Case Study

Ali baba is China’s AMazon. The Biggest Ecommerce web portal in the both B2B, B2C ,C2B Marketing Domain.

Ali Baba is owned by Jack Ma.

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OR mail me at                                                                          Table of Contents S.No Topic Page Number 1. Introduction 2. History  3. Business Model 4. Products and Services 5. Target Users 6. Payment Methods 7. Comparison of Alibaba with other Tech­Giants  9. References

Alibaba A marketplace, a search engine and a bank, all in one. Alibaba is China’s and by some measures, the world’s biggest online commerce company. Its three main sites — Taobao, Tmall and — have hundreds of millions of users, and host millions of merchants and businesses. Alibaba handles more business than any other e­commerce company. One can think of it as a mix of, eBay and Paypal. Customers use Alibaba to shop online, sell unwanted goods and make online payments. Alibaba has two retail sites: Taobao, which features thousands of non­brand name products sold by smaller merchants; and Tmall, which offers brand­name products sold by big merchants. Unlike Amazon, which buys goods from suppliers and sells them to customers, Alibaba has always acted as a middleman, connecting buyers and sellers and facilitating transactions between them. This Chinese B2B trading platform connects buyers in North America and Europe with suppliers from China. Alibaba follows an aggregation of supply model (similar to other early B2B players), helping to solve the pain of global sourcing.

History Alibaba Group was established in 1999 by 18 people led by Jack Ma, a former English teacher from Hangzhou, China. From the outset, the company’s founders shared a belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies. Jack Ma named his company on “Alibaba ­Open Sesame”. Alibaba is a kind, smart business person, and he helped the village. Alibaba opens sesame for small­to medium­sized companies. During Late 90’s, Alibaba Group raised a total of US$25 million from SoftBank, Goldman Sachs, Fidelity and some other institutions. After Alibaba achieved profitability in 2001, it’s sister organization Taobao was founded as a consumer e­commerce platform. Which further established TMall (, a retail website, to complement its C2C marketplace. After about a decade since its inception Alibaba group also beta­launched eTao as a shopping search engine. Alibaba raised $21.8 billion in its debut, making it the biggest U.S.­listed IPO in history after the IPO of credit card processing company Visa in 2008.

