An Investigation of Value Creation through Business Model Innovation in the E-Commerce Industry

I
An Investigation of Value Creation through Business Model Innovation
in the E-Commerce Industry: A Case Study of Alibaba
By
XIAOLEI YAN
BA BUSINESS (HONS) (YEAR 2015)
A dissertation submitted in part fulfillment of the requirements for the award of the BA
BUSINESS (Honours) Degree.

I
Abstract
With the rapid development of the Internet, e-commerce has developed into one of China's
emerging and powerful industries and attracted the public’s attention. To obtain competitive
advantages, innovating the business model is considered as essential in this industry by e-commerce
companies. Besides, the gap of e-commerce development between developed countries and
emerging countries results in the inadequacy of studies in China’s e-business model innovation,
particularly in empirical research. Therefore, this dissertation aims of investigating how a company
can create value through business model innovation by studying the Alibaba case and provides
implications for other players in the e-commerce industry.
Both primary and secondary data collection methods, such as interviews and access to Internet
websites, are used in the case study to improve the quality of findings. This study reaches the
conclusion that business model innovation has been a key factor for Alibaba to create value and
expand its business. In the last 15 years, Alibaba implemented a wide range of innovations in
various business areas, involving B2B, C2C, B2C and B2B2C, to ultimately innovate the whole
e-commerce industry through integrating all different services in its e-commerce ecosystem. In
terms of implications, the key trends of China’s e-commerce future development indicate the
opportunities in mobile commerce, O2O services and integration with traditional industries.
Furthermore, other Chinese e-commerce companies can be enlightened by Alibaba’s growth to
rethink their business model as well as embrace innovation. Regarding the intense competition
among players in the e-commerce industry, the following recommendations are made for Alibaba’s
future development:
 Improving the technology to ensure the security of customers’ information and payment;
 Reinforcing the control of logistics system and improving the accuracy of inventory;
 Further subdividing the target customers according to their industries and categories;
 Adopting new price strategies and fee-charging patterns to attract new members; and
 Improving customer relationship management to provide better services and reduce barriers.

II
Acknowledgements
Writing this topic has been very challenging and time-consuming, but also informative and
interesting. Despite some troubles faced in the researching process, I feel great to have finally
completed this dissertation.
I wish to express thanks to all those who have assisted and advised during this project, with
particular mention of my supervisor, Dr Susan Ogden and advisor, Mr Alan McNeilly.
This dissertation has not been submitted elsewhere in the fulfillment of the requirements of
this or any other award, is my own work and following normal academic conventions I have
made due acknowledgement to the work of others.

III
Contents
Abstract I
Acknowledgements II
Contents III
List of Tables V
List of Figures VI
Chapter One: Introduction 1
1.1 Background of E-commerce in China 1
1.2 Aim and Objectives 2
1.3 Outline of Content 2
ChapterTwo: Literature Review 4
2.1 Introduction 4
2.2 BusinessModel 4
2.3 BusinessModel Innovation 5
2.4 E-Businessand E-commerce 6
2.5 Conclusion 7
ChapterThree: Methodology 8
3.1 Introduction 8
3.2 ResearchApproach 8
3.3 ResearchDesign 8
3.4 DataCollection 10
3.5 Validity and Reliability 12
3.6 Limitation and Ethical Consideration 13
Chapter Four: Analysis and Finding 14
4.1. Introduction 14
4.2. Company Overview 14
4.3 Data from Management Interviews 16
4.4 Business- to-Business Services 19
4.5 Customer-to-Customer Service 23

IV
4.6 Business-to-Customer Service 26
4.7 TheEcosystem 29
4.8 Implications for Future Development of Industry 30
4.9 Implication for Business Model Innovation 31
4.10 Conclusion 32
Chapter Five Conclusion and Recommendation 33
5.1 Introduction 33
5.2 RevisitingAims and Objectives 33
5.3 Limitationsof Conclusion 34
5.4 Recommendation for Future Research 35
5.5 Recommendation for Alibaba 35
Appendices 36
Appendix A: What is a business model? 36
Appendix B:Academic articles about e-business and e-commerce 39
Appendix C: Interview Transcripts --A 42
AppendixD: InterviewTranscripts --B 45
AppendixE: InterviewTranscripts –C 48
References 50

V
List of Tables
Table 1: Basic information about Interviewees 16
Table 2: Key events in the process of Taobao’s development 24

VI
List of Figures
Figure 1: Chinese e-commerce transaction volume between 2009 and 2014 1
Figure 2: Chinese e-commerce market segments in 2014 2
Figure 3: Research Design and Methods 10
Figure 4: Alibaba group’s major businesses 15
Figure 5: The process of B2B business in first stage 20
Figure 6: Three parties relationship 21
Figure 7: The number of members and revenue between 2004 and2010 of B2B business (‘000 RMB) 22
Figure 8: The Process of B2B Business 22
Figure 9: The profit model of Taobao 26
Figure 10: Chinese C2C market share in 2013 26
Figure 11: Chinese B2C online shopping market share in 2014 27
Figure 12: The B2B2C model of Alibaba 28
Figure 13: Total revenue of Alibaba in 2013 and 2014 29
Figure 14: The Alibaba groupsystem 30

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Chapter One: Introduction
1.1 Background of E-commerce in China
With the rapid evolution of computer information technology，e-commerce has developed into one
of China's emerging and powerful industries. In the information economy era, the influences of
e-commerce for economic development shows a significant "multiplier effect", stimulating a boom
in China's traditional economic sectors, creating a large number of new job opportunities for young
graduates and facilitating rapid and stable growth of China's GDP. E-commerce is considered as
playing an increasingly important role in being an infrastructure platform, bringing together the vast
production information, transaction information and consumer information, as well as profoundly
changing consumer behavior, business forms and social value creation mode (Ministry of Industry
and Information Technology of the People’s Republic of China, 2015).
In 2014, Chinese e-commerce transaction volume reached 12.3 trillion RMB. Comparing to the
counterpart with 10.1 trillion in 2013 (See figure 1), it has an increase of 21.8% (Iresearch, 2015).
In terms of sub-sectors of e-commerce market in 2014, B2B (Business-to-business) accounted for
73% with over 9 trillion RMB trading volume. Online retail transaction commanded 23% market
share and other services including online travel and O2O (Online-to-offline) took 0.6% (See Figure
2). Alibaba company group dominated the e-commerce market with 34.3% market share of B2B
(Iresearch.com.cn, 2015).
Figure 1: Chinese e-commerce transaction volume between 2009 and 2014
Source: Iresearch Consulting Group, 2015
0
5
10
15
2009 2010 2011 2012 2013 2014
3.7 4.5
6.4 8.1
10.1
12.3
Year
2009-2014 e-commerce
transaction volume of China
(trillion RMB)

2
Figure 2: Chinese e-commerce market segments in 2014
Source: Iresearch Consulting Group, 2015
1.2 Aim and Objectives
The aim of the dissertation is to investigate how Alibaba creates value through business model
innovation and consider the implication with specific regard to E-commerce industry. In order to
fulfill the aim, the objectives to achieve are:
1. To explore the role of business model innovation in the e-commerce industry;
2. To ascertain how Alibaba has developed and implemented business model innovation at
different stages of its development;
3. To identify the impacts of innovating business model in terms of value creation; and
4. To identify the implications for other companies in the E-commerce industry
1.3 Outline of Content
This dissertation is organized into 5 chapters. The introductory chapter has introduced the
background of the topic by demonstrating data and charts and then outlined the aim and objectives
of this study. Chapter 2 begins with an introduction on how to search relevant literature about
E-business model innovation. There are different perspectives and various definitions of the
concepts relating to this topic, so a wide range of pertinent articles are presented and their main
findings are summarized in different sections. The chapter concludes with calling for more in-depth
research on the topic. Chapter 3 outlines the methodology of this dissertation covering the design
and framework of the research. The method used are explained and justified by academic resources.
Key research-specific thesis and concepts are described and shared. The data collection methods are
73%
23%
4%
Chinese E-commerce market
segments in 2014(%)
B2B
Online retail
Others

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classified by different sources and critiqued. In the end, ethics issue and limitations are discussed
and emphasized. The findings of the dissertation are presented in Chapter 4. All data and
information collected are analyzed and explained in detail to achieve the dissertation aim. Findings
are discussed systematically and implications for other players in the industry are offered with
further explanations to help readers’ comprehensive understanding of the results. Chapter 5
provides final conclusion and practical recommendations for future researches and the company.

