get the company's customers to pay.They call this service Chinese suppliers, and it is mainly aimed at Chinese small and medium-sized enterprises that are mainly engaged in foreign trade in the southeast coastal areas.Apparently, the senior executives of Alibaba found that the business costs of these enterprises are the highest, because it is difficult to meet customers, and at the same time, the transaction is the most lucrative for them. Therefore, if they can use Internet tools to help improve their transaction rate, they are Most willing to pay for it.Moreover, among these customers, the application awareness of the Internet is also the earliest, and receiving and sending emails has been popularized in many enterprises. So Alibaba started sending out their salesmen to sell their first product - "Chinese Suppliers", a service offering that consists of having customers exhibit their products on all of Alibaba's sites - including the Chinese site and English website; at the same time, Alibaba will use various opportunities to help these members display their products at various exhibitions around the world; at the same time, Alibaba will send service personnel to teach a large number of customers who are not very skilled in Internet technology how to use Alibaba to To increase the transaction rate, in addition to technology, they will also teach many customers who trade online for the first time how to deal with foreign customers who come to visit later, because the Internet is so convenient that there is a lot of false information, so foreign customers in At the beginning, I had to come to China for investigation. This service has been very popular.Because with the development of China, more and more traders around the world began to purchase the things they sell in China. They found that the price of purchasing the same things in China is much cheaper. This is mainly because China has A large amount of cheap labor needs to be digested in the industry, and the Chinese government is obviously very eager to speed up the industrialization process, so it has introduced a large number of preferential policies to promote the development of these enterprises.This process is almost at the same time as Alibaba began to provide services for Chinese suppliers. Therefore, many small and medium-sized traders around the world are looking for Chinese products on Alibaba. Part of the reason is that Alibaba's early free policy has attracted many Chinese sellers to it to display products.There are so many foreign buyers that Jack Ma, the chief executive, once found his foreign buyers in a small shop in the Maldives while on vacation — and they found balloons to buy from Alibaba. The accumulation of buyers has made Alibaba's customers, Chinese sellers, also very interested in Alibaba.In its earliest days, Alibaba charged its Chinese suppliers only a few thousand yuan a year, but Jack Ma and his senior staff have starved the rapidly growing market — in part because the company is not yet big enough To have the same service for all customers - they only provide Chinese supplier services to 2000 customers.This caused the price of services to rise rapidly. By 2005, the price of Chinese suppliers had risen to RMB 40,000 to 200,000 per year, and the number of customers had also increased from a few thousand to tens of thousands—now Alibaba has It can be scaled up to provide corresponding services. It appears that Alibaba's customers are not complaining much about the price increase of this product by the Chinese supplier.In Alibaba's return visits to them, many customers said that Alibaba has expanded their transactions because of the increase in productivity, so companies can get more profits without spending too much cost.In contrast, the payment to Alibaba is only a small amount of money, and they are willing to pay the money, just hoping that Alibaba will provide more business opportunities and services. While Alibaba benefits more from the large presence of small and medium-sized enterprises in China, the company believes that the Chinese supplier customers they have now account for only a small part of the millions of small and medium-sized foreign trade enterprises in China. At the same time, the trend of global procurement shifting to China is still expanding, and there is still great potential for development.As long as customers continue to realize that the Internet is useful in the field of foreign trade and can reduce their costs, Alibaba's Chinese supplier products will continue to develop greatly, and now, it is true that more and more small Chinese bosses have already With the use of the Internet, Alibaba's reputation has indeed grown, and the difficulty of marketing has decreased. Alibaba is more concerned with providing its own services. Numbers can better explain the achievements of Alibaba’s Chinese suppliers’ products: According to Alibaba’s statistics, the foreign trade transaction volume of Chinese suppliers’ products has reached more than 1 billion US dollars, and the number of fee-paying members has reached more than 10,000. The website itself attracts There are as many as 420,000 overseas buyers in China, and more than 2,000 pieces of purchasing information appear on Alibaba every day, and Alibaba already has two foreign language websites, English and Japanese. Like almost all Internet companies, speed of fame was the key to Alibaba's early days, and in this regard, Alibaba has benefited greatly from its chief entertainment officer, Jack Ma.Ma Yun, who claims to only send and receive emails and browse the web on the Internet, is a very good speaker. His career as a university teacher allows him to speak continuously for hours without scripts and to the reporters who come to listen to the lecture. impress.This makes the name Alibaba frequently appear in the media that is very concerned about the new economic product of the Internet, and more people know the name Alibaba and its possible meaning - "the website of merchants".So by 2001, Alibaba already had its one millionth free member, and today, Alibaba has more than 6 million free members. However, in addition to foreign trade companies, it is clear that the users who are active on Alibaba are mostly small companies engaged in various small businesses, and the procedures required for foreign trade are still too high for them. , just having a product from a Chinese supplier does not make enough money from the merchants they attract for free. Before launching TrustPass in 2002, Alibaba once thought of charging all members.However, this idea quickly disappeared. The lessons of portal websites on e-mail have taught Alibaba enough lessons. The number of website members who want to charge