  1. Business Model The initial business model of Alibaba was simple ; a facilitate a 24/7 meeting platform for suppliers and buyers around the world. From the start Alibaba did not just connect Chinese suppliers with international buyers, but it had the goal of connecting all importers and exporters around the world to each other. Although other B2B websites have always said “You cannot have a global company out of china , it makes no sense.”. From the very beginning Alibaba was , “the first global Internet emerging from china.” In more technical terms three of the most prominent business models employed by Alibaba are: B2B, C2C and B2C. B2B: Limited the primary company of Alibaba, is the world’s largest online business­to­business trading platform for small businesses. Founded in Hangzhou in eastern China, has three main services. The company’s English language portal handles sales between importers and exporters from more than 240 countries and regions. The Chinese portal was developed for domestic business­to­business trade in China. In addition, offers a transaction­based retail website,, which allows smaller buyers to buy small quantities of goods at wholesale prices. According to some e­commerce analysts. Alibaba is probably the one organization in the world, which has been able to successfully provide a hassle free platform to small to medium sized businesses to carry on over the internet. C2C: Taobao, is Alibaba’s yet another portal, which utilizes consumer­to­consumer model similar to eBay. is China’s largest shopping website, and, which offers a wide
  2. selection of branded goods to China’s emerging middle class. It features thousands of non­brand name products sold by smaller merchants With around 760 million product listings as of March 2013, Taobao Marketplace is one of the world’s top 10 most visited websites according to Alexa. B2C: In 2008, Alibaba Group also established another online website Tmall, to compliment it’s C2C market. Although Tmall is mainly a business­to­consumer platform is known for offering brand­name products. The two sites ( and Tmall) are hugely popular, and collectively account for more than half of all parcel deliveries in China. According to The Wall Street Journal, their combined transaction volume in 2012 topped one trillion yuan ($163 billion), more than Amazon and eBay’s revenue combined. Tmall marketplace is China’s largest business­to­consumer (B2C) online­shopping venue. The site allows visitors to quickly view vendor fees, required deposits and other factors associated with operating a Tmall storefront.
  3. Products and Services Alibaba provides a wide variety of products and services through its various online portals. Some of these are: ● Apparel, Textiles & Accessories ● Auto & Transportation ● Electronics ● Electrical Equipment , Components & Telecom ● Gift, Sports & Toys ● Health & Beauty ● Home , Lights & Construction ● Jewelry, Bags & Shoes ● Machinery, Hardware & Tool ● Metallurgy, Chemicals, Rubber & Plastics ● Packaging, Advertising & Office ● Online marketing ● Cloud Computing ● Logistics Operations ● Electronic Payment Services Alibaba is one of those online resources which claims a “Get everything and anything” availability. A consumer can literally buy products ranging to simple toys to automobiles. Hence, Alibaba is proving to be a one­stop platform where a consumer can choose among a wide variety of options.
  4. Target Users Alibaba Group primarily operated within China, where e­commerce is synonyms to Alibaba. But within last decade Alibaba has expanded to almost all the corners of the world, consisting its user base from about 190 odd countries. Alibaba has been turned into a global organization but still holding China as it’s major focus. Almost 75% of China’s e­commerce market is dominated by Alibaba. China has 560 million internet users ­twice as many as the U.S. who spend an average of 20 hours a week online. Although to get a hold on other emerging markets Alibaba Group has also established offices in the U.S., U.K., India, Japan and Korea. Apart from small­to­medium businesses Alibaba group also provides online platform to individual customers through its parent websites and
  5. Payment Methods Actually Alibaba Group has it’s own payment solution named as Alipay, is a third­party online payment platform with no transaction fees. Other than that, Alibaba also offers many ways to pay suppliers. Six most commonly used ways are Telegraphic Transfer(TT)/Bank Transfer , Letter of Credit, DA/DP, Western Union, PayPal and Escrow. Buyers are advised to consider each option carefully before committing to one. S.NO Methods Conditions Description 1. 30% Upfront TT For buyers: 2.5 out of 5 stars For suppliers: 4.5 out of 5 stars Since many factories need money in advance to buy material for production, 30% Upfront TT is a common payment term for suppliers, especially when dealing with an unknown buyer. 2. 100% Upfront TT For buyers: 1 out of 5 stars For suppliers: 5 out of 5 stars The supplier gets full payment before production starts. This payment method bears the same risk as Western Union and is not recommended when dealing with an unknown supplier. 3. 100% Backward TT For buyers: 4.5 out of 5 stars For suppliers: 2 out of 5 stars If being paid after pre­shipment inspections, it is suggested to use trade terms of FOB. If being paid after receipt of merchandise, it is nearly 100% reliable for buyer cause buyer can cover the whole risk, however, on the opposite, suppliers are not willing to accept this way due to big potential risk of dispute or fraud. 4. Letter of Credit For buyers: 4 out of 5 stars For suppliers: 4 out of 5 stars Highly recommended for transactions that are US $20,000 and above because the bank guarantees the transaction. But complex procedures and high threshold of registered finance may prevent some SMEs from being involved. 5. Western Union For buyers: 0 out of 5 stars Not recommended when it comes to paying suppliers if the payment is not protected by
  6. For suppliers: 5 out of 5 stars escrow on a transaction made online through AliExpress. However, it’s useful when transferring money to known individuals such as family members. 6. Paypal For buyers: 5 out of 5 stars For suppliers: 3 out of 5 stars A popular payment method for buyers as it presents a much lower risk to them. However, it is less popular with suppliers due to difficulties in money withdrawal, high tax rates and uncertain claim of charge back from some notorious importers 7. Escrow For buyers: 5 out of 5 stars For suppliers: 3 out of 5 stars Money is only paid to the supplier after the buyer confirms satisfactory delivery of his/her order. A safe way to buying and selling online because Escrow protects both the buyer and supplier. In terms of innovation, Alibaba is introducing a new secure mobile payment method as it gets ready for its IPO.The Chinese e­commerce giant will get ahead of its competitors Amazon, Google and Paypal with an innovative and secure method of payment using fingerprints instead of passwords. “The biometric technology, including encryption and authentication managed by Huawei, will allow mobile users to confirm payments for a wide variety of goods and services with their smartphones simply by swiping a digit instead of entering a lengthy code,” the company says on its blog. Huawei, the world’s third­largest smartphone vendor by shipment volume , will also employ high­level encryption and verification to ensure only approved third­party applications, such as Alipay Wallet, are allowed to access the fingerprint information for transactions. It’s worth remembering that Alibaba is a pretty safe platform to purchase on. Not only do you have the standard protection that your payment provide gives, but Alibaba hold mostly all
  7. payments in Escrow until the buyer confirms they’ve received the goods and they’re as expected. Until the buyer confirms receipt the seller doesn’t receive the funds. Alibaba also offers some tips for shipping methods:­● Using express companies such as FedEx or DHL You can open the shipment in front of the delivery person. If the item is not what you ordered or if the item is defective due to handling, you have the right to return it to the delivery person. ● Using sea freight shipping method If the item that you received is not what you ordered, do not clear customs! You can always request for a customs officer or a third­party inspection company to conduct an onsite inspection before being issued a customs clearance certificate. If you only inspect the delivery after customs clearance, you might encounter legal hurdles should you decide to dispute the delivery.
  8. Comparison of Alibaba with Other Tech­Giants Alibaba is really a technology company that serves retail customers and controls 80% of the Chinese e­commerce market.Alibaba will compete most directly with on­line retailers like Amazon, EBay or Zalando in Europe, Rakuten in Japan, Kobo in India, Wuaki in Spain and other major on­line providers with strong presence in their home and adjacent markets. Take market capitalization, or the total value of available shares times the value of a single share , Alibaba’s market capitalization value is estimated at $155 billion. That number makes it look pretty small compared to the top three US tech giants: Apple ($593 billion), Google ($400 billion), and Microsoft ($378 Billion). But it compares nicely to Amazon, which also has a market cap in the $150­billion range. And it’s growing. Fig : Revenues of various famous Tech­giants
  9. The comparison is not exactly apples­to­apples. Alibaba’s business model is similar to that of Ebay, in that it is a middleman coordinating sellers and buyers. Alibaba doesn’t house and manage any products itself. “Gross Merchandise Volume (GMV), the metric the company likes to highlight, is the total sum of goods and services transacted on all its sites.” In 2013, Alibaba hosted GMV of $248 billion in transactions last year. That’s more than Amazon and eBay managed to do — combined. And while Amazon takes home a lot more revenue than Alibaba from its fewer transactions, Alibaba takes a much higher net income from its revenue than Amazon. Alibaba now takes home 80 percent of its revenue as profit.
  10. Alibaba’s revenue is the cut it takes out of each sale. In comparison, Wal­Mart’s nearly $250 billion in revenue represents the total value of all the goods purchased along with its built­in margins.This shows how complicated it is to value Alibaba. To really understand how big a deal Alibaba is you’ve got to understand the growth of China’s e­commerce economy and the stronghold that Alibaba has on it. China has over 618 million internet users and they’re spending lots of money. That’s twice the population of the United States, but only half China’s total population. So there’s lots of room for growth in a sector that’s already exploding. In 2010, China’s e­commerce market was $74 billion dollars. In 2013, it was $295 billion. By 2017, it’s estimated to reach $713 billion. And Alibaba is cashing in big time. It controls 80 percent of online sales. Even though it’s not yet putting up the gross revenue numbers of Amazon and Apple, its 80 percent control of the market and 80 percent profit take from its revenue adds up to a huge, massive, crazy, growing amount of money.                                                                   thank you……

Alas!Why Indian students Confused……………?


