Alibaba: Setting the table

TaoBao – focused more on small and midsized retailers offering new products for sale than to individuals selling used items.

Alibaba, unlike eBay, does not charge a transaction fee, but instead makes its revenues primarily from advertising.

In 2010, Alibaba opened a new front in its business with TMall, a site for a selective list of larger retailers, playing an expanded role in the process for a larger slice of the transaction pie.

retailers pay

a deposit to Alibaba to reimburse buyers who receive counterfeit goods, a technical service fee to cover the fixed costs of carrying the store and a sales commission determined by transactions value.

Alibaba also developed Alipay, a third-party online payment platform, akin to Paypal, that has grown in the last few years to dominate the Chinese online payment market.

Alibaba has been phenomenally successful both in terms of both helping online retailing find its legs in China and becoming extremely profitable while doing so.

In 2013, the company generated almost $4 billion in operating profit on revenues of approximately $ 8 billion and its rapid evolution from small start up to profitable behemoth are traced in the graph below:

Not only have revenues accelerated over the last three years (the growth story), but the company's profitability has surged even more. If timing is everything in going public, you can see that Alibaba has chosen a good time.

Alibaba:

There are four steps to understanding how Alibaba has got to where it is today, where it can expect to go in the future and the risks along the way.

1. Enter a growth market early and mold it to your strengths: In 1999, when Alibaba was founded, online retailing in China was in its infancy. While the largest US online players (Amazon, eBay etc.) either ignored or mishandled the market, Alibaba not only adapted to Chinese conditions but played a key role in the evolution and growth of the Chinese e-commerce market, as China has become the second largest online market in the world, as shown in this comparative graph from this McKinsey's report on the market:

One key difference between the Chinese e-tailing market and US online retail is that the former has historically been much more dependent on online marketplaces (as opposed to retailer-based online sites) largely because of Alibaba's influence.

Future: As Chinese consumers get increasingly comfortable buying online, the expectations are that the Chinese online market will continue to grow at high rates. In its prospectus, Alibaba estimates a compounded growth rate of 27% a year in Chinese online commerce between 2014 and 2018, and that number is in line with estimates made by other services. If these forecasts hold up, the online retail market in China will become the world's largest in the next few years.

Fears: Though there are few who seem to question the China story today, the history of growth in emerging markets is that there are always unpleasant and unexpected surprises on the pathway to

prosperity. Investing in Alibaba is an investment in continued growth in China, and any economic or political troubles that operate as speed bumps on that growth will affect Alibaba disproportionately, since it generates almost all of its profits in China and is dependent on growing consumer spending.

2. Differentiate and dominate: The story of how Alibaba beat eBay and Amazon is grist for strategic story tellers, but at its core, there are three reasons why Alibaba won (and eBay lost).

The first is economic. By charging no transactions fees initially and depending entirely on modest advertising charges, Alibaba made itself a bargain to retailers, relative to competitors.

The second is that Alibaba molded its offerings to Chinese culture and consumer behavior. The Economist’s characterization of TaoBao as an online bazaar is apt, since the site is colorful, chaotic and set up for online haggling between buyers and sellers.

Third, the site is also attuned to the fact that the Chinese retail market is splintered, with thousands of small and mid-sized retailers who lack visibility, credibility and payment processing skills online and TaoBao offers all of those. The visibility comes from the traffic on the site, the credibility from Alibaba’s system of independent verification, paid for by sellers, and payment processing from Alipay, In 2013, about 75% of all online retail business in China was routed through one of Alibaba’s sites. To provide a measure of the sheer volume of transactions on TaoBao and TMall, it is estimated that $5.75 billion merchandise was sold on Chinese online retail sites just on "Singles Day" on November 11, 2013, more than two and half times what US online retailers sold on Cyber Monday, and much of the merchandise was sold on the Alibaba sites. To get a measure of Alibaba's market share online, take a look at the breakdown of the biggest players in the B2C (retailers selling to customers), C2C (customers/small retailers selling to other customers), mobile markets and mobile payments in China:

In every segment, Alibaba is not just the leader but an overwhelming one.

Future: The domination of Alibaba creates a network effect, since retailers have to go where the customers are now, and as a consequence, they have to be on an Alibaba site to be noticed. That, in turn, make it easier for Alibaba to attract more customers, as the overall market grows, keeping the cost of customer acquisition low for the company.

Fears: The dark side of having as large a market share as Alibaba does is that almost all of your future growth will have to come from the overall market growing. The size of the Chinese market is also drawing in competitors who are willing to spend significant amounts of money to chip away at Alibaba’s market share, with Jingdong (360Buy) and Tencent offering faster delivery and better after-sale service.

3. Don't be greedy: While most online retail transactions in China go through Alibaba sites, the slice that Alibaba keeps for itself is very small. In TaoBao, in particular, its revenues are just advertising charges paid by retailers to list on the site, a very small portion of the total transaction value. In TMall, Alibaba does get a larger slice of the transaction revenues because it charges a transaction fee, but it is still only 0.5 and 1.5% of revenues. While this small share may seem like a negative, it has proved to be one of Alibaba's competitive advantages, since it has made it difficult for competitors to undercut it and offer better deals to customers and retailers.