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Chapter Two: Literature Review
2.1 Introduction
In line with the objectives of dissertation, this chapter reviews existing literature on related issues.
“Business model”, “business model innovation” and “E-commerce” are used as keywords to search
for relevant articles and books in databases such as “Emerald” as well as “Financial Times”.
However, as only a small number of results came up when using these keywords, some other
concepts such as “e-business model”, “e-business model innovation” and “Internet commerce” are
used in combination to refine the search. Considering the e-commerce industry renews constantly,
only literature published in the period of 2001 to 2014 is taken into account in the literature review.
Besides, empirical research and studies conducted by Chinese authors are paid particular attention
to when carrying out the searches. All qualified articles are classified by their main purposes into 2
tables as shown in the appendices. The publication year, author, purpose, perspectives and
methodology of these articles are recorded in the tables to help to organize the literature review.
2.2 Business Model
As Teece (2010) notes, the business model concept lacks an established place in terms of economics
or business studies and more theoretical research is needed. The reason lies in, on the one hand, the
assumption of market in economics (Teece, 2010). In economic theory, companies are assumed to
achieve value creation simply by disposing output in the established market at proper prices.
Customers are assumed to simply pay for it once value is delivered. These suppositions make
business models unnecessary. On the other hand, it is an interdisciplinary subject that has been
overlooked over a long period of time. Few management academics consider the concept of
business models as center topic and it was seen as useless by many researchers (Teece, 2010). But
in today’s business environment, it is evident that business models have profound influences on
companies due to its ubiquity and widely use (Baden-fuller and Morgan, 2010). However, so far,
there is still no generally accepted concept about what business model is (Shafer et al. 2005) and the
definitions established by different researchers varied in the past decade as Appendix One shows.

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Remarkably, the review of key papers suggests that most of the concepts established in recent years
on business model mention “strategy” and “value creation”. Thus it can be concluded that business
model is a system, including a series of activities, focusing on thinking companies’ strategies and
figuring out how to create value.
2.3 Business Model Innovation
Business model innovation, a new type of innovation after the innovation of technology, product,
market and organization, is said to play an increasingly significant role in enterprises. Tidd and
Bessant (2014) describe it as changing the existing business model to maximize value creation and
value capture. It is traditional for companies to innovate products and processes that are not only
costly but also with uncertain future profit margin. Business model innovation attracts increasing
attention of various industries as a new way to create value and to alternate products or processes
innovation (Amit and Zott, 2012; Lindgren, Falck Saghaug and Knudsen, 2009). When most of the
traditional innovation has been achieved in practice, new business model innovation could be the
key factor to maintain competitive advantage in the future (Lindgren, Falck Saghaug and Knudsen,
2009; Chesbrough, 2010; Giesen et al., 2007). As Chesbrough (2007) states, an innovative business
model can often surpass advanced technology or new idea. However, similarly to business model’s
place, the paucity of serious studies leads to a lack of theoretical grounding of business model
innovation in the field of management (Guo & Jun, 2014).
There are some insights providing fresh theoretical perspectives on studying business model
innovation as a whole. Giesen et al. (2007) develop a framework that identifies three main types of
business model innovation including industry model, revenue model and enterprise model based on
conceptual study. Wirtz et al. (2010) conducted an empirical research through interviewing
managers from 22 different U.S and German Internet companies to discuss how the dynamic
environment affects Internet business model types and changes the value creation rules. Schneider
and Spieth (2013) systematically reviewed existing academic literature and classified it into three
kinds of research perspectives consisting of precondition, process and element, and business model
innovation impacts. Abdelkafi, Makhotin and Posselt (2013) go further pointing out that the pattern
of the value-focused business models can be divided into five categories as capturing value,
creating value, proposing value, delivering value and communicating value.

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As Teece (2010) notes, what makes the innovation successful is a differentiated business model that
is hard to be imitated by competitors. With rapid advancement of globalization and Internet,
business model innovation has been considered essential and put in the priority list of many
enterprises (Amit and Zott, 2012). With conceptual research on business model innovation,
Chesbrough (2010) states that it is yet difficult to achieve innovation because of the barriers and
deficiency of tools for the change. Overall, implementing a new business model successfully is
more like creating a work of art rather than doing science (Casadesus-Masanell & Ricart, 2010).
Furthermore, innovating business model sometimes could lead to appearance of new industries
(Teece, 2010).
2.4 E-Business and E-commerce
Due to the rapid and continuous development of Internet, wireless communication and other digital
technologies, the ways that companies do business with customers and interact with others in the
industry have been profoundly changed (Massoud, 2002; Wu and Hisa, 2004; Lumpkin and Dess,
2004; Lin and Hsia, 2011). Thus, a new environment, where the technology has been an essential
resource used by companies to improve their capability as well as expand their business, has been
created (Lumpkin and Dess, 2004). In 2001, Barnes-Vieyra and Claycomb propose the concept of
E-commerce involving all electronically facilitated business processes. In addition, Gordijn and
Akkermans (2001) state that e-business model embodies decisions that impact other requirements,
especially business process and information system requirements. Because of e-commerce’s
flexibility, beyond geographical and time restriction, transaction cost saving and other
characteristics (Barnes-Vieyra and Claycomb, 2001; Zhou et al., 2009; Guo and Jun, 2014), it has
entered its “golden age” being considered as a key way for companies to be competitive in the
business competition (Zhou et al., 2009; Guo and Jun, 2014). In order to develop e-commerce,
innovations in all aspects within enterprises must be encompassed (Zhou et al., 2009), which can
not only promote the company’s development, but also facilitate economic restructuring and
upgrading. In such a dynamic environment, In 2001, Amit and Zott focus on common patterns of
e-business value creation and developed the value-drivers model comprising four elements that
enhance the value creation potential of e-business: efficiency, complementarities, lock-in and
novelty, which bridges the strategic management and literature of entrepreneurship. While Lin and
Hsia (2011) identify core capabilities that contribute to e-business innovation and conclude into three

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cores: business technology domain involving IT integration, business management domain such as
customer value proposition, business model reinvention and collaboration domain indicating the
value network.
Faced with so many new business opportunities provided by the Internet-based environment
(Lumpkin and Dess, 2004, Jim Wu, 2005; Amit and Zott, 2001; Barnes-Vieyra and Claycomb,
2001), some developing countries see the great potential and develop e-commerce as a significant
national policy (Zhou et al., 2009). According to Kshetri (2007), academic research on e-commerce
in developing countries is inadequate, which results that its theoretical development is lagging
behind.
Nine academic articles relevant to e-business and e-commerce in the recent 10 years have been
reviewed and presented in the Appendix B. However, only two of them involve primary research
and the others focus on secondary data to conduct conceptual studies. In this regard, the one
conducted by Kshetri (2007) and the other from Amit and Zott (2012) throw light on these issues.
Kshetri’s study attempts to reveal characteristics of e-business models that can successfully be
implemented in developing countries, conducting case study on an e-commerce company in Nepal
with a combination of primary and secondary data. Kshetri carried out interviews and exchanged
e-mails with company’s managers and provided an overview on its strategy to overcome various
e-commerce barriers. Similarly, in Amit and Zott’s study, they analyze secondary information and
carry out primary research in order to contribute theory development of e-business value creation.
These works share similar methods with the design of this dissertation so they are considered as
valuable references worth more attention.
2.5 Conclusion
Despite many in-depth studies of business model and business model innovation from different
perspectives have been published, there has been little research on e-commerce or e-business
innovation in emerging countries such as China where this industry is fairly new. Among the 20
articles reviewed, only 2 of them are putted in the context of emerging countries. Besides, a
majority of academic articles are conceptual using secondary analysis as shown in Appendix A and
Appendix B. Only 4 out of them are found collecting primary data. More research especially
empirical studies on e-business model innovation in the developing world should be called for.