for all e-mail addresses has dropped rapidly. Maintain the coexistence of free and paid mailboxes. How to turn customer needs into services and then charge for them, while maintaining basic functions for free to attract enough new members, is a difficult problem Alibaba faced before launching Chengxintong products.Through investigation, Alibaba found that for its large number of free members, the most difficult thing is how to distinguish whether the online buyer or seller is a real company, and at the same time, whether the person who talks or emails to himself is his company that has the right to decide people.So Alibaba decided to start from here to do the next service. They first built a system to authenticate the two questions of free members through a series of authentications, and then issued electronic certificates to certified members.This certification system includes the well-known investigation agency Dun & Bradstreet abroad, and the credit consulting company Sinotrust in China. They will help Alibaba to investigate whether the members' companies are Existence, then, the member company must also have a clear power of attorney to prove that the person who holds the member company name and password on the Alibaba website can conduct transactions on behalf of the member company. In addition, Alibaba obviously wants to establish its own credit system. It has opened up the files of each member. Once two members reach a deal, both parties can leave a record of integrity in the transaction process for the other party. This record is indelible.Therefore, within the scope of Alibaba, as long as you enjoy the service of paid membership, you can open the integrity record of the counterparty.Ma Yun and his senior staff gave this system a fashionable name, Chengxintong, because when they launched this product in 2002, the Chinese government also encountered the problem of low reputation of domestic enterprises in the field of trade. Domestically, business integrity is promoted on a large scale. In addition, in order to leave more opportunities for its fee-paying members, Alibaba has also taken an action to hide the contact information of buyers and sellers that were originally displayed on the bulletin board for free-of course, TrustPass members can enter their own Member name and password to obtain these materials, free members can only contact the counterparty by sending emails or leaving messages online.For businessmen who often actively seek buyers, it is almost impossible to get trading opportunities in the latter way, because usually it is relatively slow. The success of TrustPass—Alibaba's figures indicate that its product had gained the company 160,000 fee-paying customers by 2005, three years after its launch—is largely due to the fact that it differentiates the customer tiers fairly well.It costs 2,300 yuan, or $250, per year.First of all, this price can almost mobilize the desire of any customer who wants to do business online, because the profit of any transaction will be higher than this figure, and the service of TrustPass is charged annually, which means that the next transaction is free secondly, it does solve the identity authentication problem of both sides of the transaction and makes the transaction easier; of course, for Alibaba, such a price leaves enough room for imagination for its free members on the one hand, and they can also pass The method of sending letters to confirm the existence of possible counterparties, but it is not easy to make a deal; more importantly, this low threshold allows Alibaba to draw enough water from the reservoir of free members to maintain its high-level Service - Undoubtedly, any customer who has made a deal with TrustPass members is eager to try Alibaba's further services because they are profitable. In order to obtain revenue from domestic traders who are active on its own website, Alibaba has tried to operate more than one model.Alibaba’s top executives believe that the reason why Chengxintong can survive has its inherent social logic. Chengxintong was launched almost exactly when China’s per capita GDP reached 1,000 U.S. dollars. According to the research data obtained by Alibaba, this At that time, a developing country that is turning from agriculture to industrialization will almost always experience a transition from credit in a small area of ​​an agricultural society—maybe a village or a small town to credit in an entire country—this is Industrialization's requirements for commodity circulation—a low tide period of reputation in transition.From a per capita GDP of US$1,000 to US$3,000, the large-scale credit required by industrialization has undergone a process of re-establishment, and Alibaba’s TrustPass will undoubtedly accelerate this process. Perhaps in earlier industrialized countries, businessmen needed to travel in various places , To gain the trust of business opponents through transactions, and Alibaba allows them to obtain an identity online, speeding up the process through online transactions without geography.Because of their deep belief in this research, Ma Yun and his top management decided to base all Alibaba’s revenue models related to domestic trade on the basic platform of Chengxintong. Their slogan is “Let honest businessmen get rich first.” , this slogan is easily accepted because it is similar to Deng Xiaoping's famous earlier "let some people get rich first". Ma Yun has said on many occasions: "In the field of B2B e-commerce, Alibaba can't find its opponent even with a telescope." In the famous China Internet Summit Forum initiated by him, the first and second invited At that time, Wang Juntao was a representative of B2C e-commerce, which was very fashionable in China, but in the last two terms, Wang Juntao disappeared. This is more or less representative. Among the various e-commerce models, Alibaba’s B2B has survived, and eBay’s C2C has also survived, but the B2C model, which was the most fashionable in China in the early days and has the largest number of websites, has not achieved much development. The earlier and larger companies and their websites either transformed or disappeared, and the surviving ones did not develop enough to survive. If Alibaba can't find opponents with a telescope in the B2B field, then they can definitely find them from around.As the Internet as a marketing tool has received more and more attention, the various modes of e-commerce have become more and more blurred. C2C is no longer strictly regarded as a collection of small online shops, and more and more companies conduct mutual transactions on it. If we say that most of the transactions of these companies are still small buyers, their customers will be very large in the