Most of the Indian students diverge from their ultimate aims, due to lack of practical & mental balance.Forgetting the desire to get the childhood dream .it like this for a middle class student, it would be like parents suggesting them to focus basically on studies, get a well paid job & relieve their fathers from job and any other work.And society tell doings that Karma what and righteousness what is the. their satisfaction;&  no other way tostrive in this world…. Decentralized education system is also responsible for the same.Another problem faced by any common student can be depicted from the below example-

Japanese have always loved fresh fish;But the water close to Japan has not held many fish for decades.So,fishing boats went farther than ever.But further the fishermen went, the longer it took to bring the fish & the fish were not fresh.Then the fish companies installed freezers on their boats;which allowed the boats to go farther and stay longer.However, the Japanese could taste the difference between fresh and frozen fish and they did not like the taste of frozen fish.Then they installed fishtanks& stuffed the fishes in the tanks.After a little thrashing around,fishes were tired, dull, and lost their fresh taste.Finally, they put the fish in the tanks;but with a small shark in just next tanks, very closely kept;to keep fishes challenged and hence are constantly on the move, keeping them alive and fresh…

We are also living in a pond but most of the time are tired and dull.Basically in our lives, sharks are new challenges to keep us active.If you are steadily conquering challenges, you are happy & energized.We all have the resources,skills and abilities to make a difference.So, put a shark in your tank and then see what u do to deserve the best.If the students sort out solutions to the above mentioned concerns, surely there wont be any reason of worry thereafter…

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  • I hate you. I like you. I hate you. I love you. I think you’re stupid. I think you’re a loser. I think you’re wonderful. I don’t want to be with you. I would never date you. I hate you. I love you…..I think the madness started the moment we met and you shook my hand. Did you have a disease or something …….?
  • No ….. this is all the diverting way of society , to cross counter of mind. but some students are divorce of our dreams.

Some Counter-Intuitive Reasons Why Your Startup Can Fail

Originally asked at Quora, the question Why do so many startups fail?”has gathered 100+ answers from successful entrepreneurs, investors, businessman, and startupers sharing their reasons.

Thus, MarketGuru considers top five reasons of fails as follows:professional-uniform-1024x530

  • Co-founders fights
  • Lack of market
  • Late launch
  • “Build it and they will come” mentality
  • Not listening to users

MarketGuru thinks that startups fail when launched at wrong time and when their founders don’t have enough trust in what they do. Product and competition matter, too. But as Seth Godin says, “don’t find customers for your products, find products for your customers.”

Some people claims that those willing to succeed have to “hit the spot in four key areas” and “have a little bit of good fortune.” He visualizes key areas as follows:


more than 100 startups and run five businesses himself reveals the most counter-intuitive reasons why new entrepreneurs fail.

1) Weak Execution

Most failing startups either work slowly or have a huge lack of judgment. Working too hard on product’s features, they forget about the market: they don’t build a customers base, don’t think about the right time to launch the product, can’t identify opportunities, or don’t bother about building strategic connections.

2) No Long-Term Vision

As a rule, young startupers focus on their product’s present features and don’t think about what this product would look tomorrow. It’s close to impossible to convince investors if you don’t have any plans and clear visions of where you want to take the company.

3) Superficial Research

The #1 rule for startupers to remember: you don’t create products for yourself but customers and the market. Many don’t spend time on in-depth research, don’t understand their target audience, don’t see the market needs, or keep on believing.

4) No Team

Another reason why your startup might fail: you have a weak team who has no idea on how business and market works. Technology, marketing, finance, operations – these are spheres your business partners and employees should know inside and out.

5) Lack of Connection

New entrepreneurs often underestimate the power of networking and don’t understand the importance of building influential connections. Some hope that investors would provide those connections, but it doesn’t work that way. Influencer marketing and business relations in media matter.

Speaking about funding gaps, Schultze doesn’t consider them a reason for startup fails. While many talk about money as if it’s a problem, he says that “lack of funding is a function of one of the above issues – not a problem in itself.” He writes that five mentioned weaknesses prevent startups from fundraising.

Thank You……………………


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Richard Edward Baldwin

Richard Edward Baldwin is Professor of International Economics at the Graduate Institute, Geneva since 1991 and Director of Centre of Economic Policy Research (CEPR), London since 2014. He is Senior Editor of Economic Policy since 2014 Founder and Editor-in-Chief of since March 2006. He was Visiting Research Professor at the University of Oxford from 2012 to 2015; Visiting Professor at Massachusetts Institute of Technology (Sep 2002 – Jan 2003 & Sep 1998 – Feb 1999). Previously, he was Associate Professor (1989–1991) and Assistant Professor (1986–1989) at Columbia University Business School.

