Tag: Business

So, Alibaba is now a diversified tech/internet company that not only has the biggest e-commerce presence in China, but also leads the cloud computing commercialization there.

Alibaba separates its business into four categories:

• • Core commerce
  • Cloud computing
  • Digital media and entertainment
  • Innovation initiatives and others

And “Core commerce” could further be divided based on China/International, retail/wholesale, logistics and others.

• • • China commerce retail
    • China commerce wholesale
    • International commerce retail
    • International commerce wholesale
    • Cainiao logistics services
    • Others

“China commerce retail” is where most of the Taobao and Tmall’s numbers are presented – $36.9 billion, two-thirds of Alibaba’s total revenue in fiscal year 2019 (ended on March 31, 2019).

The revenue is supported by the huge GMVs of these two platforms.

• Taobao GMV (billions, RMB, fiscal 16, 17, 18, 19) – 1,877 | 2,202 | 2,689 | 3,115
• Tmall GMV (billions, RMB, fiscal 16, 17, 18, 19) – 1,215 | 1,565 | 2,131 | 2,612

A behemoth with a combined ¥5.7 trillion GMV (or more than $800 billion).

And here is its famous Singles’ Day GMV number in 2018 – $30.8 billion on a single day.

In comparison, Amazon had a GMV of nearly $300 billion in 2018 (not officially released number, but calculated).

Amazon GMV in 2018 = 10 * Alibaba’s 2018 Singles’ Day GMV

But what is Alibaba doing with all these merchandises transacted on its platform?

The “China commerce retail” category will be the main focus of here.

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To start with, here is a description of Taobao from Alibaba’s 20-F for FY18.

Consumers come to Taobao Marketplace to enjoy an engaging, personalized shopping experience, optimized by our big data analytics. Through highly relevant and engaging content and real-time updates from merchants, consumers can learn about products and new trends. They can also interact with each other and their favorite merchants and brands. With a broad offering of interactive features such as live broadcast, groups and short videos, Taobao Marketplace has become an established social commerce platform.

Taobao Marketplace is also the entry point to verticals, such as second-hand auctions, and online travel booking, which may also be accessed through their own independent mobile apps.

Merchants on Taobao Marketplace are primarily individuals and small businesses. Merchants can create storefronts and listings on Taobao Marketplace free of charge. The escrow payment services provided by Alipay are free of charge to consumers and merchants unless payment is funded through a credit product such as a credit card, in which case Alipay charges a fee to the merchant based on the related bank fees charged to Alipay. Taobao Marketplace merchants can purchase P4P and display marketing services to direct traffic to their storefronts. In addition, merchants can acquire additional traffic from third-party marketing affiliates. Taobao Marketplace merchants can also pay for advanced storefront software that helps to upgrade, decorate and manage their online storefronts.

The revenue model of our China commerce retail business is primarily performance-based and is typically set by market-based bidding systems. Revenue from this model consists primarily of customer management revenue, commissions and other revenue.

Monetization Methods

1. Customer management. (and I will call it ads or marketing services)

Alibaba says a substantial majority of our China commerce retail revenue from customer management, which primarily consists of:

1. • • • P4P marketing services , where merchants primarily bid for keywords through our online auction system that match product or service listings appearing in search or browser results on a cost-per-click, or CPC, basis. Whether and where the listing will be displayed, and the corresponding prices for such display are determined by the algorithm of Alibaba’s online auction system based on a number of factors with various weights and through a market-based bidding mechanism.
       • Display marketing services , where merchants bid for display positions at fixed prices or prices established by a market-based bidding system on a cost-per-thousand impression, or CPM, basis.In addition to the above-mentioned P4P marketing services and display marketing services directly provided on our marketplaces, Alibaba also provides such services through collaboration with other third-party marketing affiliates. These third parties are primarily third-party online media, such as search engines, news feeds and video entertainment websites. These third-party online media enter into agreements with Alibaba to connect their designated online resources to our online auction system so that the merchants’ listings or other marketing information can be displayed on those third-party online media resources. Revenue from P4P and display marketing services provided through third-party marketing affiliates represented 3%, 3% and 2% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
       • Taobaoke program , where Alibaba collaborate with shopping guide platforms, medium- and small-sized websites, individuals and other third parties, collectively “Taobaokes,” to offer marketing services. Taobaokes display the marketing information of merchants on their media which facilitate our merchants to market and transact. Merchants pay commissions to such Taobaokes based on a percentage of transaction value generated from users under the Taobaoke program. Commissions on Taobaoke are set by the merchants. Revenue from the Taobaoke program represented 3%, 3% and 3% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
2. Commissions on transactions. In addition to purchasing customer management services, merchants also pay a commission based on a percentage of transaction value generated on Tmall and certain other marketplaces. The commission percentages typically range from 0.3% to 5.0% depending on the product category.Commission revenue increased by 37% from RMB34,066 million in fiscal year 2017 to RMB46,525 million (US$7,417 million) in fiscal year 2018, primarily due to the strong growth in physical goods GMV on Tmall.
3. Other. Other revenue from our China commerce retail is primarily generated by our New Retail business, mainly Intime, Tmall Imports and Hema, and primarily consists of revenue from product sales, commissions on transactions and software service fees.