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Chapter Three: Methodology
3.1 Introduction
As Wilson (2014, p.3) notes, research methodology is “the approach and strategy used to conduct
research”. Also, Collis and Hussey (2014, p.59) define methodology as “an approach to the
process of the research encompassing body of methods”. In this chapter, all the practical method
used to collect and analyze data will be presented, which will help the readers to understand where
the information comes from and how the data was generated. With the background knowledge, it
will be more helpful to understand and interpret the finding in the next chapter.
3.2 Research Approach
Due to the academic gap about business model innovation of Chinese e-commerce industry that was
observed when conducting the literature review, the impact of e-business model innovation will be
studied and described as a picture of phenomenon. In line with the purpose of this dissertation,
majority of this research adopted an inductive approach, which is defined as starting with observing
and investigating specific examples through collect as well as analyze data and than develop new
inferences (Wilson, 2014; Collis and Hussey, 2014). But in some particular data collection and
analysis methods, a more deductive approach, which refers to start with an existing theory and test
it by empirical observation (Wilson, 2014; Collis and Hussey, 2014), was conducted as well.
3.3 Research Design
According to Wilson (2014), a research design is a specific framework or plan that plays a role as
guidance when conducting research to enable the success of achieving research objectives, as the
figure 3 shown below. It is suggested as linear and smooth movement from identifying research
topic to obtaining expected outcome (Collis and Hussey, 2014). However, in fact, the procedure is
circular, repeating and time-consuming that progress is usually made by constantly reviewing
previous stages (Collis and Hussey, 2014). Referring to the academic literature of Kshetri (2007),

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whose design is similar to this dissertation, the methods used, such as single case study, interviews,
secondary data analysis, etc., are presented in Figure 3 to provide an overview of this research’s
design and methods.
Single case study was designed to conduct an in-depth research involving a large amount of
information in this dissertation. Collis and Hussey (2014) states that case study is a methodology
used to investigate a single phenomenon within its natural context through carrying out various
methods to collect in-depth information. Therefore, case study is the preferred research strategy to
answer “how” and “why” questions involving in-depth analysis (Rowley, 2002; Wilson, 2014). It is
also been viewed as a helpful and necessary tool to develop more structured understanding of a
topic that is still at the preliminary and exploratory stage (Rowley, 2002). Considering the
insufficiency studies by previous researchers of the research topic, case study as a research method
is taken.
The case selected is Alibaba, a leading enterprise in the e-commerce industry in China and
Southeast Asia. It has become the world's largest online commerce market with millions of
merchants and hundreds of millions of users and was referred to as "the most popular B2B website"
by business people. The total amount of transactions on Alibaba’s online sites reached $240 billion
last year, more than those of eBay and Amazon.com combined (The Verge, 2014). More importantly,
this distinguished company is established in China where e-commerce industry has not been studied
systematically and thoroughly. In addition, the in-depth study of Alibaba may be used to extend
research to other companies of developing countries. So examining a single case to collect a wide
range of information entailing detailed and intensive analysis is more appropriate rather than
studying multiple cases that is normally used to refute and establish contrasting theories (Wilson,
2014).

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Figure 3: ResearchDesignand Methods
3.4 Data Collection
Data Collection is an important aspect of any type of research study. Inaccurate data collection can
impact the results of a study and ultimately lead to invalid results. Data collection methods vary
along a continuum. At the one end of this continuum are quantitative methods and at the other end
of the continuum are qualitative methods for collecting data. According to Wilson (2014),
quantitative research is usually viewed as objective and associated with numerical analysis while
qualitative is considered as subjective and emphasize on process and “socially constructed nature of
reality” (p.14). Therefore, this dissertation is a qualitative research and qualitative methods were
followed to collect data.

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3.4.1 Secondary Data
Secondary data is viewed as data that have been collected by other researchers, which is classified
by intended audience into commercial and academic (Wilson, 2014). As Alibaba is a rapid
developing company in a booming industry, there is plentiful up to date data written about the
company that is available and easy to access. Thus, company websites, electronic articles, videos
and organization reports are the main sources of secondary data to provide background as well as
existing understanding of the topic. Different statistic tools such as bar charts will be used to
analyze secondary data and to draw conclusions.
Business model innovation is an ongoing process that should be analyzed over a period of time.
Thus using the secondary data is cost-effective to gather years of data as well as information about
key trend of the industry for such a longitudinal research. In addition, secondary sources are more
easily as well as convenient to access and compare perspectives from other researchers or in
different cultural contexts related to the area of research. However, secondary resources have
limitations such as unfamiliarity of data, lack of key variables due to secondary analysis of data
collected by other researchers for their own purposes.
Therefore, having only the secondary resource is too narrow to make this research reliable and
intensive. Primary method is used to collect data as well, which helps to promote strengths and
reduce imitations of each method.
3.4.2 Primary Data
Primary data is the data generated by the researcher for the purpose of study and collecting primary
data is a good way to complement the comprehensiveness of information (Wilson, 2014). In terms
of collecting primary data, interviews with senior management of Alibaba were carried out through
video.
Online method is used to interview the management staff of Alibaba instead of traditional method
such as face-to-face or telephone interview. Because the time and money restriction make it
unrealistic to travel long distance to China, it is much easier to reach people in China from the UK
over the Internet. Then a friend as a key contact who is working in Alibaba helped me get access to
the core employees in the company’s management level. The interviewees were selected on the
basis of their expertise in different areas relevant to the research to provide valuable perspectives

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and overall views of the organization. Besides, they are considered influential, prominent and
well-informed due to the key positions they hold in the company, including Chief Operating Officer,
Senior IT Researcher and Executive President respectively.
The video interview aims at exploring the management’s insights towards Alibaba’s business model
innovation and future development of China’s e-commerce industry as full complement of
secondary data. Semi-structured interview is regarded more appropriate to be implemented because
of its flexibility on the certain topic (Wilson, 2014). An interview guide with specific questions was
generated before interview, but the interview process will be flexible leaving interviewees a great
deal of leeway in how to reply, which allows respondent to emphasize the topic they are more
interested in and provide specialized views. Interviewing with these elites of an industry also
demands greatly on the ability of the interviewer to establish competence and credibility by
projecting thoughtful questioning. Interview Questions will be presented in the transcripts in the
Appendices.
Another challenge will be faced in the interviews is the translation between English and Chines
when transcribing the interviews. Different meanings of words in two languages will lead to data
distortion (Bryman and Bell, 2007). Thus the emphasis on generating accurate and meaningful data
through translation processes is paramount and certainly it will be time-consuming.
3.5 Validity and Reliability
Addressing issues of validity and reliability underpin the quality and credibility of research (Wilson,
2014; Bryman and Bell, 2007). Validity refers to the degrees to which a study measures what the
researcher intends to measure (Wilson, 2014; Collis and Hussey, 2014). While reliability refers to
providing stable and consistent outcomes and it is considered sufficient when being combined with
validity (Wilson, 2014; Collis and Hussey, 2014).
In order to improve the validity of data collected, the interview questions are strictly in line with the
research objectives, which aim to explore what are the senior management’s perspectives towards
Alibaba’s business model innovation and implications for future development of China’s
e-commerce. The interviewees are all in senior management level, which can ensure that they have
a better understanding of not only the company’s history but also the operational process and thus

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improve the validity of data. In addition, the reliability of data is maintained by checking the data
source authentication through proper citation and adopting multiple information resources in the
data collection process.
3.6 Limitation and Ethical Consideration
There are some limitations and ethical consideration to take into consideration in this research. For
the interview with management of company, the data from the interviewees will be anonymized to
protect the identity of individuals. Although, as the name of the company is used, interviewees may
still be careful what they say as they will not want to be seen to criticise the company. Furthermore,
this topic focuses on business model of a company that involves copyright protection and
information security, so interviews may not reveal all relevant details. However, it is hoped that the
secondary information used about the company will balance out any bias from the data provided by
the company employees. It is also stressed that the company studied in this dissertation is a Chinese
company, which undoubtedly leads to the limitation of scope of data available from various sources
and the accuracy when translating information between English and Chinese.

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Chapter Four: Analysis and Finding
4.1. Introduction
This chapter analyses both the primarydata collected from interviews of company’s management and
secondarydata about Alibaba’s business model. It begins with anoverview of the company’s history,
then discusses the key information extracted from interview transcripts (See Appendices). After that,
it demonstrates the background, development process and value creation of B2B, B2C, C2C business
models respectively. Implications for understanding the future development and business model
innovations of China’s e-commerce are stated in the following sections. Finally, this chapter
combines primary as well as secondary data to summarize the pattern of Alibaba’s innovative
business model as a whole and makes a conclusion.
4.2. Company Overview
Alibaba is a Chinese E-commerce company that operates multiple leading online and mobile
platforms involving retail, wholesale trade and cloud computing. Alibaba was established in 1999
by Jack Ma with the other 18 people in Hangzhou, China (Alibabagroup, 2015a). From the outset,
all the founders have faith in that the players of Internet industry can create a fair co mpetition
environment for small and medium enterprises to expand their businesses through innovation and
new technology (Alibabagroup, 2015a). After these years, Alibaba Group continued to grow and
become the leader of e-commerce domestic and overseas. Alibaba Group and its affiliated
companies currently operating platform and industry-leading wholesale and retail platform, as well
as a number of other Internet-based services, including consumer-to-consumer,
business-to-consumer and business-to-business sales services via web portals to consumers,
merchants and other participants. Also it offers advertising and marketing services, electronic
payment, cloud-based computing and network services and mobile solutions so that the participants
can carry out business activities in the company’s ecosystem (Alibabagroup.com, 2015a). The
figure 4 below demonstrates the main activities of Alibaba Group.