He is member of the Advisory Committee of the Research Institute of Japan’s Ministry of Economy Trade and Industry since 2011 and member of the Global Agenda Council

  •  distinguished economist Richard Baldwin said: “Regional trade liberalisation sweeps the globe like wildfire”. He was right. Preferential trade agreements (PTAs) increased from 20 in 1990 to close to 300 today, and have become a key feature of the international trade policy landscape.
  • Every country in the world is party to at least one PTA, with Mongolia the last to join the pack when it signed a deal with Japan in 2016. But Brexit, the US withdrawal from the Trans-Pacific Partnership (TPP), and the renegotiation of the North American Free Trade Agreement (NAFTA) have been a major shock for the world trade system.
  • What will the outcome of this shock be? Are we in for a recess, retreat or revamp of regional trade integration? Much depends on how other key players will respond to this shock.
  • Though PTAs tend to be a tough political sell, governments pursue them because they increase productivity and benefit consumers; promote economic policy reform; underpin supply chains; and have other positive implications in terms of regional peace and security. Also, though estimates of the trade impact of PTAs vary, economists agree that they boost trade among members and hence, have positive effects on growth.
  • Back in 2016, negotiations on the TPP, encompassing the US, Japan and 10 other countries in the Americas and the Asia Pacific region, and on the Trade and Investment Trans-Atlantic Partnership (TTIP) between the US and the European Union, dominated the headlines.
  • Expectations were high, as these agreements would cover a significant part of world trade. There were also concerns. A part from the World Economic Forum Global Agenda Council on Trade & Foreign Direct Investment addressed them early on.
  • How would these mega-regional agreements shape the global trading system? Would they be game changers or costly distractions? How would they impact non-members and how would they react?
  • Fast forward to 2018 and the situation is very different. There has been a shock to the system, in the form of the repositioning of the US and the UK. The US has withdrawn from TPP, suspended TTIP negotiations, launched the renegotiation of NAFTA – with threats to withdraw – and initiated the revision of some specific commitments of the Korea-US PTA.
  • The UK post-Brexit repositioning involves undoing a very deep trade integration scheme with the EU, and agreeing on new rules of engagement for a future economic partnership, while replicating or renegotiating some 40-odd PTAs that came with EU membership – not a small task.
  • How will other countries reposition their policies to respond to the current shocks? Is the world in for a recess, a risk of retreat, or a revamping of PTAs? These are the questions of today – very different from those of barely a year and a half ago.
  • Among the challenges, there is some interesting news. The EU is leading a broad expansion and modernisation of its already extensive PTA network with recent agreements with Vietnam, Canada, Japan and maybe soon, Argentina, Brazil, Paraguay and Uruguay (Mercosur), among the most prominent. Under the strategy that the best defence is a good offence, the EU is bringing greater predictability to global trade.

What is vitamin M

Accordingto MarketGuru-…….vitamin M is possible and need for everyone.. How , this is hardcore types question ?I hope anyone can try to give me suitable and perfect answer…what is vitamin M …….A , B, C and every type of productive source they may be tangible or intangible.all supplements is an important to live long life… become any problems?finding the best source of objects to fulfill requirements……. for example ….. you purchase medicine and any different types of source to fulfill the requirement…………………?????? but vitamin M , fulfill the every types of requirements to Human need ….

GST in India

Goods and Services Tax (GST) is the biggest indirect tax reform of India. GST will subsume Central Excise Law, Service Tax Law, State VATs, Entry Tax, Luxury Taxes, Octroi etc. Earlier, there were so many taxes which were levied on goods such as Excise, VAR, entry tax, octroi. Similarly, service tax, entertainment tax, luxury tax […]

What is GST in India?

GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services. GST is a destination based tax which is levied only on value addition at each stage because credits of input taxes paid at procurement of inputs will be available. Thus, the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages

What taxes will be levied under GST?

Since India is federal country, Centre Government and State Government both have powers to levy taxes. Under GST regime, Centre and State both have power to levy GST. Therefore, GST in India is divided into two parts:

1. Central GST (CGST)

2. State GST (SGST)

GST will be divided into two components, one is CGST which is levied by Central Government and other is SGST which is levied by State Government.


However, there will be one more type of GST is Integrated GST (IGST). IGST will be levied on inter-state transactions. Since, there are chances that people will get confused in case of transactions between two persons of two different States and there will be difficulty setting off dues of taxes between two States, thus IGST will be levied by Centre. Now, Centre will apportion the State’s portion of GST from IGST to relevant State.

via What is GST (Goods And Services Tax) in India? — Techinfoseeker



Type of site
Founded January 1, 2000; 17 years ago
Headquarters BeijingChina
Area served Worldwide
Key people Robin Li (Chairman, CEO)
Industry Internet
Services Search engine

Robin Li , (Chairman, CEO)

Baidu Holds Technology Innovation Conference

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Baidu, Inc. incorporated on 18 January 2000, is a Chinese web services company headquartered at the Baidu Campus in Beijing‘s Haidian District. It is one of the largest internet companies, and one of the premier AI leaders in the world. The holding company of the group was incorporated in the Cayman Islands. Baidu was established in 2000 by Robin Li and Eric Xu. Both of the co-founders are Chinese nationals who studied in Peking University and worked overseas before returning to China. In December 2016, Baidu ranked 4th overall in the Alexa Internet rankings.According to the annual ranking of China’s top 100 internet companies which release by Ministry of Industry and Information Technology of the Chinese government, Baidu occupied the third place in 2016’s ranking.