Future: The question of how Alibaba's slice of overall transaction revenues will change over time, we have to make judgments on the relative growth of TMall and TaoBao. If the former grows faster than the latter, the slice of revenues that Alibaba keeps will increase over time.

Fear: The market, especially in B2C, is getting more competitive, as international players like Amazon and EBay are coming back to the market, chastened by past failures, but perhaps having learned from their mistakes and deep pockets.

4. Avoid pretense: Alibaba seems to generate these revenues with little effort (and marketing costs) and since the company does not aspire to be a technological innovator, its R&D and development costs are negligible. These factors result in the company’s most impressive statistic: in 2013 it had a pre-tax operating margin of almost 50% and a net profit margin of close to 40%, high even by any standards.

Future: Alibaba's high margins are a result of the network effect (that we referenced earlier) created by its immense market share and its limited ambitions (where it has been willing to settle for a small portion of revenues). While there is nothing to indicate that either will change significantly in the near future, there are signs that the company is getting more ambitious, planning large investments in social media companies and logistics infrastructure.

Fear: Alibaba will have to start working harder (and spending more) to get consumers to continue to use its sites and to keep advertisers on its site. For instance, Alibaba has announced plans to spend billions in building a logistics network to allow for same-day delivery. These investments, while necessary to preserve Alibaba’s success, will reduce both margins in the future and cash flows in the near term.

Alibaba: What next?

Alibaba is exceptionally profitable and will probably remain so for the near future. To value Alibaba, consider -

1. Revenue growth: The expected revenue growth at Alibaba will be a composite effect of three of the four dimensions described in the last section.

Alibaba's revenues will grow at a compounded rate of 27% a year for the next five years, the same rate as the overall online retail market in China, with losses in market share being offset by a more diverse business model allowing it to keep a larger slice of transaction revenues. While that is a steep climb down from last year's growth, note that it is a compounded growth rate and that I am probably understating revenue growth in the first year or two but overstating it in the fourth and fifth year. Starting in year 6, that revenue growth will start sliding down towards a mature stage growth of 2.63%. With my estimates of growth, Alibaba's revenues in 2024 will be approximately $47.6 billion. To provide perspective, that estimate is 40% lower than Amazon's revenues of $78.1 billion in 2013, about 25% below from Google's revenues of $62.3 billion in 2013 and more than five times Facebook revenues of $8.9 billion in 2013.

2. Operating margin: The stratospheric margin enjoyed by Alibaba currently (of approximately 50%, pre-tax) makes it extremely unlikely that the margin will increase over time and more than like that it will decrease. In fact, while the numbers don't reflect this yet, the news stories about recent investments that the company has had to make in logistics and technology suggest that it is not a question of whether the margin will decline over time but by how much. While the margins at TaoBao will remain high, the competitive nature of the B2C market will put downward pressure on operating margins at TMall. I will be assuming that the operating margin will decline over time down to 40% in 2024. To provide perspective again, Facebook reported an operating margin of 35.6% in 2013 and Google's pretax operating margin in 2013 was 23.4%. I would justify Alibaba's higher operating margin by noting that Alibaba spends far less than either Facebook or Google on R&D or technology. I also assumed that the tax holidays and credits that have kept Alibaba's effective tax rate at close to 10% will start to fade over time, and that the tax rate will move towards the Chinese statutory rate of 25% over time.

3. Investment: If Alibaba plans to ramp up revenues, as I have forecast, it will be called upon to make investments in logistics, technology or social media companies. While it is difficult to be specific about what form these investments will take, the company currently generates $1.93 in revenues for every dollar in capital invested (based on 2013 revenues and capital invested). I assume that for every $2 in incremental revenues in the future, Alibaba will have to invest a dollar in incremental capital. That will still make them more efficient than the typical US company in this space, where the ratio of sales to invested capital is closer to 1.40.

4. Cost of capital: Alibaba's business is a mix of advertising and merchandising (the transaction fees that it charges in TMall). Using a mix of 70% advertising and 30% online retailing as my mix, I estimated a cost of capital, in US dollar terms, of 8.84% for the company, at least for the next five years. As the company matures and growth eases, this cost of capital will decline to 8% by 2024.

5. Cross holdings: Alibaba has made investments in other companies in recent years, primarily because they offer technologies or products that will help Alibaba in its operations. These investments are recorded in the balance sheet at $2,093 million and the five biggest are listed below:

Since two of these companies, Weibo and AutoNavi, are publicly traded, I estimated the market value of these holdings and replaced the equity value on the balance sheet with the market values instead. The net effect was small, yielding a corrected value for the cross holdings of $2,087 million. Finally, the liquidity clause in the Alipay agreement entitles Alibaba to 37.5% of the proceeds from any liquidity event associated with Alipay (an IPO or a sale), with a cap of $ 6 billion and a floor of $2 billion on Alibaba's share. Alipay's earnings just from Alibaba in 2013 was $305 million and it likely that it will keep growing over time, suggesting that the value from a liquidity event is likely to yield a payoff to Alibaba that will be closer to $ 6 billion than $2 billion, in case of a liquidity event. That $6 billion, though, has to be adjusted for the likelihood that the entangled nature of Alipay (with Alibaba) will make it difficult to sell the company or take it public as well as the time value of money. Conservatively, I am adding an additional $ 3 billion to Alibaba's value to reflect both of these factors.