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Let’s do some calculation:

2018

• • revenue (customer management) – 114,285 million RMB
    • take rate: 2.3710% (of Taobao + Tmall GMV)
  • revenue (commission) – 46,525 million RMB
    • take rate: 2.1832% (of Tmall GMV)

2019

• • revenue (customer management) – 145,684 million RMB
    • take rate: 2.5438% (of Taobao + Tmall GMV)
  • revenue (commission) – 61,847 million RMB
    • take rate: 2.3678% (of Tmall GMV)

The higher take rates are generally good – it shows Alibaba’s market power and the value of its platform.

However, it also means selling on Alibaba’s platforms is becoming more expensive.

Meanwhile, it’s worth noting that when people use e-commerce to do searches, it’s not good to search engines like Baidu.

It is the same across China and US, where Amazon is growing its ads revenue in a market Google and Facebook dominate.

Actually, the value of Alibaba blocking Baidu’s search on Taobao pages in 2008 is a hundreds-of-billion-dollar action. (this didn’t happen in the US)

It has been a well-known fact that the global smartphone market is maturing and the shipment volume has found its turn.

The decline is real and accelerating.

 …first quarter of 2019 (1Q19) with shipment volumes down 6.6% year over year…

Smartphone vendors shipped a total of 310.8 million units in 1Q19, which marked the sixth consecutive quarter of decline. In 2018, smartphone shipments dropped 4.1% over 2017, which was inclusive of a first quarter that was down 3.5% – just half of what the market experienced in 1Q19.

– International Data Corporation (IDC) April 30, 2019

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While top performers are still trying to grab market shares (some go for higher ASP targeting market shares in terms of revenue; others go for value targeting market shares in terms of shipments), they have designed their way to grow upon/out of smartphones.

Apple will go for services. [Read more from a previous post]

Meanwhile, Xiaomi, long being tagged as “the Apple of China”, is aiming the IoTs.

I would like to say the IoT focus is making Xiaomi more unique than its phone business.

As of March 2018, we (Xiaomi) had over 100 million connected devices (excluding smartphones and laptops)

…the largest consumer IoT platform globally according to iResearch

– Xiaomi Corporation prospectus

And the segment grows fast in throughout 2018, and still maintained 56.5% growth rate in 2019 Q1.

Some of its items have risen fast into the go-to choice in those categories, such as Mi Air Purifier, Mi Band, etc.

In November 2018, Xiaomi announced a strategic partnership with IKEA. IKEA’s full range of smart lighting products will be connected to Xiaomi’s IoT platform starting this December in China.

In January 2019, Xiaomi announced taking a 0.48% stake in TV manufacturer TCL, deepening an existing alliance that saw the two work together to integrate Xiaomi’s operating system into TCL products. [Techcrunch]

Another number – MIUI MAU is constantly adding ~17-19 million each quarter.

	17Q1	17Q2	17Q3	17Q4	18Q1	18Q2	18Q3	18Q4	19Q1
MIUI MAU (millions)	138.3	146.0	156.5	170.8	190.0	206.9	224.4	242.1	260.9
incremental (millions)		7.7	10.5	14.3	19.2	16.9	17.5	17.7	18.8

Overall speaking, I think the IoT revenue should be around 30% for 2019 and may stay between 35-40% in the future.

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At the same time, geographically speaking, Xiaomi is one of those companies that are benefitted the most from India’s growth.

Zoom went on Nasdaq with the IPO price of $36 (target range of $33 to $35 per share), opened at ~$65 and closed at $62 (up 72%), making it in par with Lyft.

Several things to note here:

• • Zoom is relatively young. It maintained high growth (2018 revenue of $331 million, 2017 revenue of $151 million) and is expected to grow fast.
• • Zoom is making a net profit in 2018 (~2.3% profit margin) and has maintained a high gross margin (~80%).

• • Growth in customers – “As of January 31, 2017, 2018 and 2019, we had approximately 10,900, 25,800 and 50,800 customers with more than 10 employees.” they “represented 69%, 75% and 78% of revenue“
• • Market Size – In the US, business with
• • • 10-19 employees: 46,635
• • • 20-49 employees: 37,495
• • • 50-249 employees: 23,065
• • • 250 or more: 5,672
• • • ~113k in total, so Zoom has another 50% room to grow (will be harder and more costly)

• • market penetration and growth opportunity in large enterprise customers – “greater than 50% of the Fortune 500 had at least one paid Zoom host, compared to only 4% that contributed more than $100,000 of revenue. We believe this demonstrates that our product has already gained a foothold in many of the largest enterprises in the United States, and there is a large opportunity to expand within these large enterprise customers”
• • Revenue per large enterprise customer will grow, easily – “Some of our larger enterprise customers start with a single deployment of Zoom Meetings with one team, location or geography, before rolling out our platform throughout their organization.” “As of January 31, 2017, 2018 and 2019, we had 54, 143 and 344 customers that contributed more than $100,000 of revenue in each of their respective fiscal years”
• • Zoom’s future depends on its business outside video conferencing; it could grow into an essential infrastructure for business operations; it could do more than video conferencing, but also scheduling, internal messaging and other management tools.
• • It should be compared with Slack ($221 million revenue in the year ended in January 2018, currently in the process of a direct listing on NYSE with valuation $10 billion)

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Zoom, Slack, Alibaba’s Dingding (DingTalk), WeChat for Enterprise will meetup in the future, in the battle of office app/platform.

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Read More on Zoom’s IPO