China's visionary B2B: who says the dot-com era is over? Alibaba.com thrives as Chinese imports and exports boom. CEO Jack Ma has a vision: helping SMEs buy and sell goods through his sites - Upfront - Company Profile

Japan, Inc., May, 2003 by Sumie Kawakami

Tough Times

The initial cash infusions from venture capital firms allowed the company" to quickly expand globally. It transferred its headquarter from Hangzhou to Hong Kong and established bases in Silicon Valley, Beijing, Shanghai, Seoul, London, and Latin America.

But Ma and his team had their share of struggles. Ma recalls: "The year 2000 was a difficult year. Our team was young--only a year old. We saw things were still going up, but knew it would surely go down. We didn't know how deep the fall would be, how bad it would be. Besides which, we had virtually no revenue."

In late September of 2000, Ma announced that Alibaba had arrived at its year of risk and opportunity. He said, "If we don't adopt the right strategies, we will die." That gave birth to three B2C strategies: B2C = back to China, B2C = back to Central (from Hong Kong back to Hangzhou) and B2C = back to the Coast, the richest region of China.

Downsizing and restructuring followed. But Alibaba's nrembership continued to grow, even in the middle of such jitters. By its third anniversary in March of 2002, membership in its China site had reached 1 million--a breaking point Ma had promised his investors. Ma was ready to move. For the year 2002, the company set only one target: make a profit of one dollar. "We said, 'Let's make one dollar in profits for the whole year. We spend five million US dollars, we should make at least one back. If we spend 10 million, we should still earn one dollar.' So, we spent the whole year trying to make one dollar," says Ma. "When we set the target, everyone said I was stupid. But the whole company had a clear target throughout the year. The young people in the company had never had experience making money. Even if we say we are going to make 10 million dollars, how are we going to make it? But the one dollar target is something we could make if we just saved electricity, for example."

That strategy seemed to work. By October, the company had made half a million RMB, much better than one dollar, and Ma says revenue continues to grow. Just how well Alibaba.com is doing right now is beyond verification, as the company doesn't disclose financial figures. But company sources say the company's revenues retain double-digit growth each month.

China Money

Ma says his company has got plenty of cash. "The reason why we got JAIC investing in us is not because we are short of money: It's just for our Japan strategy. Now we have solid cash. We are even thinking about investing out," he says.

But how exactly does Alibaba.com make money, when the worldwide recession makes it impossible for a dot-com company to rely on revenue from banner ads? The answer is membership fees from China. Because of the company's B2C strategy, almost 99 percent of its revenue today is from china. Alibaba.com now offers two types of membership. A "China Suppliers" member pays $8,000 per year. China Suppliers is an online community enabling international buyers to source quality products from China. All listed China Suppliers members are qualified export enterprises, screened by third party credit agencies. Alibaba.com started the premium service in late 2001. "We started from $3,000. In China, at least 1 million businesses want to sell things abroad, especially after we joined the WTO. The market is huge. Our customers welcomed our services, so we raised the fee to $5,000. In the middle of 2002, we increased the price further to $8,000. Our customers seem to have no problem with that," says Ma.