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Figure 4: Alibaba group’s major businesses
Source: Alibaba Group (2014)

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4.3 Data from Management Interviews
The interviews with senior management of Alibaba company had two objectives: firstly, to further
understand the unique pattern of Alibaba’s business model; secondly, to gain more fine-grained
insights into the implications of the e-commerce industry.
In this primary data collection process, there were many difficulties. It is hard to make appointment
with these busy people who have little spare time. After several attempts to discuss the interview
date and time, we finally decided to do these three interviews on the same date at different period of
time. Due to the time difference between China and the UK, I had to stay awake in the midnight to
wait for the interviews. Fortunately, interviewees contribute specific insights and meaning to the
interviews and the interview transcripts are provided in the Appendices.
Interviewee Serving time Position Business
responsibility
Reasons for
joining Alibaba
A 7 years Chief Operating
Officer
B2C business
(TMALL and
Taobao)
Good future of
Internet industry
B 10 years Researcher Internet
Technology
E-commerce
development
C 14 years Executive
President
C2C business
(Taobao)
Met the
company leader
Table 1: Basic information about Interviewees
4.3.1 Customer centric
Customer-oriented is one of the core values of Alibaba (Alibabagroup, 2015b). Interviewee C
emphasized that “Alibaba places customers above all else” and he concluded that “following
customers’demand will never get lost” through giving an example of Alibaba’s rural strategy.
Similarly, when asked what are the reasons behind the success of Alibaba’s business model,
“making changes to adapt to consumers behavior and habits ” were seen as key to make Alibaba
distinguished from other competitors and leading to its success:

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“I think it is how to follow the footsteps of consumers to embrace the change. That is very important.
Consumer behavior and habits are changing, and we focus on going along with the changes to serve
them,to changeourapproachto provideservices.”
Therefore, Alibaba has implemented a wide range of innovations in order to “offer personalized
services to meet the needs of different consumers” (Interviewee C). The innovation of its business
model has transformed Alibaba from an elementary e-commerce platform to a business network that
is able to satisfy all the basic needs of Chinese customers (Yu and Yan, 2014, p.385).
4.3.2 Small and Medium Enterprises
According to Interviewee B, unlike the United States with mature market economy where the
largest companies command the vast majority of markets and resources, a large proportion of
Chinese enterprises are SMEs, which was considered as an opportunity by Alibaba’s founders. He
illustrated a theory to explain the importance of supporting SMEs in China:
“So we have a shrimp and shark theory: catching a shrimp means a chance to catch sharks, while
catching a shark may be killed by it in return. Time proves that the theory is correct. Currently, more
than 95%of AlibabamembersareSMEs.”
Therefore, Alibaba decided not to follow a US e-commerce B2B (Business To Business) concept
that focus more on helping large companies, but a “Businessman to Businessman” mode to help
SMEs. Respondent B commented:
“Providing platforms or tools for small enterprises to do business they want to do is one of the most
distinguisheddifferencesfromothercompanies.”
Establishing a business website that can not only help Chinese small companies to export, but also
help foreign enterprises to enter China, enabling Alibaba to set up an unique business model in its
early stage of development (Ministry of Industry and Information Technology of the People's
Republic of China, 2009).
4.3.3 Business Model

18
When asked that “how would you describe Alibaba’s business model”, three respondents gave
different description. Interviewee A proposed that “Alibaba’s business model is to follow a gradual
process”. To be detailed, he explained:
“Firstly it focuses on the foundation, and then continues in the implementation process to capture
new revenue opportunities. From the most basic service, setting up sites for business in the
beginning, to website promotion as well as ancillary services of online trade credit, order
managementoftransaction.Itcontinuouslyextends.”
Interviewee B described it as an open ecosystem with “ large-scale collaboration” where all the
partners can do business and develop.
“Apart from the merchants we provide direct services, we have a lot of partners to give them
services, such as IT partners and logistics partners. We even have a larger second layer and third
layer of partners. So this is a "big Taobao". The partners, direct customers and buyers constitute a
businesseco-systembasedonTaobao’sinfrastructure.”
While Interviewee C focused on Alibaba’s role as a “large and efficient platform” with specialized
information flow and wide channels covering countries all over the world.
4.3.4 Challenges
Due to the rapid development of e-commerce, challenges faced include centre on logistics challenges
and a need to improve “the accuracy of the inventory” (Interviewee A). Interviewee Balso suggested
that transactions should be “supported by better logistics system”. Additionally, he mentioned
another challenge—data and provide the solution implemented by Alibaba.
“Every day, a lot of data is generated, about thousands of G per day. Such amount of data...
demands stronger ability of calculation. So we began to consider cloud computing. With the
development of cloud computing in the future, more services of data storage will be offered by
Alibaba.”
4.3.5 Future Development of Chinese E-commerce
Three interviewees were all quite positive towards the future development of Chinese e-commerce

19
industry. Remarkably, Interviewee C compared Chinese e-commerce market to developed regions
concluding that the Chinese market has greater potential. Then he noted that:
“In Chinese e-commerce market], a lot of transactions may be moved from offline channels to online
channels, or combined with the both to meet the consumers needs better, which makes it the right
time for thisindustryto flourish.”
In terms of the factors affecting this industry’s development, Respondent A stated the role of
government:
“The government plays an important role, like improving E-commerce infrastructure,
implementing of e-commerce facilities, establishing policies to encourage the industry’s
development.”
Besides, “high-quality providers of e-commerce services” and “loose, transparent policies”
were also mentioned by Interviewee B. While Interviewee C emphasized on the significance
of O2O and wireless communication for the future development of Chinese e-commerce.
4.4 Business- to- Business Services
4.4.1 Background
After the Internet bubble burst in 2001, in order to get rid of depending on a single source of
income, online advertising, many Internet companies developed more value-added services, such as
wireless messaging, instant messaging, online games, search engines and e-commerce. Internet
industry thus appeared more promising opportunities. E-commerce was also entering a golden era
(Martinsons, 2002).
E-commerce boomed in the United States first where Internet industry developed most rapidly. The
American Enterprise Amazon, eBay are innovative examples of B2C e-commerce and C2C
e-commerce. They have established the leading position in the industry. However, in terms of B2B
e-commerce, few participants were involved at home and abroad. In the early stage of Alibaba’s
development (1999-2003), except foreign companies such as Ariba, Verticalnet, CommerceOne, I2,

20
etc., there are no more large enterprises and start-ups to participate in the domestic corresponding
field (Jack Ma' Speech In Stanford University, 2011).
Although the Internet bubble made venture capitalists more cautious, due to the success of the
Amazon and eBay, e-commerce was given higher degree of attention by venture capital firms. As
the first Internet companies involving e-commerce among enterprises, Alibaba’s philosophy
attracted some venture capitalists since 2001 including Softbank and Yahoo (Finance. Sina, 2009).
4.4.2 First Stage (2001-2004)
In the initial stage of the B2B e-commerce process, the sellers (suppliers) who provide products and
services, the buyers who consume products, e-commerce platform providers or payment platform
parties and logistics companies make up the e-commerce industrial chain (see the figure below). All
kinds of enterprises in the platform, information integration, funds delivery and logistics process
can find their corresponding value point. In this stage, Alibaba's position is equivalent with other
companies, and it was unable to have much impact on other parties.
Figure 5: The process of B2B business in first stage
Source: Alikz, 2011
Alibaba's has introduced two core businesses: China Suppliers and TrustPass for suppliers in 2001
and 2002. "China Suppliers" is the high-level membership service (annual fee in the range of 4-12
million RMB). Members receive trade-related services including domain name, online shop, CRM
software, exhibition, training and various types of online or offline services. “TrustPass” is

