Alibaba is a Chinese multinational technology company that operates in the e-commerce market. The company provides retail, internet, and technology services. The company first started in 1999 in Zhejiang, China. Its founders include Jack Ma and his team of 17 friends and students. Over the years, it has become China’s largest online retail store and expanded its business to several other countries.
The company went public in 2014, collecting $25 billion in investments. It was the world’s largest Initial Public Offering (IPO) at that time, in terms of funds raised. The company has several ventures such as Alibaba.com, Taobao, and Tmall, all of which raise substantial revenues. The company’s revenues have significantly increased each year.
Alibaba has made a name for itself in the Chinese market by applying existing technologies. The company has expanded through dominating the market at a loss before making a return on additional services. Furthermore, various American companies have tried to enter the Chinese e-commerce market, including Amazon and eBay. However, none of them has been able to beat Alibaba’s businesses and market portion.
Alibaba has been the most profitable among its competitors. The reason behind its profitability comes from its successful operations. Therefore, it is crucial to consider the company’s business model first to understand its profitability and operations.
What is Alibaba’s Business Model?
Alibaba’s business model is similar to Amazon and eBay in terms of online services. However, its business model significantly differs from those companies. Alibaba uses a customized business model that works in China. The main characteristic of its business model is that the company divides its operations into various subsidiaries.
Overall, the Alibaba group generated revenues of ¥717 billion in 2021. It was a 41% increase from the ¥509 billion revenues generated in 2020. The company has enjoyed raising revenues throughout its last few years of operations while getting variable net income. The company experienced a net income of ¥143 billion in 2021, only 2% increase from the ¥140 billion revenues it generated in 2020 which is the lower growth of net income so far..
A summary of the company’s revenues and net income over the past decade is available in the table below.
| Year | Net revenues (in millions) | Net Income (in millions) |
| 2010 | ¥6,670 | ¥-503 |
| 2011 | ¥11,903 | ¥1,608 |
| 2012 | ¥20,025 | ¥4,665 |
| 2013 | ¥34,517 | ¥8,649 |
| 2014 | ¥5,204 | ¥23,403 |
| 2015 | ¥76,204 | ¥24,320 |
| 2016 | ¥101,143 | ¥71,289 |
| 2017 | ¥158,273 | ¥41,226 |
| 2018 | ¥250,266 | ¥61,412 |
| 2019 | ¥376,844 | ¥ 80,234 |
| 2020 | ¥509,711 | ¥140,350 |
| 2021 | ¥717,289 | ¥143,284 |
The revenues of ¥509,711 million that Alibaba generated in 2020 translates to around $71,985 million (or almost $72 billion). Similarly, its total net income of ¥140,350 million translates to approximately $19,821 million (or nearly $20 billion).
How does Alibaba Make Money?
Alibaba divides its revenues by the segment from which it generates income. Given below is a brief description of each classification and how they compare.
Core commerce
Alibaba divides its revenue sources into core commerce and other activities. Within core commerce, the company further divides its revenues into either the Chinese or the International segment. Similarly, it has a logistics and consumer services segment. Lastly, it also has a “Others” category in it.
Chinese segment
The Chinese segment is Alibaba’s primary source of income. It is the revenue that Alibaba generates from its China retail marketplaces. Similarly, it includes revenues from customer management, sales of goods, and commissions.
Given below is a breakup of its revenues from the China commerce retail segment for the last three years.
| Type | 2018 (in millions) | 2019 (in millions) | 2020 (in millions) |
| Customer management | ¥114,285 | ¥145,684 | ¥175,396 |
| Commission | ¥ 46,525 | ¥ 61,847 | ¥ 71,086 |
| Others | ¥ 15,749 | ¥ 40,084 | ¥ 86,268 |
| Total revenue from China Commerce Retail | ¥176,559 | ¥247,615 | ¥332,750 |
As is apparent from the above figures, the majority of the income from the Chinese commerce retail segment comes from customer management. The company generated revenues from customer management worth ¥175,396 million in 2020. It is an increase of 20% from the ¥145,684 million revenues it generated from customer management in 2019.
Similarly, commissions are the second-largest source of income for the company in the Chinese commerce retail segment. The company generated ¥71,086 million from commissions in 2020, increasing by 15% from the ¥61,847 million generated in 2019.
