Alibaba And Business Model Analysis: Which Is Better?

Zejia Yao profile picture
Zejia Yao


  • The “platform” business model usually generates higher margins than the “direct retailing” model.
  • Alibaba’s platform business model has drawbacks such as lower control of product quality and weak logistic services.
  • The demonstrated customer adherence to Taobao and Tmall marketplace plus the strong executive force in solving problems with its platforms will make Alibaba a more attractive investment opportunity than JD.

Alibaba (NYSE:BABA) and (NASDAQ:JD) are the two largest online retailers in China. In the first half of 2014, Alibaba's Tmall platform commended 57.4% of the B2C market, ranking No. 1 in market share followed by JD with 21.1% of market share. Both companies have been growing their businesses very fast. In third quarter 2014, Alibaba's GMV increased 49% and active buyers increased 52% year-over-year. JD grew even faster with GMV and active buyers picking up 111% and 109%, respectively, for the quarter. Although both companies are riding the trend of accelerated e-commerce in China, I believe Alibaba provides a better investment opportunity primarily because of its "platform" business model.

Alibaba adopted a "platform" model. It derives the revenue from online marketing services and earns commissions on merchandises sold on its platforms, whereas JD is an online direct seller and earns the mark-up from products sold to customers. Although JD has also developed the marketplace for third-party sellers, it represented only 6% of total net revenues. As the cost of acquiring products constituting a large part of the cost base, JD has pretty thin margins. In addition, the fulfilment expense as a result of establishing its own national fulfilment infrastructures also squeezed the margins. To the contrary, Alibaba carries an asset-light business and earns hefty profit margins because it doesn't procure, store and deliver the products itself, but offers a marketplace to sellers, buyers and logistic service providers. The below table summarizes the major differences between the two companies.

Table 1 Comparison between Alibaba and JD

Alibaba JD
Business model Online platform for retailers Online direct sales
Means of making money Earn from merchants through online marketing services, commissions on transactions. etc. Directly procuring, storing and delivering goods to earn a margin
logistics Partnership with third-party logistic

This article was written by

Zejia Yao profile picture
Finance and accounting background, CFA level 3. Currently working in commercial accounting area.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (23)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.