The valuation: The value that I obtain for the equity is approximately $130 billion, before IPO proceeds are considered, and in excess of $145 billion with the IPO proceeds built in.

The value of the operating assets in Alibaba, based on my assumptions, is $127.48 billion. Adding cash ($7,876 million), the value of cross holdings in other companies ($2,087 million) and Alipay ($3,000 million), netting out debt ($6,670 million) and the value of equity options granted to employees ($3,190 million) results in a value for equity of $130.59 billion. Finally, since this is an initial public offering that will raise money that is going to be kept in the firm (according to the prospectus), I added an estimated $15 billion (the rumored IPO target) to arrive at an overall equity value of $145.59 billion. Again, working with the 2368.67 million shares outstanding, including restricted stock units granted to employees, that works out to a value per share of $61.46/share.

AliBaba Timelines

1999 – Alibaba was founded by 18 founders

2000 – Raised $25 mm from Softbank, Goldman, Fidelity and other institutions

In 1999, Alibaba raised $5 million from investors including Goldman Sachs and then $20 million from Japan's Softbank. Plans called for raising more through a stock market offering, but the Internet bubble burst in 2000 and interest in tech shares evaporated.

October - Launched gold supplier membership to serve china exporters

2001 – August

Launched International TrustPass membership to serve exporters outside China

2002 – Alibaba becomes profitable

March - Launched China TrustPass membership to serve SMEs engaging in domestic China trade

July - Launched keyword services on our international marketplace

2003 – TaoBao is founded in Jack Ma’s apartment

November - Launched TradeManager instant messaging software to enable users to communicate in real time

on our marketplaces

2004 – AliPay is launched – online payment system

2005 – Alibaba groups does a strategic partnership with Yahoo. Inc and takes over the operations of Yahoo! China. Bought stake of $1 bn

March - Launched keyword bidding service on our China marketplace

2006 – Alibaba group makes a strategic investment in Koubei.com

2007 –

January – Internet based business software company Alisoft was launched

November – Alibaba.com limited lists on the HongKong stock exchange. Alibaba launches AliMama, an online advertising exchange company

March - Launched branded advertisements on our China marketplace

September - Started distributing Alisoft Export Edition in three major regions Launched premium placement display on our China marketplace

October - Launched SME loan in collaboration with China Construction Bank and Industrial and Commercial Bank of China

November - Successfully listed on the Main Board of the Hong Kong Stock Exchange

December - Re-launched our upgraded Alibaba Japan marketplace

opened 15 new sales and customer service offi ces in 15 new cities in China including Hong Kong

Services enhancement –

started to offer all our paying members unlimited product listings and increased the number of free users’ product listings. Both the level of activity and the satisfaction of our buyers and sellers showed marked improvement in the first quarter of 2008. To accommodate this new offering, we unified two Gold Supplier packages originally based on different product listing numbers into one package priced at RMB50,000. At the same time, launched a special care program for both fi rst-year Gold Supplier members and China TrustPass members through our sales, customer service and call center staff. We believe that this offering will help new paying members use our platform better and improve our customer retention rate

Value added services –

For Gold Supplier members, started distributing a web-based business exporter CRM and order management solution designed by our sister company, Alisoft, through their direct sales force in a few selected regions

From November 2007, extended keyword bidding from top three ranking positions to top five ranking positions for China TrustPass members. From the second half of 2007 onwards, China TrustPass members can also purchase premium placement positions in various product categories. Both of these initiatives helped increase average member spending.

According to the National Development and Reform Commission, there were over 42 million SMEs and other private sector companies in China as of October 31, 2006

China marketplace – China TrustPass members

International marketplace – Gold Supplier Membership packages, Internationa trust pass packages,

Revenue recognition - Membership packages. Our paying members typically enter into one-year or two-year membership contracts with us. We typically collect the full amount of our fees at the time we enter into the contract, and we initially record the amounts received as customer advances. After we enter into a membership contract, we begin producing storefronts for our paying members and our paying members are required to go through certain third party authentication and verifi cation procedures. If a paying member does not pass the authentication and verifi cation procedures, we refund the amount we received under the contract less the authentication and verifi cation fees that we pay to the third party service provider and other related expenses. After we complete our production processes and the paying member passes the authentication and verifi cation procedures, we display the paying member’s storefront in our marketplaces, and the amounts paid by the paying member become non-refundable. When we display the paying member’s storefront in our marketplaces, amounts previously recorded as customer advances are transferred to deferred revenue, and the revenue in respect of the membership package is recognized ratably over the term of the membership contract

As of Dec 2007 – had a total employee base of 5,292 employees – net increase of 1,270 in the year

Highlights of Full Year 2007

Total revenue increased by 58.6% to RMB2,162.8 million in 2007 from RMB1,363.9 million in 2006.

Gross profit increased by 67.2% to RMB1,882.6 million in 2007 from RMB1,126.2 million in 2006.

Operating profit increased by 199.6% to RMB804.3 million in 2007 from RMB268.5 million in 2006.

Operating profit margin increased to 37.2% in 2007 from 19.7% in 2006.

Net income (Profit attributable to equity owners – GAAP) in 2007 increased by 340.0% to RMB967.8 million from RMB219.9 million in 2006.

Earnings per share, basic and diluted ("EPS") for 2007 was 20.41 Hong Kong cents, representing an increase of 357.6% from 4.46 Hong Kong cents in 2006.

