Personal blog of Pedro Neira Ferrand, Serial Entrepreneur and Startup Manager. Endeavor Entrepreneur and BlackBox Connect Alumni .
My views on Internet, entrepreneurship, startups, fundraising and life !
You can check the entire list here for other useful blogs with interesting content for MBA’s and MBA Students here: 100 Best Blogs for MBA Students
Thank you very much to all of you guys for making this selection possible and keep on the great support you’ve given to this humble blog so far !!
Hope to continue to be able to provide you with interesting content, always from the perspective of an MBA trying to survive as an online entrepreneur in the Internet Industry.
Last quarter of 2008 Alibaba, the largest B2B marketplace in the world made a shocking announcement: It would launch to market a new premium product; the “Starter Pack” priced around 60% below its current flagship service, the “Gold Supplier Membership”.
A lot of things have been said that this is a tactical move from Alibaba’s management to respond to the economic slowdown and decline in Chinese exports, but in my opinion it’s much more than that… It’s a complete change in their business model. They are going from: a model based on a small amount of clients paying very large fees (Gold Suppliers paying around USD 7.000 per year and the rest is Free Subscribers) to another scenario where they will have a much broader base of customer paying a lower initial fee (around USD 3.000) and increasing the sales of Value Added Services (VAS). This a fundamental change not a response to the crisis. The objective of this article is to try to show Why Alibaba is making these changes? What business results has led Alibaba’s management to make such an important change of strategy in the middle of an exponential growth in revenues and net income? The short answer is, in my analysis: 1) a decline in Alibaba’s conversion rates and 2) Stagnation in Alibaba’s penetration rates of it’s core market.
Let’s look at these two arguments in more depth and see what the numbers say...
1.- Decline in Alibaba’s conversion rates
(Click on image to see larger/more quality image)
Numbers show very clearly that Alibaba has been having a hard time in recent years to maintain or increase their most important ratios: paying members / registered users. Let’s look at some of the numbers:
Gold Suppliers (GS) as % of total registered users in the International Marketplace has been stagnant at around 0,60% since 2005 and will probably drop to around 0,40%-0,50% in the year ended in 2008, according to my estimates.
China Trust Pass Members (TP-Chi) as % of total registered users in the International marketplace has declined from 1,35% in 2005 to 1,15% in 2007.
Gold supplier and Trust Pass conversion rates (new paying members divided by number of new registered users in the same period)have declined in the last 3 years.
These and the other ratios shown are saying that Alibaba might have reached its ceiling in terms of conversion rates of premium services at actual prices. It would probably be much more costly and margins would decrease if Alibaba wanted to maintain or increase these rates. If they want additional revenue it’s clear it has to come from somewhere else.
2.- Stagnation in Alibaba’s penetration rates
(Click on image to see larger/more quality image)
Another way to analyze the data is to try to find how many companies are paying the “Gold Supplier” subscription as a % of the total number of Chinese exporting companies. To find reliable data from Chinese companies is very difficult. Some of the sources are even contradictory, being in many cases official sources. Nevertheless, I’ve tried to come up with an estimate (details shown in the Excel file at the end of this post) and the result is that in the last three years, Alibaba’s penetration rate has been stagnant around 12%; meaning that around 12% of exporting Chinese companies pay the Gold Supplier rate. A very impressive penetration rate in my opinion, but stagnant for the last 3 years.
Conclusion
It’s not that Alibaba is just lowering prices as a response to the crisis; they are doing it because they’ve reached their own limits in terms of conversion rate and penetration rate in their target market. These findings, together with the fact that around 90% of the keywords available for sale at Alibaba (only paying subscribers are allowed to buy them) remain unsold, called for a change in strategy. Now it’s the right time to move on and monetize the next layer of its customer base.
We’ll have to wait 2009 and see if the company can deliver in making this difficult transition and manage effectively a much broader base of customers. The strategy makes sense… now let’s see next year if Alibaba’s management can live up to the challenge in terms of execution...
You might be interested other articles I’ve written about Online Marketplaces:
Some years ago, it was enough to get many inbound links to get high rankings on Google. It didn't matter from where these links came as long as there were many links that pointed to your website.
As Google and other search engines continually improve the way they rank web pages, getting the right links is crucial if you want to be listed on the first search result page.
Unnatural links can be bad for your Google rankings
Google is able to detect unnatural linking patterns. That is why the following type of links don't work:
Link farms and automated linking systems
Some online services promise hundreds of links in a short time with no work involved. All you have to do is to put some code on your website or to join a system that will help you to get links from other sites quickly and easily.
These automated linking systems don't work and Google can detect them. Actually, Google thinks that you're spamming if you participate in such a system and they might penalize your website by lowering its position in the search results.
Paid links
Google's anti-spam guru Matt Cutts has made clear that Google considers paid links spam. If you don't want to lose your rankings on Google, you should be very careful when buying links.
Natural links have a positive effect on your Google rankings
Natural links are links that make sense to your website visitors. For example, if you have a website about Linux, a totally unrelated link to a car parts website would look strange.
The links that point to your website should be from related websites and from sources that would "naturally" link to you, i.e. Internet directories, social bookmarking services, blogs, etc. The more related websites link to your site, the higher your website will rank on Google's result pages.
How to get the best links to your website
There are a few things that you can do to get as many good links as possible to your website.
1. Create a linkworthy website
If your website is only a collection of affiliate links then you cannot expect that other webmasters will link to your site. Create a website with good content. You might also consider creating web pages whose sole purpose is to get inbound links. This could be "How to" articles, top 10 lists or even a controversial statement.
The more interesting your web pages are, the easier it is to get links from other websites.
2. Contact related websites and blogs
Contact related websites and point them to the interesting content on your site. Do you have an article on your website that solves a specific problem?
Contact websites that also deal with that topic or bloggers who have written about that topic and tell them about your article. Chances are that these websites will link to your site. Our link builder can help you to find and contact related websites and blogs.
3. Submit your website to related Internet directories
Internet directories are an easy way to get inbound links. However, only submit your website to Internet directories that are relevant to your website and only submit your website to the right category.
4. Make it easy to add your website to social bookmark services
Add a bookmark link to your website so that it is easy for your website visitors to bookmark your site.
5. Get links to different pages of your website and vary your link texts
Most links go to the home page of a website. It usually helps to get direct links to the web page that you want to promote on search engines. The websites that link to your website should use different but related texts to link to your site. If all web pages use exactly the same text to link to your site, this will look unnatural.
Getting the right kind of backlinks is very important if you want to get high rankings on Google and other search engines. First of all, create interesting and linkworthy web pages and optimize the content of these pages for search engines.
Make sure that your web pages are user-friendly and interesting. If you then get the right kind of links to your website your rankings will increase.
I’m very happy to communicate to all the readers and followers of MBA Internet Marketing Manager that it has been selected by GraduateDegree.org as one of the best 100 blogs for MBA Students.