future. It's hard to say whether it will be a businessman or an enterprise, and these people are Alibaba's current customers. This situation became more dangerous after EBAY acquired eBay.The former’s profits in the United States and its crazy acquisitions around the world made the same Alibaba and its Japanese major shareholder Masayoshi Son uneasy, so Masayoshi Son started to fight back against this trend through Yahoo Japan, and Jack Ma started Taobao by establishing Taobao. For Alibaba at least, this counterattack was initially about securing its lead in the B2B space — offense is the best defense.But soon, entering C2C made them taste more and more pleasure.With a profitable B2B backing and Masayoshi Son's $82 million investment, Alibaba adopted free on Taobao as a means of gaining a market. More C2C users in China are girls, and they have various occupations.In the early days, outside of formal occupations, they sold all kinds of gadgets on eBay and Yipai, and regarded this behavior as a fashion.After a year or two, some of them gradually turned this business into a profession, because more and more people bought their things. For these girls and their followers, free C2C, if you add a fun name, the relocation cost is almost zero compared to the online store - because it is an online transaction, they will hardly be affected by relocation. Losing customers is reason enough for them to try a new site. This reason is enough to make Taobao create 6 million users in a short period of time and become a comparable opponent of eBay. At the same time, this C2C website, which has only been in operation for more than two years, ranks in the top 30 of all websites on the third-party ranking website in the United States. Name, this number has surpassed eBay, and it is almost the same as Alibaba's ranking that has gone through five years. The emergence of Taobao was due to a strategy. In order to prevent eBay from entering B2B from C2C, it took the initiative to attack in the C2C field, causing eBay to fall into a C2C melee.However, after Taobao came into existence, it must be a way for Alibaba to extend the front line.eBay's approach in C2C is to charge user fees, which is well understood in China, as simple as a large market collecting money from its merchants.However, Taobao’s free method needs a lot of funds as a backing-Jack Ma and his top management have repeatedly assured Taobao users on different occasions that Alibaba will not charge for one or two years, and even challenged eBay several times, inviting eBay Take the free way with Taobao. The result of this kind of invitation is of course conceivable, and eBay will obviously not change from charging to free because of the emergence of Taobao.But Taobao did get eBay to lower its fees and change its strategy. When Alibaba only owns Alibaba.com, it should only have a B2B e-commerce strategy.By now Alibaba should have its own e-commerce strategy - of course Alibaba has always believed that they have always had an e-commerce strategy.Now this group company has a B2B website and a C2C website in the field of e-commerce, each with 6 million registered users, and has launched its own e-commerce payment tool business; of course, as a backup, it has a customer training and service system , a complete sales network in the southeastern coastal areas of China; as a front end, it has been creating a concept of online merchants: Alibaba announced that the future of commerce belongs to those merchants who use e-commerce as their main business tool, because their marketing Capabilities are increased and marketing costs are much lower. Behind all these appearances, Alibaba uses this idea to support its own development: In the early days, Alibaba believed that due to the lack of credit and imperfect logistics, although e-commerce can indeed allow people to realize the whole process of transactions in theory But the reality can't be realized.Alibaba divides the complete e-commerce process into three parts: information flow, capital flow and logistics, and believes that the completion of capital flow and logistics must take time, and the Internet can only complete the exchange process of information flow. This initial stage has continued until now. Therefore, all of Alibaba's business foundations are based on the exchange of information flow, with little involvement in capital flow and logistics.However, five years after it touched information flow, Alibaba began to have the courage and ability to try cash flow. It launched a cash transaction platform like Alipay. Unlike other e-commerce payment methods, Alipay is obviously very cautious. It defines itself as a third-party guarantee system. Only after the buyer injects funds into Alipay, it issues an order to the seller to complete the transaction.In addition, Alibaba is also beginning to intervene in the logistics platform. After its foreign trade users' transaction volume reached 1 billion US dollars per year, Alibaba began to try to cooperate with various logistics means to provide logistics services for its customers.Five years after entering the e-commerce field, Alibaba began to tentatively change its slogan from "meet at alibaba" to "work at alibaba". Information flow extends to the entire transaction process, and even extends to the electronic process of the entire enterprise. In addition to starting to intervene in the so-called information flow, capital flow and logistics of e-commerce, it is clear that Ma Yun and his senior management believe that the original boundaries of e-commerce are becoming more and more blurred with its own development, and that within C2C B2B and B2C are developed; B2C will also be born within B2B.Therefore, after Alibaba already owns both B2B and C2C websites, Alibaba believes that it has mastered two different starting points for the future development of e-commerce, covering the entire scope of e-commerce, and grasping opportunities at these two starting points ——Whether it is the B2B Alibaba website or the C2C Taobao website, Alibaba already has a leading number of users, turnover and page views.For an Internet without borders, this kind of leadership is invaluable. Therefore, the direction that Alibaba is going to go next can actually be seen in the previous article: In terms of horizontal business development, Alibaba defines Internet users as netizens from static use, exchange of information, and transactions. And online merchants, and vigorously promote the concept of online merchants, trying to promote the scope of use of Alibaba as a leader in online merchant tools in society under this concept; in terms of vertical business depth, Alibaba intervenes in capital flow and logistics.Obviously it is posing as a leader.