When Jack Ma, a former English teacher, and 17 other founders launched Alibaba.com in 1999 in Hangzhou, China, they probably felt a similar sense of magic about the potential treasures they could discover through an online business. Today, Alibaba.com, the flagship company for Alibaba Group and its associated sites, is the global leader in e-commerce solutions for small businesses.
The global trade platform of Alibaba.com brings together buyers and sellers, helping them to identify potential trading partners and interact with each other to conduct business online. Alibaba.com is the flagship company of Alibaba Group and has more than 65 million registered users in more than 240 countries and regions covering more than 44 vertical industries. It also employs more than 22,000 people worldwide from offices in more than 70 cities across Greater China, India, Japan, Korea, Europe and the U.S.
In August at the PPAI North American Leadership Conference, keynote speaker Annie Xu, general manager of Alibaba.com Americas, will talk about the ways in which the company serves as a conduit for buyers and sellers of thousands of products, including promotional products.
After earning a bachelor of science in economics from the University of California, Berkley, Xu launched her career at Kubota Electronics in sales and marketing. She joined Alibaba.com as a product manager in May 2000 when the company was just a year old. Today, Annie runs the U.S. office and is responsible for marketing and business development.
PPB recently spoke with Xu to give readers a bit of insight into this vibrant and fast-growing operation.
When Jack Ma and the other founders created Alibaba.com in 1999, what problem(s) were they trying to solve? What was their vision at that time?
While traveling in Seattle many years ago, Jack Ma tried to enter the key words “China” and “beer” on the internet. Tsingtao beer is popular in China, but when he entered the words in the search field, it didn’t return any data. That prompted him to start an internet business in China in 1999 that connected suppliers and factories. It was the beginning of Alibaba.com, which today is a global marketplace for buyers and sellers. Typically SMEs [small-to-medium-sized enterprises] don’t have the resources and knowledge to grow their businesses and compete with larger companies domestically or internationally. That’s why Jack thought the internet could help narrow the gap and allow the SMEs to compete globally on a more level playing field. We found that businesses spend a lot of time on research and discovery— in fact, research shows that about 52 percent of time is spent on identifying the right business partners. That is the rationale behind launching Alibaba.com. Entrepreneurs could come to the site and look for potential partners. They’ll need to do more due diligence to identify the right partner, but Alibaba.com allows them to shorten that discovery time.
The business model is very simple—people come to the site to meet and go offline to do transactions. That simple model has made SMEs lives a lot easier.
Has that vision changed since then?
The overall vision hasn’t changed. Alibaba.com is well known for helping small businesses grow. Today, Alibaba.com is the flagship company of The Alibaba Group. We are building a complete eco-system around small-to-medium-sized businesses. Sometimes people say that we are doing too many different things, but when you look at the components, they are interrelated and they synergize with each other. Those applications are essential to the goal of making it easier for SMEs to establish and grow their businesses.
To what do you attribute the incredible growth of the company over the past 12 years?
The business model is simple—it’s a meeting place. For us, the one key driver is our company value. The six company values are: customer first, team work, embrace change, integrity, passion, and commitment. We take those values very seriously. We believe that as long as we create value for the customer, we will be successful. We take these six values so seriously that in employee evaluations, these values count for 50 percent of the employee’s review. The other 50 percent is performance driven.
Alibaba.com‘s mission is to make SMEs lives easier. We are helping the small guys to compete on a global scale. [Editor’s note: Alibaba.com defines a small business as one with less than $1 million in annual revenue and fewer than 50 employees.]
How does Alibaba’s model differ from large-scale trading companies such as Li & Fung?
We are very different in that Alibaba is a facilitator. Unlike lots of trading companies or suppliers, we don’t keep any inventory. It’s like an online tradeshow or online directory. We provide the meeting ground. Also, trading companies take a commission. We don’t—our seller member pays an annual membership fee to Alibaba.com.
We do have a separate transaction site, Aliexpress.com, which was launched a year ago to facilitate sample orders. Retailers, wholesalers and factories can test out a supplier to see if it is reliable or to examine the quality or design of a product. We do charge a small service fee. Li & Fung can actually be a partner or user of Alibaba.com to find suppliers for their clients.
Alibaba.com is a b-to-b site, and the average order is $10,000 to $50,000 (U.S. dollars). Quantity minimums vary from supplier to supplier. Alibaba.com can do customization—if you want to make a prototype. AliExpress handles sample orders only and sells ready-made products.
Alibaba.com charges an annual membership fee of about $3,000. For that you can showcase your products and production capability, so you effectively have a storefront on Alibaba.com. All Chinese suppliers are required to pay the membership fee. U.S. suppliers have the option of trying out a free seller membership, and they can upgrade to a full seller membership if they find it valuable to their business. Some businesses are happy to remain a free member, but there are a lot of benefits of being a paid member—such as the fact that we work with third-party authentication and verification companies to verify that paid members are legitimate companies. This pre-screening gives buyers confidence. We also have search engine optimization in which paid members will show up first.
