The global e-commerce platform’s business model is built around the premise of making it easier for distributors and manufacturers of any size to do business around the world, says Caplan. B2B companies that join for a $2,400 fee will have a ‘storefront’ that is visible to the world — without a requirement to share commissions or customer data.
With hundreds of events targeting small businesses in the United States planned for 2020, Alibaba Group wants the U.S. market to know the China-based B2B marketplace is open for business in America. The website, Alibaba.com, has been accessible to Americans for more than 20 years, ever since former teacher Jack Ma founded the e-commerce platform in 1999, but it was just last summer that the platform opened up to U.S.-based sellers. Since expanding its seller base on July 23, 2019, Alibaba Group has already met face to face with 10,000 businesses, according to John Caplan, president of North America B2B and chief growth officer, global B2B for the billion-dollar company.
MDM sat down with Caplan at the recent National Association of Wholesaler-Distributors Executive Summit to discuss how Alibaba’s business model works and what distinguishes its relationship with distributors from other platforms.
MDM: Who is your customer?
Caplan: We are a B2B e-commerce platform aimed at helping small- and medium-sized manufacturers, distributors and wholesalers source and sell globally. I believe how your business model is structured proves who you are, and our business model is to be an ally to business owners and distributors. We charge an annual fee to join the platform and then folks can buy ads to drive more traffic to their content or their goods or capability. We do not take a commission on what people sell, like some other folks do, anywhere from 5% to 30%. And we don’t have any first-party goods on our platform. Our business is to be a technology solution to help distributors and manufacturers here in the United States and around the world — make it easier for them to do business anywhere, with everyone.
Specifically, as it relates to data, when you sell on Alibaba.com, you own the customer relationship; the customer is actually buying from you, not from Alibaba.com. The platform has built-in CRM tools, including real-time translation services, so you can engage with and message folks using the Alibaba.com platform.
How we use data is actually to help the customer get more leads. Our whole data engine is designed to drive more qualified buyers to the folks who are selling on our platform. Right now, there are 6 million people and business buyers on Alibaba.com from around the world looking to buy from another business. They’re there because we have the world’s greatest supply. We have simple-to-use tools, we have integrated messaging, logistics, financing services to make it easy. And our job is to matchmake that demand with distributors’ and manufacturers’ supply.
Everything we’ve built is designed to empower the folks who sell on our platform to grow and the folks who buy on our platform to buy more efficiently, to have more margin in what they’re doing, to operate more successfully.
MDM: Are there degrees of access to that data, such as consulting services that distributors can purchase as an add-on?
Caplan: No. If you join the platform as a seller, you join the platform as a seller. When a seller logs in to the dashboard, they receive a ton of information about how many people are visiting their products, which of their products are the most popular, etc. Then, as sellers use the CRM, they can see, ‘Oh, Customer A inquired about these products. I sent them a proposal on this day but I haven’t heard back. So maybe I should send them another one or pick up the phone and call them.’ The platform is designed to be the tool that a distributor or manufacturer can use nationally and globally instead of working locally to unlock their potential.
MDM: What is your revenue model? It is a per-SKU transaction?
Caplan: This is probably the single most important point for people to understand. Alibaba.com is a global B2B platform. It’s B2B only. If you want to sell on the platform, you join and pay a membership fee. It’s an annual fee and only a couple thousand dollars. That’s all you’re obligated to spend. If you want to get more leads to your store, you can buy keyword advertising to drive more traffic to, say, blue knit ties or the Pacific Northwest, whatever would be the appropriate keywords. And those keywords are a CPC, meaning sellers pay per click on the leads they get. The machine recommends what keywords they should buy based on the traffic they’re seeing.
It’s actually very similar to the way a good search engine works. I go to Google because most of the time the stuff that I want to find is in the organic search results. Our organic results are also powerful. And then, as the seller, if you want to do more based on the leads coming in, you can buy more and they’re identified as [sponsored.]
The other difference — I think it’s important that we talk about this — B2B e-commerce requires effort.
We’ve seen the most successful folks who sell on our platform are dedicated to it. And what they do is respond to their inquiries quickly. Just like the analog world, if you get 500 inquiries in a month and you respond to them all in eight hours, you sell a whole lot more than if you get 500 inquires in a month and you don’t respond to them.
The more robust the content about your products is — great pictures, description, video, for example — the larger response you’ll see. It has a really positive correlation with sales because a business buyer likes to see the content around the products. And distributors have some unique advantages. For example, if you’re a distributor of tractors to a segment of the population that is buying tractors for peach farming, you may know the capability of this tractor as it relates to this kind of work, this kind of farm. Content with that type of end user insight and understanding is very powerful in our platform. So, responsiveness, content and responsibility turn into negotiating the price and being available to have that conversation.
MDM: How do you deal with market segmentation and manufacturer selling rules?
Caplan: When you join Alibaba.com to sell, your storefront is visible to the world. You’re joining once and you’re able to sell to 190 countries. When you market, you can geotarget your marketing. So really you can drive the traffic you want to your business. If you’re a U.S.-only distributor, you can promote your goods in the United States.
