Business

Alibaba: What exactly does it do?

Media playback is unsupported on your device
Media captionAlibaba's charismatic founder Jack Ma is one of China's richest men

Alibaba may well be the biggest business you've never heard of.

Despite its domination of the Chinese internet market, the company has not yet replicated that success on a global scale.

But its flotation on the New York Stock Exchange, expected next week, could change all that and the brand could end up alongside Facebook, Amazon and eBay as a giant of the online world.

What does Alibaba do?

Image copyright Www.alibabagroup.com

It's almost easier to list what Alibaba group doesn't do.

The company's first business was alibaba.com set up by the company's founder Jack Ma in 1999. The website helps to connect exporters in China (and other countries) with companies in over 190 countries around the world.

The system allows a business in the UK to find a manufacturer in China and have a range of goods produced and shipped.

It's not just businesses that use Alibaba's websites. It also owns taobao.com, China's largest shopping website, and tmall.com, which offers a wide selection of branded goods to China's emerging middle class.

Alibaba's reach does not end there, it also runs the online payment system alipay.com, which operates like Paypal.

It also has a large stake in Sina Weibo, China's version of Twitter, and the online video provider, Youku Tudou, which operates in a similar way to YouTube.

The company also offers online marketing, cloud computing and a logistics operation.

Media playback is unsupported on your device
Media captionWATCH: Richard Taylor explains why Alibaba is making waves in California

Alibaba's growth in its core business has allowed it to expand into new areas. It recently bought a controlling stake in a film business and 50% of China's most successful football club, Guangzhou Evergrande.

Finally, and possibly most significantly, it has plans to enter the banking industry.

Why has it been so successful?

Alibaba's growth from a start-up employing 18 people in 1999 to a worldwide company employing 22,000 is down to its ability to harness the world of internet commerce. It accounts for 80% of all online retail sales in China.

China now has over 600 million internet users, out of a population of 1.3 billion people.

That compares with 277 million internet users in the US and 546 million in Europe.

Alibaba has used that rapidly increasing online market to pioneer smartphone technology in the country, and now controls over 75% of all mobile retail in China.

The research firm Forrester estimates that the number of smartphones in China will grow to 740 million by 2017.

And the good news for Alibaba is that consumers are increasingly choosing to shop with their phones.

According to the Internet Society of China, online mobile payment transactions are expected to exceed $1.45 trillion (£800bn) by 2015.

How does Alibaba make money?

Unlike eBay, Alibaba does not charge listing fees. Instead it makes most of its revenue from advertising on its various sites.

According to its latest filing with US regulators, 279 million active buyers and 8.5 million active sellers use Alibaba's online services every year and 14.5 billion annual orders are made. So it's not hard to see why advertisers find the websites so appealing.

As the company simply connects customers and businesses charging only a small commission, it does not need huge amounts of infrastructure to make the system work.

How does it compare to other companies?

Online marketplaces often refer to gross merchandise volume (GMV), which measures the value of items sold and therefore it is seen as an indication of the size of their business.

Alibaba reported GMV of $296bn for the year to 30 June 2014, almost four times as much as eBay reported in 2013. Amazon does not publish a GMV figure but industry estimates put it at $100bn for last year.

Revenue for all of these marketplaces comes from fees and a percentage paid on each sale. On this measure, Alibaba's performance still lags behind the two other e-commerce giants.

But it is Alibaba's lucrative business model that has got many investors excited.

The company's operating margin - a measure of its efficiency - far exceeds those of its rivals.

Who's the boss?

Not every company boss would dress himself in leather, don a Mohican wig, lipstick and a nose ring and sing Elton John's Can You Feel the Love Tonight? to his 16,000 employees.

That was exactly what Alibaba's founder, Jack Ma, did to celebrate the company's 10th anniversary.

Image copyright Getty Images

Mr Ma started the company in 1999 with $60,000 raised from around 80 friends in Hangzhou in southern China.

He is now worth an estimated $22bn through his 7.3% stake in Alibaba, according to Bloomberg.

In January Mr Ma announced that he was stepping down as chief executive and has since handed over to a longstanding Alibaba employee, Jonathan Lu Zhaoxi.

Related Topics

More on this story

Related Internet links

The BBC is not responsible for the content of external Internet sites