CXO

10 things you should know about Alibaba

Chinese e-commerce company Alibaba has just gone public. Find out what it means -- and why it's a big deal.

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Image: Associated Press

A Chinese company named Alibaba went public this past Friday, with shares opening at $92.70 — a 36% jump above the initial IPO price of $68. More than 100 million shares were traded within 20 minutes; the day's total was over 271 million shares. All in all, Alibaba raised nearly 22 billion dollars so far, making it the biggest US IPO (Facebook brought in $16 billion when it went public more than two years ago) and possibly the biggest one in the world.

You might be thinking, "That's nice, but I thought TechRepublic was a technology site, not a business site." Well, in this case the two are linked (as is often the case). Alibaba's plunge into the stock market pool is making a huge splash and may produce some interesting developments in the technology realm. Here are 10 facts you should know about this interesting situation.

1: Alibaba is the largest e-commerce company in China

Alibaba handles more than 80% of China's e-commerce business — it's larger than eBay. It employs 22,000 workers in more than 100 offices and main operations are located in the Xixi District of Hangzhou, China. The company could be worth up $150 billion U.S. dollars and earned $8.5 billion last year alone. Almost $250 billion dollars passed through Alibaba's systems in 2013, over twice as much as spent on Amazon.

2: Alibaba has several websites

Alibaba isn't just a single site; they own a multitude of sites, each with different functions. Here are some prominent examples.:

Alipay — Online payments

Aliyun — Cloud services

Aliyun App Store — Mobile apps

Taobao — Consumer-to-consumer e-commerce

Tmall — Business-to-consumer e-commerce

As websites go, Taobao and Tmall may look a little unimpressive and dated, but they are largely the powerhouses behind Alibaba's success (and they handle more merchandise than eBay and Amazon put together). Alibaba doesn't sell merchandise via these sites; they provide the environment for trading between buyers and sellers, and revenue is earned primarily through advertising and commissions.

3: Alibaba's websites are involved with 60% of the packages delivered in China

Alibaba has been a boon to the packing and shipping industry, as well as the infrastructure that supports it. Six out of 10 packages sent out in China are sent through one of Alibaba's sites. It has been predicted that Chinese e-commerce will surpass that of the US, Britain, Japan, Germany, and France combined in the next six years, signifying even more potential.

4: Company founder Jack Ma started the company from his apartment 15 years ago

Jack Ma is definitely a character you will be seeing more of. Currently the chairman of Alibaba, he started the company in his apartment in 1999 with 18 initial workers (the name "Alibaba" was chosen as a reference to the story Alibaba and the Forty Thieves). Jack Ma flunked math and his college entrance exams and at one point couldn't get a job at KFC. He went from being an English teacher earning $15 per month to one of the top 35 richest people in the world.

A dynamic personality who once wore a wig and sang "Can You Feel the Love Tonight?" at an anniversary celebration with his employees, Ma has confessed he has minimal knowledge about technology. He has also said he wants the company to last at least 102 years so that it will have spanned three centuries.

5: Alibaba projects a people-oriented culture

Despite being a large company, Alibaba takes its dedication to people — both customers and employees — quite seriously. Its group mission is "to make it easy to do business anywhere." Its culture and values page lists priorities such as "customer first, teamwork, embrace change, integrity, passion, and commitment." Of particular note is its statement that "employees who demonstrate perseverance and excellence are richly rewarded. Nothing should be taken lightly as we encourage our people to 'work happily, and live seriously.'"

6: Alibaba is going after the mobile device arena

To thrive in China's developing retail technology infrastructure, Alibaba will need to stay as nimble and forward thinking as possible in the mobile space, as more consumers (500 million) begin using their phones to make purchases. It's clear that it has made some strategic moves to further that mission; in 2012 Alibaba released a mobile OS called Aliyun, or Yun OS, which is a customized version of Linux. In 2012, more than one million smartphones received it. Alibaba is hoping the OS will become the "Android of China."

7: Alibaba uses Hadoop and a cloud platform called Apsara

According to the Hadoop Wiki, Alibaba has "a 15-node cluster dedicated to processing sorts of business data dumped out of database and joining them together. These data will then be fed into iSearch, our vertical search engine. Each node has 8 cores, 16G RAM and 1.4T storage."

Alibaba has data centers in China and Hong Kong that run a cloud platform called Apsara. According to SEC filing documents, Apsara is "a general purpose distributed computing platform built with proprietary technology that enable servers clusters to perform with enhanced computing power. Apsara offers a suite of cloud services including elastic computing, database storage and services, and large-scale data processing services through web-based API. A single Apsara cluster can be scaled up to 5,000 servers with 100 petabyte storage capacity and 100,000 CPU cores."

8: Yahoo owns a significant portion of Alibaba

Yahoo holds about 24% of Alibaba stock at present but will be selling about 10% of that, which translates to shares worth more than seven billion dollars. This could be a major move for Yahoo, which has sagged significantly from its heyday during the 1990s, when it was the go-to web portal (as anyone unfortunate enough to use the abysmal Yahoo Mail interface can attest). That kind of money could revitalize Yahoo and make it a player in the 21st century rather than a tagalong playing catch-up with the big kids.

9: Alibaba's power is representative of the developing Chinese economy

China's economy is beginning to gain serious momentum, and future developments will be very interesting, for Alibaba and for the country overall. Business operates a bit differently there, since China has an underdeveloped retail infrastructure. There aren't many competitors, so success in China won't necessarily translate to success elsewhere. Alibaba will need to adjust its business model to succeed globally.

10: Not everyone is gaga over Alibaba

Alibaba has racked up its share of critics of both its technology and its potential to deliver profits to new shareholders. Fake goods have appeared on its sites (though Alibaba said it works to remove these). Its mobile OS came under fire by Google as "an illegal Android and Linux fork" because it took elements from Android but wasn't an open source OS. (Alibaba denied the allegation in a public comment.) Its mobile apps store was also plagued in 2012 by a report that it contained pirated Android apps.

Furthermore, famous investors and financial experts, such as Warren Buffet and Aswath Damodaran, said they wouldn't invest in Alibaba, citing reasons such as lack of innovation and a high operating margin (57%). This is a concern in the stock realm, since companies that aren't creative or have high margins may yield fewer profits. Forbes contributor Eamonn Fingleton went so far as to say, "I have seen a few toppy stocks in my time but rarely have I seen anything as blatantly overpriced as Alibaba."

Whether it represents overblown investor hype or offers true staying power that will change the face of the Chinese economy, Alibaba has said "open sesame!" to public interest and will likely be a topic of interest to the fields of business and technology for some time to come.

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About Scott Matteson

Scott Matteson is a senior systems administrator and freelance technical writer who also performs consulting work for small organizations. He resides in the Greater Boston area with his wife and three children.

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