“Even three years after our IPO, investors are still struggling to understand our business model,” David Wei, the former CEO of Alibaba.com, once said.
Alibaba.com, a platform on which businesses sell to each other (referred to as “B2B”), is just one unit in sprawling e-commerce business Alibaba Group. The group also owns the eBay-like Taobao, in which consumers sell to other consumers (“C2C”). And more recently, growth has been fueled by a platform called Tmall, where retailers like Nike and Uniqlo set up online shops (“B2C”).
These business lines have helped Alibaba Group surpass every other Chinese e-commerce provider in terms of volume. But Zeng Ming, the group’s chief strategy officer, claims that Alibaba’s strategic future lies in a different direction.
“The future of e-commerce is C2B, not B2C,” Zeng told a group of foreign journalists in Shanghai in February. He predicts the entire industrial supply chain will move online, with consumers deciding what companies produce and ship.
The internet has increased the knowledge and negotiating power of consumers, but the only parts of the supply chain that it has revolutionized are sales and advertising. Zeng expects consumers to one day drive manufacturing and logistics in the same way, thereby cutting production times and inventory and increasing margins.
This strategy is a familiar one, similar to the “just-in-time” model that computer maker Dell introduced in the 1990s. Dell’s strategy was derived in turn from Toyota Motor Corporation’s lean manufacturing ideas of the 1960s.
How does this translate to Alibaba? The group would conceivably provide information services for small Chinese companies that lack the capacity to manage the necessary data themselves – for example, providing information that helps companies tie their manufacturing to consumer searches, or transport goods more efficiently.
Alibaba is already investing heavily in cloud computing and data management. But there are obviously big challenges ahead. For one, Dell’s strategy relied on cutting out the middleman to reduce operating costs. In Alibaba’s model, Alibaba is the middleman. The model requires technological innovation. But when technology evolves, how long will it be before small companies cut the middlemen out themselves?