21
membership service in a general level (annual fee 2800 RMB). Members can obtain credit
certification, online shop and other basic services.
Through the establishment of different levels of membership, corresponding to different levels of
credit system and sequencing, members (suppliers) acquire the buyers’ admission and make deals.
Then, they pay for Alibaba. Alibaba play a role as an intermediary, and get paid. The relationship of
the three parties is demonstrated in Figure 6 below.
Figure 6: Three parties relationship
Source: Author
4.4.3 Second Stage (2005-2010)
The control of e-commerce platform provider over other participants began to penetrate into the
second stage (see Figure 8). Alibaba has accumulated a certain amount of users and brand
reputation. In the meantime, the business scope was expanding by mergers and acquisitions. In
September of 2009, Alibaba spent 540 million RMB (57 million pounds) on acquisition of Civilink
International Information Technology Co., Ltd. (Beijing), which is Chinese leading provider of
Internet infrastructure services ranging from domain name services, website and server hosting
services, email hosting services and website design and development services (Alikz, 2011). In
2010, Alibaba acquired Yidatong service cooperation, the first Chinese company that provides
import and export services as a B2B trade platform (ibid). Alibaba took this opportunity to offer full
services involving transportation, insurance, docks, foreign exchange, tax rebates, and financing
(ibid). Therefore, the impact of some other players in the industry chain is weakened. As a result,
Alibaba’s influence and control in the industrial chain was enhancing gradually.
In the period between 2004 and 2010, the numbers of members of Alibaba B2B business grew from

22
77,900 in 2004 to 809,400 in 2010 with an average annual compound growth of 47.7%. At the same
time, revenue reached 5.56 billion RMB (590 million pounds) in 2010 from 360 million yuan (38
million pounds) in 2004, increasing by 57.8%.
Figure 7: The number of members and revenue between 2004 and 2010 of B2B business (‘000
RMB)
Source: Alikz, 2011
It can be viewed that Alibaba’s B2B business facilitate Chinese SMEs to remove the barriers to
entry in the international trade (Griffith, 2014). The design of its profit model (membership fees)
replicates the way that Export Commodities charges fees for stands, instead of charging for trading
performance. Low cost and low entry threshold with comprehensive services for SMEs contribute
to Alibaba’s B2B platform great success.
Figure 8: The Process of B2B Business
RevenueMembers
RevenueMembers

23
Source: Alikz, 2011
4.5 Customer-to-Customer Service
4.5.1 Background
Since eBay launched China in 2002, the huge success of eBay’s C2C business model in Chinese
market changed the view of Alibaba’s management that China is not a suitable market to develop
C2C (Medium, 2014). Besides, the mature operational ability of B2B business encourages Alibaba
to step into the field of C2C. To some extent, the operation of C2C and B2B business has some
similarities, providing an information platform for buyers and sellers as an intermediary or agent,
and then charge fees after finishing transactions. C2C is relatively small business between
individuals with a certain scale so Alibaba does not need to build up its own inventory like doing
B2C business, which is more flexibility.
C2C's development has been far beyond its original definition referring to simple
individual-to-individual transactions, but a platform for individuals to purchase goods, a virtual
market. C2C website has become a major channel of online marketing and plays increasingly
important role in e-commerce industry.
4.5.2 First Stage
Taobao was established in 2003. At that time the main competitor of Taobao in the C2C market was
eBay, who dominate the C2C market with about 85% market share in 2003 (Westland and So, 2015,
Medium, 2014). The business model of eBay was charging storefront fees, listing fees and
transaction fees (Westland and So, 2015). While Taobao adopted free charge strategy to reduce costs
of sellers, as well as launching features and services meeting the needs of local users (Medium,
2014). It also chose to put advertisement on small website instead of working with mainstream
portals.

24
Table 2: Key events in the process of Taobao’s development
Source: Author
As a result of implementing the "free charge strategy", and concentrating on users’ experiences with
well-known Chinese cultural references, Taobao became popular at a fast speed. By 2005, Taobao
has lured half of the customers from eBay accounting for about 60% of the market (Medium, 2014,
Financial Times, 2015).
4.5.3 Second Stage
With the rapid development of Taobao, the credit and security issues of online shopping payment
become increasingly prominent (Yu and Yan, n.d.p.381). Alibaba began to seek to establish its own
payment tool—Alipay. The buyer put the money in Alipay first that held the money in account.
After receiving and checking items, the buyer then notifies Alipay to release the payment to the
supplier, which is called secured transaction model. Alipay quells most safety concerns of online
shoppers and makes online shopping easier as well as efficient (Taobao Shopping Guides, 2015).
After the adjustment in January of 2013, Alibaba classifies its business into 25 separated divisions
without Taobao (China E-commerce Research Center, 2013). It can be seen that Taobao C2C has
become a "base layer" of the Alibaba group as a whole and play the role as incubators, such as the
advancement of Juhuansuan, TMALL and some other services, which are largely depend on the
C2C market.
In fact, Alibaba has repeatedly stressed the significance of platform, ecosystem and integration. The

25
future function of Taobao is to offer support of service for industry-wide e-commerce companies,
facing with the online shopping population and providing a unified price comparison, group
purchase, shopping and payment service. The derived e-commerce ecosystem of e-commerce will
be used to dominate the whole industry chain continuously so that there will be much more room to
add value for Taobao. Although Taobao C2C still will run as a brand for consumers, but it has
become a macro concept to support different specific business units in the company (China
E-commerce Research Center, 2012).
4.5.4 Value Creation
Taobao’s total revenue has reached 5 billions RMB in 2010, yet the advertising revenue was up to 4
billions accounting for 80% of the total amount (Alibuybuy, 2011). Taobao dose not charge
commission to sellers, thus the profit of Taobao is mostly advertisement income, which results from
its one foundation and two demands. The model is showed below for more detail.
 Foundation: the huge rate of flow - With the rapid development of Taobao, its rate of flow is
also accordingly rising rapidly, which transformed Taobao into a website with media function
to develop advertisement business (Xu, 2013).
 Internal revenue demand from free charge - For Taobao, the free charge strategy is an
important characteristic. Thus in a certain stage of development, looking for new income
has become a key to maintaining development. Advertising has become the best choice
(Xu, 2013).
 External marketing demand from buyers and sellers formation - With the rapid growth of
Taobao sellers, the scale of goods sold on Taobao become increasingly large, which stimulates
the buyers’ need to search products. On the other hand, in order to promote sales, a great
number of sellers have strong marketing demands (Xu, 2013).

26
Figure 9: The profit model of Taobao
Source: Media business case studies of China online shopping platform – Taobao, 2012, p.7.
The data from China E-Commerce Research Center in 2013 reveals that Taobao commands over 96%
of the Chinese C2C market, while eBay’s share largely shrinks to 0.1% (See Figure 10), which
obviously indicates that Taobao has gained a sound foothold in market.
Figure 10: Chinese C2C market share in 2013
Source: 2013 Annual Report of Chinese e-commerce market data monitoring, p 31
4.6 Business-to-Customer Service
4.6.1 Background
When Taobao become absolutely dominant in the field of C2C, on November 1, 2010, TMALL was
separated from Taobao (Yu and Yan, n.d. p.383). TMALL is the largest B2C shopping website in
Asia involving thousands of brands and manufacturers, providing one-stop services for merchants
and customers such as 100% quality assurance of goods, seven-day refund for no reason, cash back
shopping and other services (News.alibaba.com, 2015). Interviewee A described TMALL as follow:
“Internally, for Alibaba Group, it is the main battlefield in the field of material consumption, bearing
the burdenofB2C e-commercedevelopment.”

27
In a short time, TMALL has grabbed much higher market share. From the figure 11 below, it can be
seen that TMALL seizes over half of the B2C market (57.4%) in 2014, which put it well ahead of
second-place Jingdong (only 21.1%).
However, Alibaba never considers its B2B and B2C as mutual exclusive businesses and manage to
connect the two business chains to create an integrated platform, an e-commerce empire. As the
interviewee A states:
“It [TMALL] will be developed into a diversified, fashion and quality virtual fashion district. It is not
like a shoppingmallreplica,morelikea shoppingdistrict, as Beijing's CBD.”
Figure 11: Chinese B2C online shopping market share in 2014
Source: 2014 Annual Report of Chinese e-commerce market data monitoring, p 19
4.6.2 Business model Innovation: B2B2C
B2B2C is the evolution and improvement of the combination of current B2B and C2C business
model. With the B2B2C e-commerce business model, Enterprises tend to set up their own logistics
supply chain and thus provide unique services to customers.
In the past 10 years, the old pattern of B2C business was proved inefficient in China. The traditional
B2C business model means that the intermediary gains profit by depressing the prices offered to
producers, and thus make money from the difference between the purchase price and the selling
price. However, the new business model will help merchants to act as sellers, enabling the merchant
and the consumer to do business directly, allowing producers to earn more profit as well, which
motivates the manufacturers spend more money on innovation of technology and product.
The traditional B2C model requires the platform company to invest heavily in building warehouses

