So what is Alibaba.com? Last year I attended Alibaba.com’s Sourcing Fever event in Manhattan, where I had the opportunity to speak with Michael Lee, the company’s Director of Business Development and Marketing. Here’s Michael’s answer; “Alibaba.com is like match.com for finding suppliers. We’re a platform to help buyers find suppliers, but like any relationship, we can’t guarantee it will be a success.” Not the most encouraging response, but I certainly appreciated his honesty.
We like to call Alibaba.com a destination website. This means, it is a single place where international businesses and consumers (AliExpress) can go to discover suppliers and products.
This begs the question; What isn’t Alibaba.com? Alibaba.com isn’t a place where you can source products free of the risks of scam, order inaccuracy and quality uncertainty. According to Alibaba.com’s 2011 annual report, there were 2.24 million storefronts on the International Marketplace (32% year-over-year growth). When you’re talking about such a massive supplier base, there are guaranteed to be some bad apples. But what percentage of storefronts are worth avoiding? The answer is unclear. If anyone can reliably estimate this, please share it with us. Here’s a link to Alibaba.com’s banned paid members.
Is it the business model? Alibaba.com generates the lion share of its revenue from Gold Suppliers on their platform. These “Gold Suppliers” pay upwards of $2,900/year for trustworthiness, I mean premium search rankings and company profile. As a result of Alibaba.com’s historical leniency in approving questionable Gold Suppliers, the platform has suffered an erosion of buyer confidence and the value of the Gold Supplier status has diminished. It should come as no surprise that the number of paying suppliers dropped 10% in 2011.
Buyer confidence is a sacred thing. A friend of mine, Jeff Grass, CEO of BuySafe, the first e-commerce guarantor, taught me about the importance of buyer confidence. It’s very simple; when buyers are confident with the supplier, they make purchase decisions faster, and in higher dollar value. Due to Alibaba.com’s unhealthy reliance on suppliers as a means for monetization, buyer confidence was undoubtedly compromised. Jeff made a great point; without buyer confidence, a marketplace cannot function. Buyer confidence is, therefore, a sacred thing.
Back to the drawing board. One thing is for sure; Alibaba.com is working incredibly hard to repair its tarnished image. Earlier this year, the company delisted its publicly traded shares from Hong Kong’s Hang Seng stock exchange to repair its business model and focus on supplier quality and buyer experience. I have to commend the company for their innovations on this front over the past two years. To protect buyers, the company launched several initiatives. First, AliExpress provides buyers with small sample size orders. Next, Escrow was released to provide a safer payment method. Then, Assurance Plus was introduced, albeit in limited capacity, to refund buyers when goods received are not as described when purchased. Finally, Inspection Service was launched to provide a rolodex of approved Alibaba-compliant quality assurance firms.
The million dollar question. Is it too little too late? I personally don’t think so, it’s still early and Alibaba.com has a massive lead with 27+ million registered international users. Further, the company, especially Jack Ma - a true visionary - deserves a great deal of credit for the incredible opportunity it has created for small businesses and entrepreneurs the world over. Especially those leading China’s rise to dominance.
What are your thoughts?