Key Operating Data

Total number of registered users of our combined marketplaces grew by 39.6% to 27.6 million as of December 31, 2007 from 19.8 million as of December 31, 2006. As of December 31, 2007, we had 4.4 million registered users on our international marketplace and 23.2 million registered users on our China marketplace.

Total number of storefronts on our marketplaces grew by 42.7% to 3.0 million in 2007 from 2.1 million in 2006. As of December 31, 2007, we had 697,563 storefronts on our international marketplace and 2,259,283 storefronts on our China marketplace.

The number of paying members of our combined marketplaces grew by 39.5% to over 305,000 as of December 31, 2007.

2008 –

April – Taobao Mall, a dedicated B2C platform, is introduced to complement Taobao’s C2C marketplace

June – Koubei.com is merged with China! Yahoo to form Yahoo! Koubei

September – Alimama is integrated with TaoBao. Alibaba group R&D institute is established

Became a constituent stock of Hang Seng Composite Index Series and Hang Seng Freefl oat Index Series

2009 –

Feb - Formed a partnership with the Taiwan External Trade Development Council to promote e-commerce in Taiwan

Mar - Launched Ali-ADvance, a pay-for-performance keyword bidding model, on our China marketplace

Apr - Launched a domestic wholesale platform on the China marketplace to facilitate small bulk transactions and forge cross-platform trade relationships among members of Alibaba.com and Taobao. Launched Japan Link on the Japan marketplace to help Chinese suppliers gain access to Japanese buyers

May - Formed a strategic partnership with Logo Group, one of the largest software developers and resellers in Turkey. Hosted the first Alibaba.com- Taobao Net Products Trade Fair in Guangzhou, China

July – Alisoft is merged with Alibaba R&D Institute. Launched the Newpreneur of the Year contest in the U.S. in partnership with Inc. magazine to encourage entrepreneurship during the recession. Celebrated our 1 millionth member in India. Launched the Global Gold Supplier membership on our international marketplace to serve suppliers outside Greater China

August – Alisoft business management software division is injected into Alibaba.com. Koubei is injected into TaoBao as part of the “Big TaoBao” strategy which positions Taobao as a one stop provider to promote wider use of ecommerce among customers

Signed multiple agreements with China Construction Bank to expand our loan-assistance program, Ali-Loan, within China’s Zhejiang Province and to Shanghai

September – Alibaba cloud computing is established in conjunction with Alibaba group’s 10th anniversary. Completed the acquisition of the business management software division of Alisoft to further the goal of transforming from “Meet at Alibaba” to “Work at Alibaba”

Beta-launched AliExpress, a wholesale platform on our international marketplace designed to facilitate small bulk transactions online

Oct - Established Ali-Institute as a dedicated division to better cultivate e-commerce talent for Chinese small businesses

Nov - Hosted the Export to China, Export to the World 2009- 2010 mega sourcing fair in Seoul, Korea – our first offl ine business matching event outside China – in partnership with the Korea International Trade Association

September - Hosted the third Alibaba.com- Taobao Net Products Trade Fair in Chengdu, China Completed the acquisition of HiChina to enhance our ability to provide additional Internet infrastructure services to small businesses in China

In 2009, we started to deliver our three acquisition strategies: investment in non-overlapping user or customer base, investment in proven e-commerce applications and investment in technology.

List of value added services offered –

Available Value-Added Services

• Ali-Loan

• Buyer GPS

• Keyword Purchase

• Premium Placement

• Virtual Showroom

• Ali-ADvance NEW

• AliExpress NEW

• Ali-Institute NEW

• Business Management Software (“SaaS”) NEW

• Business Network Service (“Renmaitong”) NEW

• China Wholesale Platform NEW

• Japan Link NEW

• Mobile China TrustPass NEW

• Online Translation NEW

• Traffic Analyzer NEW

• Winport 2.0 NEW

Key value drivers –

o accelerated paying member growtho increased revenue driven by more paying members and more VAS usageo expanded economies of scale and margin enhancement

As of Dec 09, had around 11,716 employees

2010

March – Alibaba group creates a cross business team consisting of senior managers from Taobao, Alipay, Alibaba cloud computing and china Yahoo! To execute a full scale roll out of the bIg TaoBao strategy

November – Alibaba group launches TMall.com

2011

January – Announces to build a network of warehouses across china and together with its partners, drive major investment in logistics development in the country

• Introduced an upgraded China Gold Supplier membership package (CGS 2011 edition) to replace the original Gold Supplier Starter Pack

• Introduced the Factory Audit service to give Gold Supplier members the option of being inspected by a third-party company onsite to verify their trading and production capabilities

• Launched Fulfillment by AliExpress, a logistics and shipping service provided by a third-party partner for buyers using AliExpress

• Beta-launched Liang Wu Xian (Infinite Quality; previously called Wu Ming Liang Pin or White-Label Mall) to offer quality wholesale supplier members direct access to the massive consumer base of

Taobao Marketplace

March – Alibaba reports $220 mm in profit in 2010 Introduced Ali-ADvance, a pay-for-performance keyword bidding system, on our international marketplace

• Kicked off a one-year program named Emerging Entrepreneur Initiative in California, U.S., through which we educated more than 800 students in higher education with guidance, skills and entrepreneurial know-how to start their own businesses and participate successfully in the knowledge-based, networked economy