Baidu’s Global Business Unit, formed under the name of DU Group or DU Apps Studio, is an app developer with a wide variety of popular award-winning apps and services, accumulating over 2 billion users worldwide. It aims to provide innovative products, as well as new and exciting business models and ways to interact with technology, through AI and mobile devices. It has also established offices around the world including Brazil, India, Indonesia, Thailand, Egypt, Japan and the United States, with the goal of becoming the core player in shaping how technology works, in every continent. Its award-winning products include DU Battery SaverDU Speed BoosterMoboMarketDU BrowserFacemoji KeyboardDU FlashlightDU SecurityDU CleanerDU Privacy VaultDU AntivirusPhoto WonderDU CallerDU RecorderES File ExplorerSimeji, and more. Baidu also provides an official international and Chinese version of its widely popular online digital distribution services Baidu App Store and Shouji Baidu respectively, both hosting a vast amount of downloadable content and applications from all over the world.

Baidu has the 2nd largest search engine in the world, and held a 76.05% market share in China’s search engines market, the largest in the world, as of April 2017. In December 2007, Baidu became the first Chinese company to be included in the NASDAQ-100index.

As of 2017, Baidu Search released Spider 3.0 which is capable of indexing over trillions of web pages.  Baidu offers multimedia content including MP3 music, and movies, and is the first in China to offer Wireless Application Protocol (WAP) and personal digital assistant (PDA)-based mobile search.

Baidu Brain, the company’s AI-based artificial neural network has achieved a remarkable 97% accuracy rate in voice recognition and 99.7% rate in facial recognition, confirming the success of its AI development.

Baidu Cloud, the company’s cloud arm has received recognition from many industries due to its unique offerings, it adopts an integrated approach that combines capabilities and resources in AIBig Data and Cloud Computing, providing customers with not only storage and computing but also complete solutions and services that are ready to deploy. Numerous companies and organisations have been using Baidu Cloud to increase the accuracy and efficiency of their products and services, as well as developing new technologies. The customer base of Baidu Cloud has increased 10 fold year-over-year, with traffic increasing eight fold and revenue increasing four fold. Recently, it has released the ABC – STACK, a hybrid cloud platform that provides enterprise customers with powerful and flexible solutions to effectively integrate and deploy AI into their businesses.

Baidu Baike is similar to Wikipedia as an online encyclopedia; however, unlike Wikipedia, only registered users can edit the articles due to Chinese laws. While access to Wikipedia has been intermittently blocked or certain articles filtered in China since June 2004, there is some controversy about the degree to which Baidu cooperates with Chinese government censorship.

The company also hosts a music service Baidu Music that has more than 200 million monthly active users, news service Baidu News Feed that has more than 100 million daily active users, and food delivery service Baidu Waimai that has more than 100 million monthly active users. On 4 December 2015, Baidu announced plans to merge with Taihe Entertainment Group to help the service compete with Apple Inc.‘s Apple Music.

In 2017, Baidu announced that its ambitious Apollo autonomous driving program (often called the ‘Android of the autonomous driving industry’, an open source platform for self-driving that includes hardware, software and cloud data services for autonomous vehicles) has over 50 partners (automakers, tier 1 suppliers, component producers, startups, academic institutions, government departments, artificial intelligence and technology companies), including FAW Group, one of the major Chinese carmakers that will work with Baidu on commercialization of the technology. Other partners include worldwide auto companies Chery, Volkswagen, General Motors, Hyundai, Daimler AG (Mercedes-Benz), BYD, Ford, Changan Automobile, ZF FriedrichshafenBAICJAC and Great Wall Motors, as well as global organisations Tsinghua University, Intel, ZTE, Bosch, Continental AG, Nvidia, Microsoft, Velodyne, NXP Semiconductors, TomTom, UCAR, Grab, AutonomouStuff, Horizon Robotics and more.

