What Is Alibaba And Why Were They The Biggest IPO Ever?

The last time I heard of Ali Baba he was a character from the folk tale Ali Baba and the Forty Thieves. Today, China’s Alibaba Group is the world’s largest e-commerce company with transactions on its online sites totaling $248 billion last year which was more than those of eBay and Amazon combined. Alibaba’s September IPO now ranks as the world's biggest at $25 billion. In its 1st Earnings Report since the IPO Alibaba reported revenue of $2.74 billion – a whopping 54% increase.

According to a recent Ipsos poll, 88% of Americans had never heard of Alibaba. I’m guessing that goes for most Canadians too, it certainly does for me. Intrigued by not only the name (how did a Chinese company come up with this name?), I also was anxious to find out who they were and how they made so much money.  Also, why hadn’t we heard of these guys before September. I’ll keep this report brief and to the point providing only the highlights from my own research.

A juggernaut in its native China, the e-commerce giant is now responsible for 80 per cent of all online sales in the world's second biggest economy. So, what is Alibaba?  Think of an online tech monster where you rolled eBay, Amazon and Google into one company and you have Alibaba. The company operates several online marketplaces in China, including the Tmall, an Amazon-style online retailer; Taobao, an online auction site similar to eBay; and Juhuasuan, a Chinese version of Groupon.

Taobao features hundreds of millions of products. Tmall is a retail site where businesses like Walt Disney, Apple, and Nike have set up shop to sell products directly to Chinese shoppers. Juhuasuan, is a popular daily deals site. Alibaba itself 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.

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.  I’m sure that if Alibaba tried to run the same business model in any western democracy they’d be hit with charges of monopoly on a scale never dreamed of even by Microsoft.

Who needs the North America or Europe when you pretty much own China?

Naturally, I still wondered how Alibaba made money. Unlike eBay, Alibaba does not charge listing fees. And, unlike Amazon which owns warehouses and goods, Alibaba is just a trading platform – a middle man so to speak. Alibaba makes most of its revenue from advertising on its various sites. Revenue for all of these marketplaces also comes from fees and a percentage paid on each sale.According to its IPO filing, Alibaba has 279 million active buyers and 8.5 million active sellers every year.

Jack Ma, a former teacher in China, founded Alibaba in 1999

Founded in an apartment in China’s eastern city of Hangzhou in 1999 by Jack Ma, a former English teacher, the company has grown at an astonishing rate over the last 15 years. Alibaba was initially set up to help companies order goods from Chinese vendors but it quickly it turned into shopping website.

Jack Ma with the founding members of Alibaba

The former English teacher now has a net worth estimated at $21.9 billion, according to the Bloomberg Billionaires Index. His story is a rags-to-riches tale. He failed national college entrance exams, twice, and failed to land jobs at Kentucky Fried Chicken, a hotel and the city police office. When a friend showed him the Internet, ideas started brewing and his business began. Absolutely incredible.

So, how did Jack Ma come up with the name Alibaba for his hi-tech company?  Here’s how in his own words:

I wanted to have a global company, so I chose a global name. Alibaba is easy to spell, and people everywhere associate that with "Open, Sesame," the command that Ali Baba used to open doors to hidden treasures in One Thousand and One Nights.

He certainly succeeded in opening doors to hidden treasures for himself that’s for sure. Jack Ma is married to Zhang Ying and they have one daughter and one son who is currently an undergraduate student at University of California, Berkeley.

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