28
and distribution centers. Due to significant intermediate costs, profits can only be maintained at
around 5%, while the bottlenecks of logistics, distribution and payment does not exist when
implementing the new model integrating B2B and C2C businesses. The e-commerce industry in
China is not mature, there are still a variety of defects remaining, leading to the website operator not
being able to accurately predict the demand for commodities. Also, the distribution and logistics
systems are at the initial trial stage of development. Thus the new model adapted to the environment
of Chinese e-commerce by transferring the responsibility for delivering goods promptly back to the
merchants themselves.
The new B2B2C model aims to help manufacturers make money as well as enable consumers to
save money by minimizing the cost of middle stages, and ultimately achieve the win-win result that
benefit both manufacturers and consumers.
Figure 12: The B2B2C model of Alibaba
Source: Author
4.6.3 Value Creation
With the full integration of resources in manufacture, distribution and retail terminal, Alibaba has
greatly enhanced its service capabilities and has access to high value-added services. Alibaba is
committed to provide a platform for network operators and consumers to meet, work and live
(Alibabagroup.com, 2015c). With a wide range of businesses, merchants are encouraged to run their
entire business through various platforms of Alibaba. Ultimately, not only merchants can be better
managed and have access to unified sales channels, but also consumers are allowed to understand
the process directly from procurement, manufacture to sales. The establishment of a
multi-dimensional network of supply and demand in the virtual market contributes to the shift of
commercial transactions in the economic society to the network.
In 2014, China Industry Research Net (2014) notes that Alibaba has grasped about 78% market

29
share of the entire Chinese e-commerce industry. Also, as the figure 13 illustrates below, the total
revenue of Alibaba increases stably every year, reaching about 71 billion RMB in 2014, which
increased by 16.4% of the number in 2013, which indicates its extraordinary competitive advantage
and potential profitability.
Figure 13: Total revenue of Alibaba in 2013 and 2014
Source: Alibaba Group
4.7 The Ecosystem
Alibaba's capability of profitability is enormous. The reason lies in its innovative business model
that is difficult to replicate (See Figure 14). With its aim, building the future infrastructure of
commerce, it envisions that the customers will meet, work and ultimately live at Alibaba, which
enables it a company that lasts at least 102 years (Alibabagroup, 2015c).
In the beginning, Alibaba targeted B2B business as a starting point, integrating businesses areas of
B2B, C2C, software services, online payments, search engine, online advertising and logistics as an
ecosystem, where all the elements influence and support mutually to optimize resources allocation,
and ultimately maximizes value creation as well as achieves the synergy of its industrial chain
(Tolentino, 2014). Alibaba firmly believes that only an open, coordinated and thriving business
ecosystem where its members fully participate can truly help small and medium enterprises as well
as individual users (Udland, 2014). As the manager of such ecosystem, Alibaba spares no effort to
make this ecosystem and its participants develop vigorously (Jack Ma' Speech In Stanford
University, 2011).
0
5000
10000
15000
20000
25000
30000

30
Figure 14: The Alibaba group system
Source: China Internet Watch Team
4.8 Implications for Future Development of Industry
In recent years, the scale of e-commerce transactions continues to increase rapidly. Despite the
global financial crisis, China's e-commerce has been developing steadily prospering with strong
vitality and resilience (Xia and Zhu, 2014). It can be seen from the interviewees’ attitudes towards
future development of China’s e-commerce. They are positive about this industry and believe that
the great potential of e-commerce market could be explored in the future.
4.8.1 Mobile Commerce
One of the new trends for future development of e-commerce is mobile commerce. Popularity of
the mobile devices in China promotes the penetration of mobile shopping. In 2013, 55% of Chinese
consumers used mobile payment in 2013 while only 19% in the USA. Besides, about 75% of
Internet users are browsing websites through their mobile phones (Wang, 2014). Mobile devices are
having significant influences on people's daily lives. However, current mobile e-commerce is still
stuck in the aspects of entertainment. How to explore new business models of mobile commerce
remains to be further considered (Insight, 2015). Due to its convenience and low cost, it is an

31
enormous business opportunities for the e-commerce companies to obtain future competitive
strength.
4.8.2 O2O
According to Xia and Zhu (2014), O2O business - “online market to offline shop” - will be another
key trend of e-commerce industry. Offline shop has the advantages of better experience of physical
goods, immediate availability of products, impulse buying stimulation and close to customer
services (Insight, 2015). While online market is superior in lower cost, massive customer
information for precise position, and the flexibility without restrictions of geography, time as well
as space (Insight, 2015). The online and offline marketplaces will complement each other and make
full use of their different strengths so as to provide customers with multi-channel shopping
solutions in various shopping scenarios.
4.8.3 Integration with other industries
E-commerce is no longer just about IT or the Internet. All companies from a variety of industries
can participate in and be involved in the e-commerce activities. The future e-commerce concepts in
terms of management and business will spread widely into players in traditional industries rather
than focus only to the number of e-commerce operating platforms established. Thus, companies in
traditional industries can take the advantages of the Internet to improve management, reduce costs,
promote efficiency, and expand their business. Allowing traditional industrial enterprises to enter
the world of e-commerce helps the Internet to fully play its role as an opening, extensive and
convenient tool, which will contributes to close connections in every process of future business
activities.
4.9 Implication for Business Model Innovation
After decades of development, Chinese enterprises’ knowledge of e-commerce has reached a higher
level. E-commerce no longer means a kind of simple electronic trading, but close connection with
the business management. Successful business model of e-commerce are usually observed having
these characteristics:
 Firstly, successful business model is able to provide unique value that sometimes refers to new
ideas or innovative combination of products and services. This innovative combination can

32
either provide additional value to the customers or offer lower prices to help customers obtain
same benefits, or to obtain more benefits at the same price.
 Secondly, the business model is difficult for other competitors to replicate. Companies can
raise the market thresholds for entrants by establishing their own distinguished capabilities in
all respects. For example, Alibaba’s ecosystem includes a complex set of networks and
sophisticated management processes, which make it extremely difficult to copy.
 Third, successful business model is down to earth. Management of enterprises should master a
clear understanding of their long-term strategies, financial situation, their customers, their
day-to-day operations, etc. to adapt their business model to the business environment step by
step.
4.10 Conclusion
As a gradual process, Alibaba’s business expanded step by step in the previous 15 years and finally
integrated all types of platforms into its business ecosystem to help Chinese SMEs do businesses.
Unlike those high-tech companies who rely on the sale of a particular product or technology to gain
revenue, Alibaba depends on operating a very large and complex business ecosystem with
numerous partners providing direct and indirect services in different layers of the eco-system and
wide channels all around the world to generate revenue. In the process of developing this innovative
business model, no previous experiences of other companies can be followed by Alibaba. Therefore,
some problems, including inventory accuracy, logistics network and data processing, have
challenged it and resulted in promoting progress on its management capability. Due to the
ecosystem’s complexity and requirement of sophisticated management, it is difficult for competitors
to copy its business model. Regarding the key trends of China’s e-commerce development
indicating the opportunities in mobile commerce, O2O services and integration with other industries,
other Chinese e-commerce companies can be enlightened by Alibaba’s experience to rethink their
business model and embrace innovation.

33
Chapter Five Conclusion and Recommendation
5.1 Introduction
It is clear from the study that the business model innovation has been a key factor for Alibaba to
create value and expand its business. Reviewing its road of growth, Alibaba implemented a wide
range of innovations in various business areas, involving B2B, C2C, B2C and B2B2C, to ultimately
innovate the whole e-commerce industry through integrating all different services in its e-commerce
ecosystem. All these changes are proposed on the basis of understanding customers’ needs and then
business models are adapted to satisfied customers. Furthermore, Alibaba’s business model
innovation reveals a number of implications for e-commerce companies that seek innovation as well
as the industry’s future development.
In this last chapter, the aim and objectives of the dissertation are reviewed to examine the extent to
which they have been successfully achieved. Some weakness of the research methods and design
are then presented before drawing a conclusion that takes into account these limitations. To improve
this study and the relevant topic, recommendations for future research and the company are made in
the final sections.
5.2 Revisiting Aims and Objectives
The overall aim of the research was to investigate how Alibaba creates value through business
model innovation and consider the implication with specific regard to E-commerce industry. In
order to fulfill the aim, four objectives were set and the findings in relation to them are summarized
below.
Objective 1 was “to explore the role of business model innovation in the e-commerce industry”.
This was achieved by carrying out a literature review in chapter two. Business model innovation is
an essential factor for e-commerce companies to gain competitive advantages in this dynamic
business environment. Unlike traditional innovations on products and process, it is a new way for
e-commerce companies to be distinguished from other players and create value. The main issue