MDM: With the open website, can anyone see your pricing?
Caplan: Think of every listing on Alibaba.com as, in some ways, an ad for the capability of the seller. It’s photos and robust product descriptions, and then you can communicate your minimum order quantity and a price. But the vast majority of goods that are sold on our platform — more than 90% — happen through a buyer/seller negotiation. So, if I go on JCrew.com to buy a tie that is priced at $96, I don’t expect I can send them an email and offer them $72 for it. At Alibaba.com, if someone is a distributor or manufacturer of ties, I can do a few things. I can message them and say, ‘Can you make it a different pattern?’ And that happens a great deal on our platform, the development and relationship between buyers and sellers for customized goods.
I could also message the seller and ask for a price break if I buy 10,000 ties or a faster delivery time if I only want 100 as a sample order. If you’re not offering customization but your capability is price breaks, delivery times, some of the other core strengths of a distributor, you can also use the platform to communicate that to customers based on the amount of goods they’re buying.
MDM: Is it possible for a distributor to create customized pricing for individual customers?
Caplan: With each customer, once you quote them, you are able to continue to manage that price. But there isn’t a private portal set up. It works much more like a CRM selling experience than a private marketplace experience.
MDM: Do you have the capability for multiple distribution companies to use you as a collective, a way for them to come together as partners?
Caplan: We haven’t done that. My recommendation would be for distributors to all set up storefronts on the platform. If I’m a distributor of tractors in the Pacific Northwest and a lead comes to me for someone in the Northeast, the community is small. I might message or pick up the phone and call my colleague in the Northeast and say, ‘Hey, this is a good lead. You might want to work with them.’ I think that’s a neighborly thing to do. The platform doesn’t enable that capability, but you get out of this world what you put into it.
MDM: Can distributors connect to Alibaba.com from their own home page?
Caplan: Some of our most successful and entrepreneurial U.S. sellers have their own online presence. If you don’t have that, start there. Once you have an online presence, then join Alibaba.com and buy lead gen and ads on the site. Some of them are buying ads themselves to drive to their Alibaba.com store because it actually converts better than their own platform.
As a distributor, how do I market my online presence effectively? Well, there’s a few variables in there: What you pay for the traffic you buy, how qualified it is, what people experience when they come to your website and how effective that site is in converting them. Alibaba.com is — I say with the appropriate amount of humility — the most effective B2B conversion machine on the planet.
MDM: It’s pretty clear when you lay out your value proposition versus Amazon’s that you don’t see them as a direct competitor. Who is your competitor?
Caplan: I think we’re a unique platform. Certainly, we have the dynamics of a marketplace. Because many people sell here. There’s a lot of demand here. We are a technology tool and a data tool to unlock the power of [businesses]. We’re more of an enabler. There isn’t another platform like us here in the U.S.
We’re an ally. We’re saying, ‘Hey, we’re really good at this technology. We have a lot of demand here and we have a business model that proves we’re here to help.’ It’s not competitive. The cost of the investment to get in is low. It’s a modest investment. The reason why we priced that way is to telegraph that in the value of the relationship we want to provide more value to our partners than we extract from them. That is the culture that is Alibaba.com and it works well.
The other thing I think is important to add is that transformation for distributors is painful and hard and risky. Joining Alibaba.com isn’t going to disrupt your company. You’re going to still do your business the way you did it. But it’s going to help you learn a new way to engage with global buyers that may make you smarter about what your business looks like 30 years from today.
We’ve spent a lot of time talking about us as a platform to sell. Distributors can use Alibaba.com to source. If you need raw materials or you need goods or you want to extend your assortment, sourcing here is a powerful way to do that. What we’re seeing is both sides of our marketplace are serving the needs of distributors. Because if you can buy effectively and pick up margin that goes into your operations, you can invest that in your own transformation.
Let’s say the guy who’s selling copper wire has 50-year established manufacturer relations. Well, those people that are buying that wire might need gloves and tools. You could source that on our platform and add it to your assortment and then boost your margin. That’s the kind of flexibility we want to have. And since the business model is the same for everybody on the platform, when you’re buying those gloves, the person who’s selling them to you paid the same entry fee, $2,400, to get on the platform.
It’s an interesting economy where distributors, manufacturers, wholesalers are sitting together because they actually provide different parts of the value chain. A manufacturer may make great products, and you want to source it directly from a manufacturer, but it’s gonna take 60 days to come and it’s all customized. And the minimum order quantity is a million units. Or there’s the distributor who’s a ZIP code over who will sell you a box with 12 units and it’ll be there in four hours, and they’ll give you 30-day terms on it. Providing a digital platform that enables all of that trade to take place is really what we’re trying to unlock for people.
MDM: What’s your target in terms of size of distributor?
Caplan: Alibaba.com is built to unlock the power of entrepreneurship, and whether that entrepreneur is a five-person company or a 500-person company, success has to do with mindset more than number of people. The most successful folks on our platform are the people who use it, take good care of customers and are embracing new ways of doing business. So, it has more to do with the mindset than the size.