• Organized an Alibaba.com-Taobao Net Products Trade Fair in Xiamen, China

April - Launched AliExpress Premier Channel to allow U.S. retailers to conveniently source top-quality authentic Chinese-designed products

May – Alibaba obtains key online payment license in China

June – Alibaba helps Japanese firms enter the Chinese market through taobao mall,cutting through red tapes and reducing waiting time by two thirds

Taobao launches one pager women apparel aggregator site

TaoBao splits into 3 separate companies –

1. TaoBao marketplace – C2C2. TaoBao Mall – B2C3. eTao – a product search engine designed to help consumers find goods and services to help

all e-tailers

• Organized our first offline sourcing event in Mumbai, India, to promote products from our Indian Gold Supplier members

July - Launched Inspection Service, an online solution designed to match small buyers on our international marketplace with affordable and reliable product inspection services for orders from anywhere in China

• Launched a service to offer AliExpress buyers a cash payment option via Western Union

• Organized an Alibaba.com-Taobao Net Products Trade Fair in Guangzhou, China

August - Upgraded Customized Sourcing, a service that allows buyers on our international marketplace to efficiently identify the right suppliers for their specific requests, providing buyers with an enhanced channel for sourcing novel, hard-to-find or complex products

• Organized our first offline sourcing event in Hong Kong to promote products from our Hong Kong Gold Supplier members

September - Expanded and enhanced the multi-language websites of our international marketplace to cover a total of nine non-English foreign languages, providing more buyers with a convenient channel to navigate our website, look for products and interact with suppliers in their native tongues

• Co-hosted, with Alibaba Group, our annual e-commerce summit AliFest in Hangzhou, China, which comprised the Global Netrepreneur of the Year award ceremony and an Alibaba.com-Taobao Net Products Trade Fair

October - Introduced Onsite Check, a verification inspection that requires Alibaba.com staff to visit our Gold Supplier members onsite, as an additional measure to confirm their authenticity

• Organized an offline sourcing event in Gurgaon, India, to promote products from our Indian Gold Supplier members

November - Launched the Assurance Plus program to make the buyer experience on AliExpress safer and easier, and to raise sellers’ trustworthiness

December - Introduced the third-party onsite inspection program, Onsite Check, on our China marketplace to confirm the authenticity of our China TrustPass members

As of Dec 2011, had 12,878 employees

2012 Tmall.com changes its Chinese name to strengthen its positioning as a source of high-quality, brand-name products. (January)

Alibaba.com delists from the Hong Kong Stock Exchange. (June)

Alibaba Group upgrades its existing subsidiaries’ operations into one of the seven business groups: Alibaba International Business Operations, Alibaba Small Business Operations, Taobao Marketplace, Tmall.com, Juhuasuan, eTao and Alibaba Cloud Computing. (July)

Alibaba Group completes the initial repurchase of shares from Yahoo! and restructured its relationship with the latter. (September)

Taobao Marketplace and Tmall.com reach a combined GMV of RMB1 trillion for the period January to November 2012. (November)

2013 Alibaba Cloud Computing merges with HiChina. (January)

Alibaba Group is reorganized into 25 business units to better adapt to China’s fast-growing e-commerce environment. (January)

Key points –

1. Few Chinese used card payments – so they started AliPay2. Worked with logistics companies to improve reliability3. Held regular trade shows to persuade merchants to come online

How Alibaba overcame threat from Ebay –

1. Launched TaoBao – at the same time when Ebay acquired Each net in China for $150ma. Through this investment – Ebay captured around 85% share of the chinese online

market 2. In response, Alibaba invested 1bn yuan in TaoBao 3. Aggressive marketing 4. Free for all business model (free for sellers for the 1st 3 years)5. Held regular roadshows/events to onbaord merchants 6. Chinese consumer specific webportal and category classification 7. Has more listings for sales rather than auctions (Ebay had 40% auctions)8. Targeted Chinese mobile savvy customers by introducing instant messaging + voice mail

services for buyers and sellers 9. High customer satisfaction - According to iResearch, a Beijing-based research firm, the user

satisfaction level was 77 percent for Taobao versus 62 percent for eBay EachNet10. By March 2006, Taobao had outpaced eBay EachNet and became the leader in China’s

consumer-to-consumer (C2C) market, with 67 percent market share in terms of users, while eBay EachNet had only 29 percent market share

11. And in Dec 2006 – Ebay changed its strategy and partnered with a wireless value-added multimedia services company – Tom Online

12. Ebay – had a team which did not understand the Chinese consumer well – they had a German manager as China operations head and a US CTO (Top management did not understand the local market well)

Investments –

1. Lyft - Lyft is an app that lets its users request friendly, safe, affordable transportation.

$250M / Series D with 5 other investors

Apr 2, 2014 - Series D Details

2. Tango - Tango is a social networking app that allows users to play games, send text messages, and make

$280M / Series D

Mar 19, 2014 - Series D Details

3. ByeCity

Byecity.com is a service agency, mainly providing O2O (Online to Offline) service of outbound..

