![]() Just when Liu Qiangdong, JD.com’s founder, was planning the company’s expansion in 2002, the SARS pandemic broke out in China.īeijing was one of the hardest hit areas with almost all stores in the city having to halt operations. JD.com Emerging from the SARS VirusĪt a time when Alibaba occupied half of China’s e-commerce market, JD Multimedia (later to become JD.com) began to emerge in Zhongguancun, Beijing’s technology hub, as a dealer in magneto-optical products. Taobao managed to carve out a unique space in the Chinese market by offering niche and personalised products on its platform – ‘Taobao’ in Chinese means ‘hunting for treasure’. Taobao also overtook Yahoo! Japan in terms of its number of transactions and the quantity of products on its platform, becoming Asia’s largest online shopping platform. Moreover, a year later Alibaba established the communication software Aliwangwang to enable users to communicate with Taobao sellers.īy 2005, Taobao’s annual turnover exceeded RMB 8 billion, surpassing even that of Walmart China. Alipay, which provided an efficient and safe method for individuals to send and receive payments, was subsequently launched in 2003. Taobao, which allows individuals and small business owners to sell their products by setting up their own stores on the platform, was just the ‘flywheel’ for Alibaba’s future expansion. Jack Ma, the founder of the Alibaba said, “eBay wanted to buy the entire Chinese market we wanted to create an online marketplace.” Taobao would eventually become so successful that it led to eBay exiting from the Chinese market in 2006. This started an e-commerce war with eBay. Wanting to protect its wholesale platform, 1688, and to enter the C2C e-commerce market, Alibaba established Taobao in 2003. ![]() It was not only having huge success in the United States and Europe, but had also broken into the Chinese market after its acquisition of the Chinese e-commerce company for RMB 150 million in 2003. In 2002, as soon as Alibaba moved into the B2B market, it faced a challenge: eBay, which operated a customer-to-customer (C2C) model. ![]() Subsequently through expansion into related areas the growth continues. As profits increased, Amazon could reduce its prices further. Third-party sellers were subsequently drawn to the platform which boosted its sales and distribution channels, and in turn boosted Amazon’s contribution margin (the marginal profit per unit sale). For Amazon, this initial push was the lowering of its prices, which resulted in greater customer traffic. It takes a lot of effort to turn from static to rotation at the start, but once it starts to rotate the entire gear set will follow, turning faster and faster. The flywheel effect happens when small wins build on each other over time and eventually gains enough momentum will keep the business growing and become self-sustaining, just like momentum created by a mechanical flywheel. The ‘flywheel effect’, first coined by Jim Collins in his book, “Good to Great” and used by Amazon founder Jeff Bezos in 2001, provides a reference tool to understand the business models of Alibaba and JD.com. This case study will look at how Alibaba and JD.com have carved out their success over the last two decades, despite possessing e-commerce models that have evolved so differently. What is intriguing is that in 2021, although JD’s revenue exceeded that of Alibaba by over 100 million, Alibaba made ten times the net profit of JD.com with twice as many active users. ![]() Meanwhile, the current CEO of JD.com, Xue Lei said the company’s will focus would be on digital upgrading and the decentralization of its retail business. In early 2019, David Zhang, the CEO of Alibaba, highlighted some of the areas the company would move into, including international expansion, big data, and cloud computing. Under such intense e-commerce competition, it is rare that two established e-commerce companies can maintain these sort of growth rates, albeit at lower rates than before.īoth Alibaba and JD.com have enjoyed the profits of the e-commerce industry over the past two decades, however, both are now striving to veer away from their ‘e-commerce-dependent’ growth models, and branch into other areas. On Single’s Day 2021, China’s largest online shopping festival, Tmall’s gross transaction volume (GMV) reached RMB 540 billion (USD $79 billion), a year-on-year increase of 8.5%, while JD.com’s GMV reached RMB 349 billion (USD $51 billion), a year-on-year rise of 28.6%.
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