  • Customers. Baidu designs and delivers online marketing services on via to P4P (“pay for play”) customers and other customers who require tailored online marketing solutions. The auction-based P4P services enable customers to bid for priority placement of their links in keyword search results. The firm believes it was the first auction-based P4P service provider in China. The online advertising services allow customers to use both query sensitive and non-query sensitive advertising services, including text links, graphical advertisements and other forms of online advertising. The P4P customers are those who primarily use auction-based P4P services, and tailored solutions customers are those to whom the firm provides marketing solutions, which may consist of one or more forms of online advertising services as well as P4P services. In the fourth quarter of 2008, the firm had over 197,000 active online marketing customers. Customers keep a deposit with Baidu and are expected to replenish this amount at a certain level. Tailored online marketing solutions are provided on net terms and result in accounts receivable.
  • Baidu Union Members. Baidu Union includes a large number of third-party web content and software providers. Baidu Union members typically incorporate a Baidu search box into their websites. The firm provides high-quality and relevant search to their users, and in return gains the benefit of increased traffic. Baidu has also launched programs through which it displays online advertisements of customers on Baidu Union members’ websites and share the fees generated by these advertisements with the owners of these Baidu Union websites.
  • Industry Overview China is widely perceived as one of the world’s most dynamic economies, given its record of, and prospects for, sustained levels of notable growth. It has more Internet users than any other country and rapidly increasing levels of broadband penetration. According to Analysys International, the Chinese Internet market will more than double in size from 2008 to 2011. Search marketing accounted for 45% of the market as of the fourth quarter of 2007, and it is expected to continue to gain share. As of mid-2008, Baidu was the leader in this segment, with a 64% share of its revenues. In second and third place were Google with 26% share and with 5.5% share. Although history has shown that non-Chinese companies have had limited success in the Chinese Internet segment, formidable competitors are beginning to improve their offerings.There are some ownership issues for internet companies as well. The PRC government restricts foreign investment in the Internet and advertising businesses. Accordingly, Baidu operates their websites and online advertising business in China through Baidu Netcom, a company wholly owned by their chairman, chief executive officer and co-founder Robin Yanhong Li and co-founder Eric Yong Xu, both of whom are PRC citizens. Baidu Netcom holds the licenses and approvals necessary to operate the website and online advertising business in China. They have contractual arrangements with Baidu Netcom and its shareholders that allow them to substantially control Baidu Netcom, but given the structure and regulation by the PRC government, there is no guarantee that they will be able to enforce their contracts despite owning the company.
  • Strategic Analysis Competitive Rivalry: High The online marketing industry in China is very competitive, consisting of domestic firms such as and, and well-capitalized non-Chinese companies including Google, Yahoo and Microsoft. Competition takes place for traffic (aka “eyeballs”) and analytics, demonstrating to potential advertisers that each search engine brings more people with more dollars.
  • Buyer Power: Medium While buyers are highly fragmented (216,000 advertising on Baidu alone), switching between online marketing firms is easily done. Contracts are generally short term (one year or less).
  • Supplier Power: MediumFor online marketers, the most powerful suppliers are those who control the telecommunications circuits through which traffic flows and the data centers in which a company’s data processing equipment resides. Price tends to increase dramatically from the lower-tier providers to the higher-tier ones with redundancy and capacity. Baidu mitigates this power through its telecom affiliate, Baidu Netcom (also owned by Baidu’s largest shareholder).
  • Threat of Entry: Low While just about anyone can set up a website, online marketing relies heavily on two factors: the network effect to generate large amounts of user traffic and the ability to scale computing power to keep up with that traffic. Both requirements cost significant amounts of money in R&D and capital expenditures to implement and maintain.
  • Threat of Substitutes: Medium There are numerous substitutes to online marketing, including newspapers, television, magazines, billboards, and others. However, no medium has the same reach with the same relatively low cost structure. Even highly targeted advertising is available via special-interest websites, although not with the same effectiveness.
  • SWOT Analysis
  • Strength — The company’s strength lies in its brand recognition and strong R&D expenditures. Baidu has spent heavily on advertising to build up its brand as well as on R&D to constantly come up with innovative, new products. So far the hard work has paid off as Baidu has gained almost three quarters of the Chinese market, compared with its next closest competitor, Google, at almost 20% marketshare.
  • Weakness – The company’s weakness lies in its ability to develop the infrastructure quickly to keep up to growing demands. There is a huge Chinese population residing in rural areas where there is no internet available. Also, Baidu’s international expansion to Japan has not provided the same growth as China. Baidu must also weary of government policies in the internet search space as the central government has historically had a heavy hand in not only the content Chinese people are able to view via search engines, but also in determining which companies are able to provide those services.
  • Threat -Biggest threat to Baidu is competition. Although Baidu has enjoyed a first mover advantage, the Chinese search market is still relatively untapped as over three quarters of the Chinese population still does not have internet access. This is changing rapidly as increasingly more users come online each month. Several companies, such as Google, Yahoo, Microsoft, Alibaba, Sohu to name but a few, have developed their own Chinese language services and products to attract customers and advertisers.
  • Opportunity – At the end of 2008, approximately 22.5% of the Chinese population had internet access, with the rural regions of the country actually growing faster than the urban centers. With many more users expected to come online, China plans on improving its infrastructure by rolling out a faster 3G network with construction set to begin in 2011. China already has more internet users than in the United States, and should this pace continue, Baidu has the potential to be one of the largest search providers in the world. However great these opportunities are, Baidu continue to provide new and differentiating services to the Chinese customers simply to maintain its market share. .
  • Financial Analysis.
  • Income Statement Analysis — 99.9% of Baidu’s revenue is from online marketing, known as their Pay for Play (P4P) services. The P4P service enables a customer to place its website link and related description on Baidu’s search result list. The customers make bids to determine how much they are willing to pay for each click to their listings in the search results listed on the website. The amount of the customer’s bid will influence the ranking of the customer’s listing in the search results. The customer pays only when a user clicks on one of its website links. Revenue is recognized when a user clicks on one of the customer-sponsored website links. As prescribed by SEC Staff Accounting Bulletin No. 104, or SAB 104, there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection is reasonably assured at this time. Revenues increased 171%, 123% and 96% in 2006, 2007 and 2008, reflecting extremely strong growth.  The cost of revenue consists of business taxes and surcharges, traffic acquisition costs through Baidu Union, bandwidth costs (i.e., data center and telecommunications fees), depreciation of server equipment, and salary & benefits for operating and technical support personnel. The cost of revenue has hovered between 36% and 37%, yielding a gross margin between 63% and 64%.