$20M / Series B with 1 other investor

Mar 13, 2014 - Series B Details

4. 1stdibs - 1stdibs, an online marketplace, connects dealers to consumers interested in antiques, design, fine

$15M / Series C

Jan 24, 2014 - Series C Details

5. Quixey - Quixey is an app search engine enabling individuals to find apps that best suit their need.

$50M / Series C with 6 other investors

Oct 3, 2013 - Series C Details

6. ShopRunner - ShopRunner is a members-only online shopping service that offers consumer-friendly and free

$75M / Private Equity

Aug 19, 2013 - Private Equity Round Details

7. Sina Weibo - Sina Weibo is a Chinese microblogging platform.

$586M / Private Equity

Apr 29, 2013 - Private Equity Round Details

Evolution – Financial + Key Operating metrics

Particulars 2004 2005 2006 2007 2008 2009 2010 2011

Revenue (RMB '000)

4,00,000

7,50,000

13,63,862

21,62,757

30,04,000

38,74,700

55,57,600

64,16,900

Registered users mm 6 10 19.8 27.6 38 48 62 76International marketplace mm 1 2 3.1 4.4 7.9 11.6 18 25China marketplace mm 5 8 16.7 23.2 30 36 44 51

Storefronts mm 0.7 1.2 2 3 4.6 6.8 8.5 10International marketplace mm 0.2 0.2 0.5 0.7 0.96 1.4 1.7 2.2China marketplace mm 0.5 1 1.5 2.3 3.6 5.4 6.8 7.8

Paying members MM 0.08 0.15 0.2 0.3 0.4 0.6 0.8 0.7Gold Supplier members

18,682

27,384

43,028

96,110

1,21,274

99,005

International TrustPass members

10,843

12,152

16,136

17,786

10,434

7,558

China TrustPass members

1,89,573

2,66,009

3,72,867

5,01,316

6,77,654

6,58,800

TMall

Tmall.com, formerly Taobao Mall, is a Chinese-language website for business-to-consumer (B2C) online retail, spun off from Taobao, operated in the People's Republic of China by Alibaba Group. It is a platform for local Chinese and international businesses to sell quality, brand name goods to consumers in mainland China, Hong Kong, Macau and Taiwan.

Tmall.com was first introduced by Taobao in April 2008 as Taobao Mall, a dedicated B2C platform within its consumer e-commerce website.

In November 2010, Taobao Mall introduced an independent web domain, tmall.com, to differentiate listings by its merchants, who are either brand owners or authorized distributors, from Taobao’s C2C merchants.

Meanwhile, it kicked off a US$30 million advertising campaign to raise brand awareness among consumers. It also announced an enhanced focus on product verticals and improvements in shopping experience.

In June 2011, Alibaba Group Chairman and CEO Jack Ma announced a major restructuring of Taobao through an internal email.

It was reorganized into three separate companies.

As a result, Tmall.com became an independent business under Alibaba Group. The other two businesses that resulted from the reorganization are Taobao Marketplace (a C2C marketplace) and eTao (a shopping search engine).

The move was said to be necessary for Taobao to “meet competitive threats that emerged in the past two years during which the Internet and e-commerce landscape has changed dramatically.”

In October 2011, Tmall.com experienced two successive waves of online rioting since it significantly increased fees on online vendors. The service fees raised from 6,000 yuan ($940) to 60,000 yuan ($9,400) a year, and a compulsory fixed sum deposit gone from 10,000 yuan ($1,570) to up to 150,000 yuan ($23,500).

According to Tmall.com, the price increase was intended to help weed out merchants that are too often a source of fakes, shoddy products and poor customer service. Stores that earn top ratings for service and quality from customers and high sales volumes are entitled to partial or full refunds.

Tmall occupied 51.3% Chinese B2C market share in Q1 2013.

Brands that currently have stores on Tmall.com include P&G, Adidas, UNIQLO, GAP, Nine West, Reebok, ECCO, Ray-Ban, New Balance, Umbro, Lenovo, Dell, Nokia, Philips, Samsung, Logitech and Lipton.

Alibaba launched Tmall in 2008 as an alternative to sister shopping site Taobao, where anybody with a Chinese identification card can peddle wares. Taobao hosts seven million sellers and has been plagued by counterfeiting, which Alibaba Chairman Jack Ma has called a "cancer."

In order to open a storefront on Tmall, merchants must hold a valid business license, provide information about the brand and products, and pay a deposit.

Tmall has ballooned in size, with more than 70,000 sellers that control 45% of online business-to-consumer retail sales in China, according to Euromonitor International.

Over the past three years, the total value of sales through Tmall surged nearly tenfold to 273.7 billion yuan ($44.2 billion), Euromonitor estimates.

For most kinds of products, Tmall takes a cut of between 2% and 5% of each transaction.

Alibaba doesn't disclose the value of sales on Tmall.

Plenty of foreign brands continue to open shops on the site: Tmall hosts more than 2,000 now, including Nike, Gap and Samsung. Apple Inc., AAPL -0.53% known for its tight control over sales channels, opened a Tmall storefront in January

One difficulty for many foreign brands on Tmall is that Chinese consumers turn to online sites—which may source from overseas— for cheaper goods than they can get in stores at home, where prices are boosted by import tariffs and fees

While shoppers in the West also expect deals online, Tmall's dominance in China means more merchants are competing on the same platform to offer the best deal. Tmall partners with merchants on promotions during the year—in which goods are offered at as much as 60% off the original price—but "participation is voluntary by brands,"

Metrics

Tmall.com currently features more than 70,000 international and Chinese brands from more than 50,000 merchants and serves more than 180 million buyers.