34
raised in this related to a lack of systematic understanding of innovating business model in
developing countries.
Objective 2 set out “to ascertain how Alibaba has developed and implemented business model
innovation at different stages of its development”. A methodology to tackle this objective was
developed and a justification for this is discussed in chapter three. From 3 interviews and review of
various documentary sources (e.g., company and industry reports, electronic articles, online videos),
an analysis was presented in chapter four of how Alibaba had developed a prospective business
model through various innovations in different business markets and integrated all types of services
into its business ecosystem to help Chinese SMEs do businesses.
The third objective, “to identify the impacts of innovating business model in terms of value creation”
was addressed in the discussion in chapter 4 as well. In the business markets of B2B, C2C and B2C
e-commerce, the innovations of business model lead to the surprisingly growth of company’s profit,
customers and social networks.
Finally, section 4.8 and 4.9 of chapter four meet the final objective which is “to identify the
implications for other companies in the e-commerce industry” through discussing a number of
implications from the respects of industry development and business model innovation respectively.
5.3 Limitations of Conclusion
The analysis and finding of this dissertation have been limited by a number of factors, which results
in some impact on the conclusion. The study originally wanted to conduct interviews with more
employees, but the amount of senior executives is rare on the whole due to Alibaba’s flat
management structure with up to 25 divisions. Additionally, because of the difficulty of getting
access to them, only three respondents were interviewed in this research. For this reason, their
perspectives might be not enough to reach a general conclusion that represents the views and
attitudes of the majority of senior management.
Another possible limitation is the choices of Alibaba’s different services to discuss in Chapter Four,
which are categorized into B2B, C2C and B2C services. Because the restriction of time and
information collected, some other services provided by Alibaba such as cloud-based computing and

35
O2O services are not analyzed in this dissertation. Although the limitations mentioned above may
have affected the possibility to draw conclusion from the analysis and findings, this study still
presents some interesting and valid conclusions. The next section will suggest how future research
can be made within this topic, which will take these limitations in consideration as well.
5.4 Recommendation for Future Research
Compared to the e-commerce market of developed countries, e-commerce in emerging countries is
still “young”. Thus theories about business model innovation of e-commerce mostly focus on
mature markets in developed regions. Besides, the business model varies from culture to culture, so
some of the existing theories may not fit in with the need of China’s e-commerce. In order to
establish deeper understanding of this topic in China, empirical research is needed and then helps to
extend the research to other developing countries. Besides, its theoretical underpinnings have not
been explored adequately, the need for contributions to theory and practice are pressing.
Another suggestion for future studies would be applying primary data collection methods on a
larger population to obtain more reliable conclusion. Furthermore, in order to gain more
comprehensive understanding of China’s e-business model, studies about new models of china’s
e-commerce such as O2O, C2B and B2C2C should be called for.
5.5 Recommendation for Alibaba
Regarding the intense competition among players in the e-commerce industry, the following
recommendations are made for Alibaba’s future development.
 Improving the technology to ensure the security of customers’ information and payment;
 Reinforcing the control of logistics system and improving the accuracy of inventory;
 Further subdividing the target customers according to their industries and categories;
 Adopting new price strategies and fee-charging patterns to attract new members; and
 Improving customer relationship management to provide better services and reduce
difficulties.

36
Appendices
Appendix A: What is a business model?
Year Author Viewpoint Methodology
2005 Shafer, Smith & Linder …a helpful way to
analyze and convey core
logic as well as strategic
choices for value
creation and value
capture within a value
network.
Conceptual review
2007 Chesbrough Business model defines
a series of activities that
create value and capture
value.
Conceptual review
2010 Baden-fuller & Morgan …is playing
multiple roles in the
corporate management
including exemplar role
models might be copied,
models in the scientific
sense and recipes to
understand the role and
the use. More
importantly, these
characters are not
mutually exclusive.
Conceptual review
2010 McGrath The concept of business
model is defined as a
powerful idea for
Conceptual review

37
thinking and researching
strategies.
2010 Casadesus-Masanell&
Ricart
…is the logic of the firm
about how it operate and
create value for
stakeholders. Also it
reflects the realized
strategy of the firm.
Secondary
analysis—examples
discussion
2010 Teece Business model
articulates the logic,
provide data and other
evidence, which explain
the process of a business
to create and deliver
value to customers.
Secondary
analysis—Examples
discussion
2010 Wirtz, Schilke and
Ullrich
…reflects
operational and output
system ofa company,
and as such captures
the way the firm
functions and creates
value.
Cases study and
in-depth interviews with
business managers.
2011 Cavalcante, Kesting and
Ulhøi
…a systematic
analytical device for
evaluation, action and
addressing innovation.
Conceptual review and
Secondary analysis
2012 Amit and Zott Business model is
idefined as a system of
interconnected and
interdependent activities
that determine the ways
company does business
In-depth inquiries

38
with its stakeholders.
2014 Klang, Wallnöfer and
Hacklin
Business models go
far beyond the value
creation and capture,and
refer to team’s track
record, the financial plan
or the potential risks of a
new venture.
Conceptual review

39
Appendix B: Academic articles about e-business and e-commerce
Year Author Purpose Viewpoint Methodology
2001 Gordijn and
Akkermans
To present
conceptual a
modeling approach
to e-business and
define how value is
created and
exchanged within a
network of actors.
E-business model embodies
decisions that impact other
requirements, especially
business process and
information system
requirements.
Conceptual
review
2001 Amit and Zott To contribute
theories
development of
value creation in
e-business
No single entrepreneurship or
strategic management theory
can fully explain the value
creation potential of e-business
Cases studies
with conceptual
review,
structured
questionnaire
and secondary
analysis.
2002 Massoud To examine most
popular e-business
models and
establish discussion
to facilitate the
growth of internet
commerce.
Model dealing with demand
and is proposed and model
dealing with supply should
support it by accompany.
Secondary
analysis—a
comparative
study
2004 Lumpkin and
Dess
To examine ways
in which
companies are
using the Internet
to add value
Companies should identify the
practices and models that will
enhance firm’s value
proposition.
Secondary
analysis
2005 Jim Wu Provide overall Patent application reflects Secondary

40
picture of the
current status of
business methods
in e-commerce
growth of the business
technology.
Comparative
study of
business model
2007 Kshetri To explain the
‘hows’ and ‘whys’
of e-commerce in
developing
countries.
The economic, sociopolitical
and cognitive factors play
important roles in adapting
business models in the
context of developing
countries.
Single case
study,
Interview with
company’s
management
and e-mail
exchanges
2009 Zhou et al. To analyze China’s
current E-business
model innovation
and its future trend.
There is great opportunity of
e-commerce for China
although business innovation is
needed.
Secondary
analysis
2011 Lin and Hsia To identify core
capabilities that are
necessary for
achieving
e-business
innovation.
13 capabilities are identified as
the keys to e-business
innovation exploration and
exploitation.
Inductive and
qualitative
approach,
in-depth
secondary
analysis
2012 Zhang et al. To identify key
success criteria for
e-business and
consider emergent
models which
integrate the most
value-adding
characteristics
To develop a modified
ontology of e-business from
identifying 14 primary success
factors.
Literature
Review
2014 Guo and Jun To reveal how
e-commerce
application is put
There are four main routes can
be selected to realize the
business model innovation and
Secondary
analysis

41
into use to realize
business model
innovation.
three innovating ways with
different characteristics of each
enterprise.

42
Appendix C: Interview Transcripts --A
Date of interview: 11/02/2015
Company: Alibaba
Q: Hi, sir, thank you for letting me do this interview with you. So how long have you worked
with Alibaba?
A: More than 7 years.
Q: That is really a long time. Why did you choose to join Alibaba 7 years ago?
A: I have worked in accounting firms for 10 years since graduating from university. At that
time, I was in my early 30s. I could clearly know how much money can I earn each year
for the next 25 years and what to do every day. I felt that life is a little boring. One of my
former colleagues also made a significant impact on me. He is my good friend and he has
been outstanding in another Internet company. He did not take the initiative to influence
me, but his experience invisibly influences me. I can see the Internet would have a very
good future. So when the chance came, I went to Alibaba.
Q: What is your main responsibility in the Alibaba?
A: Well, I am mostly responsible for the B2C business group of Alibaba Company including
Tmall and TaoBao business group.
Q: I know that Tmall is the Asia's largest B2C integrated shopping platform, with more than
100,000 brand, so how do you position it?
A: Now its position has been quite clear. Internally, for Alibaba Group, it is the main battlefield
in the field of material consumption, bearing the burden of B2C e-commerce
development. Externally, it will be developed into a diversified, fashion and quality virtual
fashion district. It is not like a shopping mall replica, more like a shopping district, as
Beijing's CBD.
Q: After all these years, you have been one of the most influential people in the company even
in the whole E-commerce industry in China, so in your opinion what is the most
distinguished difference between Alibaba and other E-commerce companies?
A: Well… I think it is how to follow the footsteps of consumers to embrace the change. That is