  • The largest components of operating expense are selling, general and administrative (SG&A) and research and development (R&D). Selling and marketing expenses primarily consist of salaries, benefits and commissions for sales and marketing personnel as well as promotional and marketing expenses. The firm expects to incur higher selling and marketing expenses as it intensifies brand-promotion efforts. To the extent that the direct sales force sells a greater proportion of online marketing services, the firm expects that selling expenses will increase as a result of increased sales commissions. General and administrative expenses primarily consist of salaries and benefits for general and administrative personnel and fees and expenses for legal, accounting and other professional services. SG&A accounted for 21% of sales in 2008, down from 30% in 2006. R&D expenses primarily consist of salaries and benefits for research and development personnel. The firm expenses research and development costs as they are incurred, except for capitalized software development costs that fulfill the capitalization criteria under SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” R&D expenses were 9% in 2008, down from 9.5% in 2006. The gradual decrease as a percentage of sales indicate that the firm may have achieved some economies of scale in their administration. However, Baidu does note in their most recent 20-F that sales and marketing expenses are likely to increase because of a shift from primarily word-of-mouth advertising to more traditional marketing.
  • Balance Sheet Analysis.
  • The largest assets on the firm’s balance sheet are cash and marketable securities (73% of total assets in 2006 to 68% in 2008) and property, plant & equipment (net) at approximately 18% – 20% of total assets. Most of the firm’s customers do not pay with terms, so accounts receivable are a very small portion of the balance sheet. The firm has also been deliberate with acquisitions, so goodwill and finite intangibles are less than 5% of total assets. Because customers generally have deposits on account with the firm, accounts payable is the largest liability account at approximately 22% of assets. Interestingly enough, this balance sheet item did not seem to grow at the same rate as sales in 2008 (47% growth in accounts payable vs. 96% growth in revenues) but it does appear to hold relatively steady against assets as a whole.
  • Ratio Analysis
  • Profitability — Current assets comprise 72% of all assets. Cash and equivalents comprise 68% of assets in 2008. This compares favorably with other online marketing companies.
  • As with most companies that profit from their intellectual capital, Baidu has relatively high net and operating profit margins, both of which are comfortably over 30%.
  • The return on common equity has been very strong at 42% and while costs as a percentage of sales have increased (from 32% in 2005 to 36% in 2008), they are well under control and can be supported by operating cash flows.
  • Liquidity – Baidu is a very liquid company and solvency (both long-term and short-term) is not an issue. If anything, the ratios suggest that the firm is having difficulty putting its cash to use effectively.
  • The firm’s current and quick ratios are both well above 3. The firm certainly has more than enough cash from operations to support its current and total liabilities.
  • The firm has no long-term debt, and consequently no interest expense obligations whatsoever.
  • Cash Flow Analyas
  • The years 2005 through 2007 were atypical of most startups. While cash flow from financing was positive, so was cash flow from operations (CFO). Cash flow from investing (CFI) was negative, as expected when a technology startup is plowing most of its money into fixed assets (primarily computer equipment). In 2008, the company started repurchasing common shares, making its cash flow from financing (CFF) negative for the first time. Excluding the 2005 IPO, CFF has been near zero for 2006-2008. The quality of earnings has improved over time. The EQ ratio appears to be below 1.0 because of the significant amount of addbacks from depreciation, share-based compensation, customer deposits and accrued expenses. In 2007, Baidu started accounting for gains and losses in trading securities as well. The increase in depreciation and share-based compensation is unsurprising, given the nature of the Internet online marketing industry. Customer deposits for the P4P service are restricted cash and would be expected to increase with revenue. In 2005, these accruals were 285% of net income; by 2008, they had decreased to 73% of net income.
  • Cash Flow from.
  • Operating Activities Cash from Operations has remained strong and consistent for Baidu with the more recent NI/CFO ratio ranging from .57-.67.
  • Strong CFO is a good sign given such a young company, as it has exhibited a quick move towards strong positive cash flows from core operations.
  • Strong CFO will allow Baidu to have substantial assets on hand for expansion and further improvement on existing assets and technologies.
  • Cash Flow from Investing Activities
  • Acquisition of fixed assets is the key driver of CFI and should be expected given Baidu’s rapid expansion and reliance on technology.
  • CFI indicates that Baidu is growing rapidly both through organic growth and acquisition.
  • Short-term investments make up a large portion of CFI activities. Most of these investments are comprised of fixed-rate securities in commercial banks with original maturities of less than one year and are guaranteed. These should indicate that Baidu is looking to preserve cash on hand to use in emergency situations and is managing its cash conservatively when not being used for other purposes.
  • Items within CFI seemed to vary greatly which is to be expected given the variability in the needs of a growing company for expansion and updating of equipment.
  • Cash Flow from Financing Activities
  • Baidu has no long-term debt and all proceeds from financing are in relation to the 2005 IPO.
  • The only other item of note in CFF is the structured share repurchase in 2008 under an existing agreement with a particular financial institution. Similar agreements have been issued for the future and should be expected in future projections.
  • Comparing Company Strategies to Ratio Analysis
  • While Baidu is a company prudently bent on growth in China and the Asia Pacific region, many aspects of its financial statements give the impression that it is a more mature company. This is more evident when comparing the profitability, liquidity and solvency ratios to its North American based competitors Google and Yahoo! which are also targeting the Chinese and Japanese markets and implementing similar strategies for acquiring new users.  In a relatively short period of time, Baidu has managed to handily outpace both Google and Yahoo! on virtually every significant profitability ratio. Certainly, Baidu’s higher capital structure leverage ratio and its ability to keep SG&A cost low help explain some of the discrepancies between its peers. It is evident that both Baidu and Google are able to take advantage of their scale in the markets they compete in. The rapidly growing Chinese internet space has certainly provided significant cash flows to Baidu. It is interesting to note that, Google also struggles to make efficient use of its cash flows. Yahoo! is certainly the weakest firm in this regard, but has started to make improvements over the past twelve month period. All firms have no long-term debt and, except for Yahoo!, any other liabilities are easily covered by operating cash flows.