Tmall.com ranked number one among all Chinese B2C retail websites for 2010 in terms of transaction volume, with a gross merchandise volume of RMB30 billion – about three times the amount facilitated by 360buy, its closest competitor.

The site accounts for a 47.6% share of the B2C online retail market in China, followed by 16.2% of 360buy and 4.8% of Joyo Amazon.

According to Alexa, as of October 2013 Tmall.com was the 47th most visited website globally and the 8th most visited site in China.

Features

Alipay, an escrow-based online payment platform owned by Alibaba Group, is the preferred payment solution for transactions on Tmall.com.

As on Taobao Marketplace, the C2C e-commerce platform under Alibaba Group, buyers and sellers can communicate prior to the purchase through AliWangWang, its proprietary embedded instant messaging program. It has become a habit among Chinese online shoppers to “chat” with the sellers or their customer service team through AliWangWang to inquire about products, engage in bargaining, etc. prior to purchase.

Feb 2014 - Data

Chinese e-commerce giant Alibaba Group recently launched Tmall International, a site dedicated for business entities outside China, where overseas brands and merchants can sell their products directly to Chinese online shoppers.

The newly launched international platform provides genuine products that are produced or sold in overseas markets. In addition, the platform offers a direct delivery service. Merchants on the platform also offer Chinese language customer service through Alibaba’s instant messaging platform Alitalk, as well as 72-hour shipping, and product return facilities in mainland China.

More than 140 foreign merchants from the U.S., U.K., Australia, New Zealand, Japan, South Korea, etc. have settled on the platform, including B2C sites like Bonjour, Strawberrynet, Etmall, Kenko, as well as premium brands, such as Anna Sui and NYR. To prepare for the launch, Tmall International has been recruiting international businesses since July last year.

International merchants who want to join the platform have to pay an initial deposit of $25,000 and a yearly fee based on the types of goods they sell. TMall International will also collect a service fee of either 5% or 6% per transaction, depending on the product, according the requirements released by the site.

At the current stage, online shoppers can purchase baby products, healthcare products, beauty products and apparel on the site.

Tmall International will run independently as a subsidiary of Alibaba, affiliating to the newly established International B2C Department, which also oversees Alibaba’s global shopping arm AliExpress and Taobao Overseas, a unit focused on Southeast Asian market.

Chinese online shoppers’ demands to purchase cheaper and better products outside China surged in recent years, mainly focused on the fields of infant formula and maternal products, foreign-branded cosmetics and luxury goods, among others.

The market size for Chinese online Daigou industry, which means buying via overseas contacts through Taobao or other professional buyer agencies and websites, surpassed 70 billion yuan ($11.49 billion) in 2013, according to data released by Alibaba.

REACHING CHINA'S CONSUMERS WITH TMALL

TMALL AS A SALES CHANNEL

TMall now has over 70,000 brands in 50,000 stores and is attractive to brands for a variety of reasons:

By using Taobao’s infrastructure and payment system Alipay, users are familiar with all services and trust the mechanism they have been using over the years.

Unlike Taobao, TMall only accepts verified stores , so there’s a guarantee that products sold online are real, which builds consumers’ trust and, in turn, conversion rates.

Taobao pushes TMall stores actively over and above other stores, which results in more and higher converting traffic.

TMall launched a standalone iPhone app at the end of April and it has already received 1855 reviews with an average rating of 4.5 stars – Android and iPad versions are in the works.

The annual Singles Day sale (an event held on 11th November, celebrating people who are still living the single life) shows just how much TMall has grown in just three years, with sales amounting to RMB50 million, RMB936 million and RMB3.36 billion in the years 2009, 2010 and 2011 respectively.

TERMS AND FEES

Besides having impressive sales figures, TMall is a straightforward way to reach out to consumers living far away from those tier one cities where foreign brands usually establish a physical presence on entering the market. However, setting up a TMall shop without understanding the Chinese language or having a trusted local partner can be challenging – here’s a breakdown of the main facts.

TMall has three different store formats:

Flagship Store – only brands with a trademark (either ® or ™) can open flagship stores. The owner of the store must be formal representative of the brand or hold exclusive authorization documents for setting up a TMall flagship store provided by the formal representative of the brand.

Specialty Store – merchants with brand authorization documents giving them distribution rights to sell products without geographical restrictions in the Greater China region are eligible to open this store format.

“Monopolized” Store – merchants with two or more brands within one of TMall’s product categories can open this type of store. Only one “monopolized” store can be held per merchant in one product category.

Costs depend on the type of shop you opt for, but within this there are other factors which define the cost structure. In general, TMall costs can be broken down in three categories: deposit, technical service fee and sales commission.

Deposit – this is for reimbursing consumers after a TMall shop has breached the “Taobao Mall Service Agreement” and has sold counterfeit products. The deposit can be RMB50,000, RMB100,000 or RMB150,000 based on the chosen store format and the trademark status.

Technical service fee – this is an annual fee that varies according to product category and either amounts to RMB30,000 or RMB60,000. The merchant has the chance to redeem either half or the full service fee, if they reach TMall’s predefined sales targets for the product.

Sales commission – for every transaction made, TMall keeps 5% of the sales value as commission.