43
very important. Consumer behavior and habits are changing, and we focus on going along
with the changes to serve them, to change our approach to provide services.
Q: Then how would you describe Alibaba’s business model?
A: Business model is a really big word. I mean, it covers all aspects of a company ‘s operation. I
think Alibaba's business model is to follow a gradual process. Firstly it focuses on the
foundation, and then continues in the implementation process to capture new revenue
opportunities. From the most basic service setting up sites for business in the beginning,
to website promotion as well as ancillary services of online trade credit, order
management of transaction, it continuously extends.
Q: What do you think are the reasons behind the success of the Alibaba’s business model?
A: Like I just said, making changes to adapt to consumers behavior and habits is one of the
reasons. And we encourage innovation. Employees are allowed to make some mistakes.
Diverse talents with diverse ways of thinking are allowed to try and pay a certain price.
They can spend their own energy to do the things they are good at, and I think this is
critical.
Q: What are the main challenges you face in your role that is related to the business
development?
A: Because of some technical problems, some local businesses appeared oversold in the 2012
“Double Eleven” event, which caused great damage. As a platform for businesses, we need
to do something to support the accuracy of the inventory. The turnover of the event has
been reached 936 million in 2010. This figure is not small. The logistics began to feel pain.
Then we found the problems. There was no time to coordinate with logistics partners, so
that they were not well prepared to receive orders. There are problems with their own
inventory.
Q: What do you think are the key trends in the E-commerce industry?
A: Today when we talk about the E-commerce, it is not only about buying clothes, buying a cell
phone, or buying a lottery ticket. E-commerce has been involved in all aspects of life, in all
areas related to broadly consumption. We can see, from the physical to the service, is the
bursting point of E-commerce’s new development.

44
Q: What are the main factors impacting on the speed of development of the Chinese
E-commerce industry?
A: The government plays an important role, like improving E-commerce infrastructure,
implementing of e-commerce facilities, establishing policies to encourage the industry’s
development.

45
Appendix D: Interview Transcripts --B
Company: Alibaba
Q: Hello, sir. I am very glad that you can accept this interview. In the beginning, could you tell
me how long have you worked with Alibaba?
B: Over 10 years.
Q: You must be a veteran of Alibaba company, so why did you choose to join Alibaba?
B: Well…no special reason I am afraid. The E-commerce industry was developing at that time. I
thought it was a good chance, and I seized it.
Q: What is your main responsibility in the Alibaba?
B: I am a senior researcher in Alibaba and responsible for doing research on Internet
Technology related to company’s all business.
Q: It is well known that Alibaba has achieved great success. What do you think is the most
distinguished difference between Alibaba and other E-commerce companies?
B: Take B2B as an example, Alibaba’s B2B model is different. Other companies pay more
attention to help large enterprises save money and save time, while Alibaba devotes to serve
SMEs. There are not so many rich people in the world. In terms of the amount of large
enterprises, the figure accounts for about 10% of all companies. So we have a shrimp and
shark theory: “catching a shrimp means a chance to catch sharks, while catching a shark may
be killed by it in return. Time proves that the theory is correct. Currently, more than 95% of
Alibaba members are SMEs.
Providing platforms or tools for small enterprises to do business they want to do is one of the
most distinguished differences from other companies. Alibaba do not do business directly
online, but as the agents who release information. Alibaba now has a strong flow of
information online.
Q: How would you describe Alibaba’s business model?

46
B: Like an eco-system… it has been constructed in accordance with an e-commerce eco-system
in these years.
Q: An eco-system?
B: Right. For example, you may know that "big Taobao" concept has been mentioned more
than before, the so-called "Big Taobao" means it is open. Apart from the merchants we provide
direct services, we have a lot of partners to give them services, such as IT partners and
logistics partners. We even have a larger second layer and third layer of partners. So this is a
"big Taobao". The partners, direct customers and buyers constitute a business eco-system
based on Taobao’s infrastructure. Taobao is like a park keeper making it filled with towering
trees and even lively animals. What Taobao need to do is to safeguard the environment where
the businesses can develop.
B: I would say it is the team and the culture. Alibaba had a tough time when each employee
took only 500-yuan salary. However, 500 yuan not only retained the original start-up
team, but also attracted new talents.
Q: What are the main challenges you face in your role that is related to the business
development?
B: There are 2 main challenges I think. The first is the logistics. E-commerce has developed to
a certain extent, especially a network like Taobao. It requires a high level of logistics.
Currently, there are millions of parcels to deliver every day on Taobao, which has brought
the logistics industry a lot of pressure. But Taobao is growing at a rapid pace and the
pressure they face will be even greater in the next year. And we are not just talking about
billions or hundreds of billions of transactions every year. We hope that in the next five
years, 2 trillion of transactions can be supported by better logistics system. This is a huge
number.
Q: That is true. What is the second one?
B: The second challenge is the data. Every day, a lot of data is generated, about thousands of G
per day. Such amount of data, which is also very huge in the Internet industry, demands
stronger ability of calculation. So we began to consider cloud computing. With the
development of cloud computing in the future, more services of data storage will be

47
offered by Alibaba.
Q: What do you think are the key trends in the E-commerce industry?
B: Several aspects need to be concerned: the exponential growth of information technology,
the development of cloud network technology, the accelerated release of the great potential of
data and the rise of the Internet economy. Besides, the platform economy will become a new
business ecosystem and large-scale collaboration will become a mainstream. Also,
cross-border economy is reshaping global trade network.
B: Obviously the good environment. It includes high-quality providers of e-commerce services,
who are able to provide one-stop services for SMEs and save their operating cost; more
perfect platforms of credit, payment, and logistics, which help to provide effective
technical support for the SMEs; loose, transparent policies as well as regulations.

48
Appendix E: Interview Transcripts –C
Company: Alibaba
Q: Hi, sir. Thank you for accepting the interview. To start with, could you remember that how
long have you worked with Alibaba company?
C: Yes, of course. I joined Alibaba in 2000. That is 14 years ago. Time flies.
Q: Why did you choose to join Alibaba at that time?
C: You know what, my major is hotel management when I was in the university. And then I
worked in a hotel where I met the boss of Ablibaba. Then I became his employee.
Q: What is your main responsibility in the company?
C: I take charge of the C2C business of Alibaba like Taobao.
Q: So What is the most distinguished difference between Alibaba and other E-commerce
companies in your opinion?
C: The wide channels. Alibaba’s network covers Asia, Europe and America. You can stay at
home and sell your products all over the world.
Q: Then how would you describe the business model of Alibaba?
C: It specializes in information flow and providing large and efficient platform. It offers
personalized services to meet the needs of different consumers. Its successful marketing and
effectively prevention of credit risks also make the brand popular.
Q: I think it is mostly about the consumers’ needs. Right?
C: Yes, exactly. Alibaba places customers above all else. We believe that following customers’
demand will never get lost. Like the rural strategy, which began four years ago, it allows
China's agricultural products to be sold on Taobao to meet consumer demand. In fact, apart
from meeting the needs of customers, that provides the greater social value about solving the
problems in the process of urbanization.

49
C: First, the clear planning of strategy. Mr. Ma has a clear strategic plan at startup: to be the
best business information communication platform in China. Alibaba's history has proven that
the strategy has been putted full into effect. Second, it is the unique mode of promotion and
financing. As a result, Alibaba attracted the VC's attention and aligned with the world's leading
Internet investment firm – Softbank in 2000.
Q: What are the main challenges you face in your role and relation to business
development?
C: The “Double Eleven" promotion event. There is much internal discussion about whether we
should or should not do it. We need 6 months to prepare the "Double Eleven" every year for
the five-minute peak of technology involving software investment, hardware investment, and
cooperation with operators. But we still decide to do it.
Q: I can see that the “Double Eleven” event is really like a festival in China. In your opinion,
what are the key trends in the E-commerce industry of China?
C: I think E-commerce’s development in China is more potential than in the US and European
countries. So is other developing region that is similar with China. The Chinese market is
large enough with hundreds of millions of potential users. And today, there are 300
million people shop online. A lot of transactions may be moved from offline channels to
online channels, or combined with the both to meet the consumers needs better, which
makes it the right time for this industry to flourish.
C: The ability of mobile Internet is necessary, regardless of doing e-commerce or O2O, the
companies need to concentrate on wireless communications.

50
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