  • Forecasting
  • Income Statement Revenue is the primary driver for the forecasted financial statements. While the firm’s CAGR is almost 130% in 2008, no company can sustain that level of growth. At this time, 99.9% of sales are derived from online marketing in China. Although the firm is attempting to grow other sources of revenue, the forecast assumes that the firm will continue to see online marketing as its primary source of revenue, much as Google has found it difficult to generate sales apart from its online advertising efforts. The three major drivers of expenses in an online marketing firm are cost of revenues; selling, general & administrative; and research & development. All of these remained relatively constant as a percentage of sales in the past. However, because of competitive pressure and potential diseconomies of scale, the following assumptions were made in forecasting.
  • Cost of Revenues: The growth rate for this expense was held steady in all scenarios at 37% of revenues. This expense item consists of business taxes and surcharges, traffic acquisition costs, bandwidth costs, and IT operations and technical support personnel. The group believes that these costs will continue to increase linearly with sales.
  • Selling, General and Administrative: These costs will jump in 2009 for all scenarios based on the 20-F forecast that the company is switching from a “word of mouth” model to a more serious marketing effort. The best case scenario assumes economies of scale as SG&A falls from 26% of revenue in 2009 to 23% of revenue of 2014. The likely case assumes 26% of revenue every year. The worst case assumes diseconomies of scale, resulting in an increase from 26% of revenue in 2009 to 29.4% in 2014.
  • Research & Development: Research in 2009 is expected to grow as competition heats up. Year over year growth starts at 9.5% and grows 2%, 5% or 8% year over year for the best, likely and worst-case scenarios (respectively). Other income statement items forecasted include:
  • Interest Income: Interest income is assumed to be equal to the average cash balance multiplied by the implied interest rate (4.1%).
  • Income taxes: According to the 20-F, online marketing corporate taxes are expected to be 15% from 2009 forward. That statutory rate is used going forward, as the forecast assumes that most of the firm’s revenues will remain online marketing. Income statement accounts ignored for lack of data include non-recurring gains and losses, other income / (expense), interest expense, minority interest in earnings and cumulative effect of changes in accounting principles.
  • Balance Sheet For balance sheet items, forecasting was affected by three major accounts: fixed assets, cash and accounts payable. The following calculations were generally the same for all scenarios, except fixed assets.
  • Fixed assets: Internet-based companies require tremendous amounts of computer equipment to handle all of the traffic they receive. With 1.1 trillion searches in 2008, this firm is no different. Fixed assets (net) are expected to grow in some proportion to revenue in all scenarios. As equipment is depreciated over 3-5 years, the expected growth rates must take into consideration replacement costs. Because of this, the fixed asset CAGR for the best case scenario is 27% (+1% over revenues), likely case is 32% CAGR (+5% above revenue) and worst case is 31% CAGR (+21% over revenue). The reason for the tremendous jump from likely to worst case is the accelerated replacement rate.
  • Cash: Cash was targeted between 59-64% of total assets. The initial calculation was based on that year’s total assets plus implied dividends.
  • Marketable Securities: Marketable securities were held to the average percentage of marketable securities to cash over the prior three years.
  • Accounts Receivable: Accounts receivable were held to a constant percentage of sales.
  • Other Current Assets: This account includes prepaid expenses, advances to suppliers, interest receivables and other miscellaneous accounts. This was held to a gradually decreasing percentage of total assets based on prior trends.
  • All other asset accounts (e.g., deferred tax assets) were forecast as a constant percentage of total assets.
  • Accounts Payable: This item consists of several components including customer deposits, accrued expenses, deferred revenue and deferred income. Of these components, customer deposits and accrued expenses comprised approximately 90% of the account, split equally. Based on prior trends, this account does not appear to correlate with revenue and thus was forecast as a percentage of total assets.
  • Deferred Revenue: Includes any development contracts paid for by customers but not actually delivered by the firm. This was forecast as a constant (and small) percentage of total assets as there appeared to be no correlation with sales.
  • All other liability accounts: The firm has no debt, long- or short-term.
  • Additional Paid-In Capital: As the company appears to be cash flow positive going forward, there was no need to project additional capital. Thus, the value of this account was held constant going forward.
  • Accumulated Other Comprehensive Income: The firm holds cash and marketable securities in U.S. dollars. Assuming further devaluation of the dollar and/or appreciation of the renminbi, foreign exchange losses will continue to rise. This loss in AOCI is expressed as a constant percentage of total assets.
  • All other shareholder’s equity accounts: The firm pays no dividend and has no plans to buy back stock. No changes were assumed in the forecast.
  • Cash Flow Statement.Cash flow items were derived from income statement and balance sheet amounts.
  • Valuation Industry analysis for online companies typically uses free cash flow, as most Internet-based companies do not yet pay dividends. Using the FCFE model of valuing stock shares based on facts and expectations about the company’s future, company’s business, future cash flows and likely risks three scenarios are being considered – likely, best and worst. The prediction is given in the table below: The weighted average cost of capital was determined to be 9.33% with a market risk premium of 6%, a risk-free rate of 3.21% and an industry beta of 1.02.
  • Share price valuation indicates that the firm is significantly overvalued, even in the most optimistic scenario prepared for this analysis. Worse yet, the risk-free rate is currently distorted by the Federal Reserve’s quantitative easing. Should the risk-free rate go up as expected, the valuation gap between the firm’s price today and its present value will deviate even more significantly.
  • Sensitivity Analysis – The sensitivity analysis demonstrates that a 1% drop in long-term growth rates will result in an 18% drop in share price. However, the discount rate used for the analysis is even more significant, as a 1% increase in the discount rate results in a 23% drop in share price! This is to be expected from a high-risk, high-growth firm that pays no dividend. The future reward (i.e., the present value of the 2015 perpetuity) is worth 96% of today’s share price valuation.
  • Special Difficulties – High growth companies are difficult to model. The team decided on relatively logarithmic growth, which turned out similar to analyst predictions .
  • 20-F is still GAAP, so interpreting the financial statements worked better than expected. However, some accounting items were found in unusual places.
  • Some balance sheet assets found in strange places.  Customer deposits, prepaid expenses, etc.
  • ROA decomposition did not seem right because of high cash balances; used Google ratios as a sanity check.
  • Worst-case valuation was negative, so the team adjusted cash flow held back for operations to a more reasonable level.BAIDU 20-F (2005, 2006, 2007, 2008) – Securities and Exchange Commission, EDGAR.
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