What is the future vision of the model?
Right now we’re looking at the supply chain, identifying the efficient points and trying to improve those that aren’t. We can partner with solution providers and, if there aren’t any solutions, we’ll make one. We want to empower the users and we will benefit as a solution provider. We want to perfect the eco-system for small-to-medium-sized businesses.
We can feature any product a supplier wants to promote, but there’s another area that’s a challenge: counterfeit products. It’s not unique to China—it’s everywhere. There is a demand for those products, so there are suppliers for those products. We have a very strict take-down policy. Once we identify something that’s not supposed to be in the marketplace, before they are uploaded to the site, we can take them down. But sometimes those suppliers can be sneaky. They will upload a product and intentionally misspell the product name so the products still end up on the site. No matter what technologies we use, people will change their ID, change their profile and come right back up.
We have to do a lot more—promote and encourage innovation, which is another initiative right now from China. There are lots of factories that have good design capability. They are registered with their own IP. It’s in the government’s best interest to promote those authentic suppliers, and we want to be part of it. We have a huge task force to bring original suppliers into the marketplace to help them promote their products to a worldwide audience.
We launched a service called AliExpress Premier to feature branded products from China. They may not have a presence outside China but have been hugely successful in China. That’s game changing for us. In the manufacturing world, China is famous for the made-in-China concept. Typically people look to China to find a manufacturing partner—but China also has great designers. We want to promote that concept and help their products gain traction outside of China. We are not content to be just a match-maker—we want to have a little more control on the quality and on the authenticity of the suppliers.
What led the company to focus on promotional products?
We discovered that wholesalers are contracting with many factories in China to produce promotional products. Last August we decided to launch a special channel for promotional products. There is a strong demand for promotional products, and we could help buyers worldwide by featuring this channel prominently on the site. Right now it’s called the promotional channel in AliExpress, but we are thinking of changing the name to incorporate customization capability. When buyers are thinking about promotional products, they are really thinking about personalization. Sellers can post their promotional products, or buyers can send their designs to sellers and Alibaba.com can customize the products. Buyers will identify suppliers online and then go offline to do business.
Does Alibaba.com offer value-added services that might rival traditional supplier/distributor services?
Our core competency is allowing users to expand globally—and finding new markets in a scalable and efficient way. One area we can provide more value is our ability to help suppliers get into emerging markets in China and India. We also have a sister company, Taobao.com, which is a consumer site in China. We are preparing an initiative to help U.S. and international suppliers to expand their markets into China. This will be a value-added service, which competitors cannot offer. With Taobao.com, we own 80 percent of the market share in China and have 350 to 370 million users. Lots of suppliers or brand owners are looking to get into the Chinese market through Taobao. For example, Levi and Gap opened their flagship stores on Taobao. Taobao is a household name in China. It conducted about $60 billion (U.S. dollars) last year, which makes it bigger than eBay. This year, the momentum shows we are going to double. With that unique market positioning, we can create business-to-business-to-consumer opportunities for sellers to China. Those Taobao sellers are constantly looking for unique products to sell, and we are in a great position to help those international sellers either get to the consumers directly or get to those power sellers on Taobao directly.
What’s the most important component in building viable online client/customer relationships?
From the angle of our members, it’s the ability to research, find the right partner and build trust. You need to identify the top-three, top-five and top-10 partners and then initiate communication with them to see how comfortable you are with them and then meet them in person. It takes time and through just e-mail it’s not going to happen. Some people have done business without ever seeing each other, but for long-term growth and long-term relationships, it’s always good to have that handshake. Alibaba.com can help you narrow down those potential prospects a little easier. Alibaba.com is not only a great place to find partners but to research what kinds of products are being promoted heavily by suppliers. We have a lot of data and information that people can use to search.
What is your repeat order rate and is it where it should be?
Alibaba.com only charges a membership fee; there is no transaction fee. Our retention rate is measured by member renewal rates, and this is around 70 percent now—high for a subscription-based membership. In the last few years we’ve focused on another performance index—customer satisfaction rate. When you are focusing on just revenue, you are asking for membership problems. For Alibaba.com in China, we go door-to-door to sell memberships to factories. If salespeople focus only on memberships so they can get commissions, eventually the marketplace will have problems because it’s membership driven. We find problems when salespeople sell memberships to suppliers whose quality is less than satisfactory.
This year and last year we put a lot of emphasis on buyer satisfaction rates. We call it the “net promoter score,” an industry standard that e-commerce companies use. Although Alibaba is a b-to-b site, we can still use that as a guideline. We want to have positive word of mouth—that’s the key to a sustainable business model. No matter how high your renewal rate, if your buyer is not saying good things about you, you are not doing that well.
