How efficient is Alibaba's Business Model?

Spring 2014

Just a couple of charts that allow us to explore the question: Just how efficient is Alibaba's business model?

The disruptive players in this brave new networked economy have abnormally high rates of expenditure across both Sales and Marketing and R&D. Alibaba is no different. However its performance across the key Sales and Marketing metric has significantly improved over the past 5 years.

It is now an above average performer in a below average category.

The big question is can it improve on this trend and become the next digital "lovemark"?

Alibaba's Sales and Marketing investment vs R&D Expenditure

The relatively high cost of securing and retaining a loyal customer base vs. the efficiency of the business model is best understood by combining two hybrid metrics.

The first is the average revenue per employee. The second is the market cap per employee.

Once these hybrid metrics are mapped we discover that Alibaba's "lists & clicks" model is no more efficient in generating revenue than the traditional "bricks and mortar" model of the US retail sector. But, much like Twitter, its market capitalisation benefits from the assumption it mirrors the efficiency of the networked economies market leaders (i.e. Google and Facebook).

Alibaba's Business Model Efficiency

However there is an important difference between Alibaba and Twitter. Alibaba has been refining its business model for much longer than the current wave of Social Media and Mobile IPO's and so one assumes operational efficiency is already embedded in the system.

The key then to unlocking Alibaba's *potential* becomes less a question of scale and efficiency and more a question of foreign currency valuations.

For example: If the Chinese Yuan was to achieve parity with the US Dollar Alibaba - at 3x Amazon & almost 2x Google - would become the most efficient model in the market.