Alibaba.com Drops Fees To Lure Customers
ALIBABA.COM Ltd. is betting that sharp cuts in its fees will let the online trading platform maintain its rapid growth despite a worsening storm for China's low-cost manufacturers.
Alibaba.com, whose Web site provides listings for small-to-midsize manufacturers that want to sell overseas, has positioned itself since its launch in 1999 at the nexus of China's export juggernaut. That's been an enviable location in recent years, as sales of Chinese goods have ballooned. On Tuesday, the company reported a 49% increase in third-quarter net profit to 308.6 million yuan ($45.2 million) from the year-earlier period. Revenue rose 37% to 780.2 million yuan.
But the global economic slowdown has caused widening ripples in China's export sector, where job losses are mounting as some companies are pushed out of business. China's customs administration Tuesday said exports in October grew 19.2% from a year earlier. Exports increased nearly 25% for all of 2007.
Alibaba.com, the Hong Kong-listed unit of Alibaba Group, in which Yahoo Inc. holds a 39% stake, gets most of its revenue from membership fees it charges companies to list on its site. Earlier this year, the company saw signs of trouble when the growth in 'Gold Supplier' members, those who subscribe to its main product with a fee of 50,000 yuan annually, slowed unexpectedly.
Now, Alibaba.com is adopting a new pricing model to keep drawing new members. Last week, it launched a starter package for Gold Suppliers, which offers fewer services for a 60% discount. David Wei, Alibaba.com's chief executive, says the program is aimed at increasing the Web site's paying customers even at the risk of squeezing its profit margins.
'We believe if we can increase our customers, we will increase our revenue later and the process will take care of itself,' Mr. Wei said in an interview. Initial signs are positive: in the first week under the new pricing, total sales were higher than what the company usually gets in a month.
Alibaba.com also remains committed to expanding overseas, Mr. Wei said. He wants to attract more clients in markets including India and Japan, because 'more suppliers outside China will look for [buyers in] new markets like China.' About 4% of its 400,000 suppliers are from outside China today. To that end, the company announced Tuesday a new joint venture with Japan's Softbank Corp.
To ease the worries of hesitant or picky buyers, Alibaba.com recently announced stricter quality-screening policies, including the addition of VeriSign Inc. as a partner in checking the authenticity of suppliers. It also has imposed bans on members who repeatedly violate intellectual property rights.
Mr. Wei says Alibaba.com's target customers -- businesses with 50 to 500 employees -- are able to adapt to market conditions more easily than larger enterprises. Still, some exporters have seen orders fall by as much as half, and some companies are closing shop. Meanwhile, members looking to cut costs are already downgrading to the new, cheaper package, which could cannibalize Alibaba.com's pricier service offerings.
Analysts seem to like the new pricing model. In a recent report, Citigroup said it expects Alibaba.com to see earnings decline in 2009, but that starting in 2010 the company should 'benefit from a more sustainable model, delivering faster growth and higher margins.'
Mr. Wei says Alibaba.com has no plans to slow its expansion, despite the economic slump. He estimates the company will invest 6% to 7% of its revenue on research and development, as in previous years, and will expand its work force by about the same 30% to 40% that it expects to grow this year. |
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