What’s the biggest challenge your firm faces today, and what are you doing to solve it?
Because we are a marketplace, not a seller, it’s a challenge to build a quality pool of suppliers and a trusted community. I think we’ve done a good job building a large community, and we are working to make the site a trusted destination for buyers and sellers around the world. We are putting buyer satisfaction as a priority. We don’t want to blindly increase the number of suppliers; having quality suppliers is more important.
Do you have requirements sellers must meet to become members?Yes. We’ve had the requirements all along, but they have become more strict. We are trying to identify more verification and authentication companies, which can do a deep dive into each company to find out things such as how many years they’ve been in business and their credit history, and to make this information available for buyers to see. If we find suppliers are unreliable and fraudulent, then sales personnel are held liable. If they are paid a commission, then the commission is taken away from them. There will be very severe consequences for them.
Is there a way for buyers to raise concerns?
Because transactions are taking place offline, when users complain, they complain to customer service. We do keep back-end records of each complaint. We also have a concierge service that’s free, so when suppliers or factories are looking for manufacturing partners in China, we can help the buyers narrow down suppliers very quickly. We only recommend suppliers who don’t have complaints filed against them.
What are Alibaba.com’s U.S.-expansion plans involving facilities and infrastructure?
Last year we acquired two U.S. companies (our first U.S. acquisition) with similar business models—Vendio and Auctiva. They offer storefront solutions to merchants who sell on eBay and Amazon. The majority of merchants are in U.S., but there are international merchants as well. Any merchant who sells to consumers also needs to source, so that’s where Alibaba.com comes in. We are building a b-to-b-to-c ecosystem. The first ‘b’ is manufacturers, the second ‘b’ is retailers/wholesalers, and the ‘c’ is consumers. Alibaba will remain as a b-to-b sector. We integrated Alibaba.com into the back end of Auctiva and Vendio. When merchants log in to their accounts and manage their inventory, they can see Alibaba.com as a sourcing tab. It’s for all kinds of products, including promotional products.
What are Alibaba.com’s goals over the next five years?
Our goal is to increase our net promoter score—our user satisfaction rate—to the highest industry level. With all of the solutions we’re implementing, we are on our way to provide a trusted and high-quality destination for business buyers from all over the world. The net promoter score works this way: If a user recommends you, it’s a plus. If they don’t recommend you, it’s minus. If they don’t comment, it’s zero. It’s a pretty standard way of evaluating a website for a business in the online market. We are looking at it quarterly. When considering all products and services, we ask ourselves, “Would that increase our net promoter score?”
What would you say to people who are concerned about Alibaba.com’s influence on the promotional products industry?
I don’t think there’s an internet company that can replace the conventional ways of doing business. We value those offline relationships a lot. Those agents and distributors spend years establishing trust and a bond with their clients. In terms of products, requirements and communications, on-the-ground relationships are paramount. Consider Alibaba.com as a partner. It’s hard to distinguish imports and exports. You buy and sell globally at some level with just about all products. Alibaba wants to be enabler helping the suppliers be more successful and to get into more markets. We want to help you break into the China market—if you have unique products to sell, we are there to help. So rather than competing, we are there to help.
Learn More About Annie Xu
How do you define success personally and professionally?
In terms of professional success, I feel fulfilled when I can make a difference in people’s lives—Alibaba enables me to do that. Personally—it’s a challenge to balance life and work [Xu is married and a mother to a 4-year-old son].
Who is the most influential person in your life and why?
My father, David Xu, is the most influential person. He brought his family [wife, son and daughter, Annie] to the U.S. more than 20 years ago even though his whole family remained in China. He was a risk taker and an entrepreneur, and he was determined to have his family experience the world. It was his dream to be able to come to the U.S. and study, learn and embrace the culture. Jack Ma, our CEO, is also someone I look up to. When I joined the company, I had the opportunity to learn from him. He’s a true visionary. He taught me to think outside of the box.
Tell me about the people, environment and culture at your company. What is it like to work there?
In Hangzhou, China, our headquarters has seven buildings and a lot of young employees. We have a new campus with a gym, movie theater and basketball court where people spend a lot of time—even when they are not working. In our U.S. office [in Santa Clara, California] we are smaller—less than 100 people. The dynamics are different—the people are more seasoned—but we are all open-minded, coming from different cultures and backgrounds and embracing different cultures.
Hear Annie Xu Live At NALC
Annie Xu, keynote speaker at the PPAI North American Leadership Conference, will share the company’s vision for working in the promotional products marketplace. Mark your calendar for August 7-9, 2011, in Denver, Colorado, for this results-driven event featuring two days of thought-provoking sessions where you can learn, be challenged and debate the issues. Get the details and register at www.ppai.org/nalc.