“Others” represents revenues from the China commerce retail segment from Alibaba’s new retail and direct sales businesses. These include Freshippo, Tmall Supermarket, direct import, and Intime. The revenues in the category increased by 115% in 2020.
However, the Chinese segment doesn’t only comprise of commerce retail category. It also includes China commerce wholesale category. It is the revenue Alibaba generates from 1688.com and includes membership fees and customer management. In the wholesale section, the company made sales of ¥12,427 million in 2020. It was an increase of 24% from the ¥9,988 million it generated in 2019.
Overall, the company generates ¥345,177 million from the Chinese segment in 2020. The company’s revenues from the segment increased by 40% from ¥257,603 million generated in 2019. Overall, the Chinese segment is the company’s most profitable segment. This segment accounted for 67.7% and 68.3% of its total revenues in 2020 and 2019 respectively.
International segment
The company also works in the international market. There, the company also operates in the retail and wholesale markets. The International wholesale commerce retail market fetched the company revenues of ¥24,323 million in 2020. This was an increase of 24% from the ¥19,558 million it generated in 2019. The international commerce retail category consists of sales from AliExpress and Lazada. These include incomes from the sale of goods, commissions, logistic services, and customer management.
Similarly, the company generated ¥9,594 million from the International commerce wholesale category. It was an increase of 17% from the ¥8,167 million revenue generated from the same category. This category includes sales from Alibaba.com and primarily includes membership fees and revenues from customer management.
Logistic and consumer services
The company also includes logistic and consumer services in its core commercial activities. The logistics services represent revenues from the domestic and international one-stop-shop logistic services and supply chain solutions provided by Cainiao Network. The company generated revenues of ¥22,233 million in 2020, increasing by 49% from ¥14,885 million in 2019 in logistic services.
From the local consumer services category, the company generated ¥25,440 million, increasing 41% from 41% from ¥18,058 million in 2019. The local consumer services primarily represent platform commissions, revenue from providing delivery services, and other services through Ele.com.
Others
The company also has other activities that don’t classify in the above categories. Therefore, it aggregates revenues from those sources into the “Others” category. In this category, the company generated total revenues of ¥9,337 million in 2020, which was an 82% increase from ¥5,129 million it made in 2019.
Core commerce summary
All the above categories comprise the company’s core commercial activities. Overall, the company generated revenues of ¥436,104 million from its core activities in 2020. It increased by 35% from the ¥323,400 million the company generated in 2019.
Overall, the company generates a significant portion of its revenues from its core activities. Alibaba’s core activities account for almost 85% of its revenues in both 2019 and 2020. The other 15% of revenues come from outside its core activities.
Cloud computing
Apart from its core activities, Alibaba also offers cloud computing services. These contain various services, such as elastic computing database, storage, network visualization services, large-scale computing, security, and much more.
Alibaba generated revenues of ¥40,016 million from its cloud computing services in 2020. These revenues increased by 62% from the revenues of ¥24,702 million generated in 2019. Similarly, cloud computing services accounted for 7.85% and 4.85% of its revenues in 2020 and 2019, respectively. It represents the highest-earning segment outside its core activities.
Digital media and entertainment
Alibaba also makes money from its online platforms, which include Youku and UCWeb. This segment also consists of revenues from customer management and management fee. Alibaba generated revenues of ¥26,948 million in the digital media and entertainment segment in 2020. It saw an increase of 12% from ¥24,077 million generated in the same category in 2019.
Innovation initiative and others
The final segment from which Alibaba generates income is the innovation initiative and other segments. This category consists of revenues generated from businesses, such as online games, Amap, Tmall Genie, and other innovation initiatives. It is the lowest-earning segment among all.
Alibaba generated revenues of ¥6,643 million in 2020 from this category. The revenues generated in 2019 from the same category amounted to ¥5,129 million. Therefore, these revenues increased by 42% in 2020.
Conclusion
Alibaba is China’s largest online retail store. While it has a similar structure to companies like Amazon and eBay, Alibaba’s business model is different. The company generates a significant portion of its income from its core activities. In its core activities, Alibaba makes a substantial amount of its revenues from the Chinese market. Apart from the core segment, the company also makes money from other segments.