These key points should provide a good starting point for brands planning to enter the TMall sales platform. However, the dozens of product categories and sub-categories will require more in-depth planning to accurately assess the costs. Here’s a simple example, as a basic point of reference.

A men’s fashion brand aims to open a flagship store on TMall and has the ™ trademark. The set-up costs are:

Deposit of RMB100,000 for a flagship store with a ™ trademark holder

Technical service fee of RMB60,000 per year- 50% of the fee will be redeemed by reaching RMB360,000 in sales and 100% after reaching RMB1.2 million in sales

Every transaction is subject to 5% sales commission, automatically deducted by TMall

LONG-TERM PLANNING OVER SHORT-TERM TESTING

TMall has quickly developed to become a sales platform that consumers all over China refer to when researching and eventually buying branded products online. It provides an additional sales channel for brands that want to target consumers outside of the cities where they have a physical presence. With nationwide broadband coverage still developing with room for improvement, TMall should not be seen as a temporary addition, but rather as a long-term channel that needs a strategic approach to meet consumer demand and build a successful, long-term brand presence in the People’s Republic of China.

AliBaba

TaoBao

Metrics

Taobao Marketplace had more than 5 million registered users as of June 2013 and hosted more than 80 million product listings.

It facilitated approximately RMB 200 billion in gross merchandise volume in 2009. In September 2013, Taobao ranked 12th overall in Alexa's internet rankings.

For the year ending March 31, 2013, the combined gross merchandise volume (GMV) of Taobao and Tmall.com combined exceeded RMB 1 trillion.

Overview -

Taobao Marketplace (formerly "Taobao") was launched in May 2003 by Alibaba after eBay acquired Eachnet, China’s online auction leader at the time, for USD 180 million and became a major player in the Chinese consumer e-commerce market.

To counter eBay’s expansion, Taobao offered free listings to sellers and introduced website features designed to act in local consumers' best interests, such as instant messaging for facilitating buyer-seller communication and an escrow-based payment tool, Alipay.

As a result, Taobao became mainland China's undisputed market leader within two years.

Its market share surged from 8% to 59% between 2003 and 2005, while eBay China plunged from 79% to 36%. EBay shut down its China site in 2006.

In April 2008, Taobao introduced a newly dedicated B2C platform called Taobao Mall to complement its C2C marketplace.

Taobao Mall established itself as the destination for quality brand name goods for Chinese consumers.

Taobao Mall launched an independent web domain, Tmall.com, and enhanced its focus on product verticals and improvements in shopping experience in November 2010.

It became an independent business in June 2011 and changed its Chinese name to Tian Mao (Tmall) in January 2012. As of October 2013 it was the eighth most visited web site in China.

In 2008, Taobao fueled the overall growth of the Chinese online shopping industry through execution of the “Big Taobao” strategy with the aim of becoming a provider of e-commerce infrastructure services for all e-commerce market participants.

In October 2010, Taobao beta launched eTao as an independent searching engine for online shopping, providing product and merchant information from a number of major consumer e-commerce websites in China.

Online shoppers can use the site to compare prices from different sellers and identify products to buy. According to the Alibaba Group web site, eTao offers products from Amazon China, Dangdang, Gome, Yihaodian, Nike China and Vancl, as well as Taobao and Tmall.

In May 2011, Alibaba Group opened a retail store in Beijing under the Taobao Mall brand. The five-story 25,000sqm Taobao Mall iFengChao Furniture Showroom opened as a complement to their online stores.

In June 2011, Alibaba Group Executive Chairman and former CEO Jack Ma announced that Taobao would split into three different companies: Taobao Marketplace (a C2C platform), Tmall.com (a B2C platform; then called Taobao Mall), and eTao (a search engine for online shopping). The move was said to be necessary for Taobao to “meet competitive threats that emerged in the past two years during which the Internet and e-commerce landscape has changed dramatically.”

From 2012 onward, Taobao began to accept international Visa and MasterCard credit cards; prior, only domestic banks were supported by AliPay.

On April 29, 2013, Alibaba announced an investment of USD 586 million in Sina Weibo. According to Reuters, the deal “should drive more web traffic to Alibaba's Taobao Marketplace, China's largest e-commerce website with a consumer focus.”

On August 1, 2013, Alibaba launched Weibo for Taobao, which allows users to link Sina Weibo accounts with Taobao accounts.

With over 800 million items listed on one of the world’s top 10 Alexa ranked websites

Alibaba B2B platform 1688.com achieved daily transaction of 300 million yuan (USD 49.1 million) after a year’s transition to online wholesale transaction platform.

1688.com used to be an information platform, now it has been upgraded to a transaction platform within three years. In 2013, 1688.com integrated 1688 suppliers information in Taobao search, launched huopin (a wholesale group buy channel), taogongchang (an online manufacturing factories platform offering suppliers information for Taobao sellers ) and taohuoyuan (an online procurement platform specified for Taobao sellers). 1688 grew to the top choice of Taobao sellers for procurement.

In March 2013, 1688 daily transaction was around 30 million yuan (USD 4.91 million). By the end of 2013, it had increased tenfold. With the population of internet, online B2B grew rapidly in 2013. In the future, the challenge of online B2B lies in replacing the security of offline B2B transactions which is what Alibaba plans to solve.