Alibaba building towards an initial net profit

PUBLISHED : Thursday, 31 January, 2002, 12:00am
UPDATED : Thursday, 31 January, 2002, 12:00am, the Hangzhou-based business-to-business Web site, had an operating profit last quarter and expects a net profit by the end of this quarter.

Founder and chief executive Jack Ma was in Hong Kong this week with other executives to explain the company's plans to focus on the China market and announce a charging regime for Alibaba's customers seeking access to trade information.

Chief financial officer Joseph Tsai said the company's revenue last year was more than US$1 million, but he refused to be more specific.

Alibaba derives between 10 per cent and 15 per cent of its income from Web hosting and building Web sites for trading companies.

The bulk comes from its TrustPass service, which allows firms to access features such as product photographs and third-party authentication.

Mr Ma said the percentage of the site's one million members paying any type of fees 'right now is very, very small'.

The strategy for the coming year will be to shed users who are not active traders and who do not pay fees.

From March, Alibaba will charge for access to information on how to contact companies that post on the site. At present, registered members pay nothing to search for trade leads or look up contact information.

Alibaba will exempt countries with scant traffic, such as Japan, from the new fees, but Hong Kong's 30,000 members will be charged.

More than half the site's registered members are from the mainland and the company plans to focus this year on the 40 sales offices it has there, rather than overseas.

Mr Ma burst on to the Internet scene in 1999 with more than US$25 million in venture capital backing from firms such as Goldman Sachs and Softbank and was featured on the cover of Forbes magazine.

He became widely known for his frantic energy, folksy sayings and grand predictions on the potential for business-to-business Internet trade - especially for mainland companies.

Last year, however, he kept a low profile and focused on moving headquarters back to Hangzhou from Beijing.

The company also moved to less expensive quarters in Hong Kong, brought its software development team from the Silicon Valley back to Hangzhou and hired Savio Kwan, a 16-year General Electric veteran, as president and chief operating officer.

Now the Internet bubble has burst and several of the company's largest competitors have fallen by the wayside or are severely weakened, shades of the old Jack Ma are apparent.

Speaking about the deals Alibaba turned down in the past year - such as putting the company's brand name on clothing, computer monitors and a nightclub chain called 'Alibarbar' - he said: 'One day I will tell the whole story and perhaps it will be made into a Hollywood movie.'

Executives said the company had plenty of cash and no plans to pursue a public listing this year.

Over the past year, the company also quietly dropped its transaction-based business model, in which it took a commission on trades happening through the site.

'We don't think it makes sense,' Mr Ma said.

It draws about 300,000 unique visitors each month. Users place 12,000 requests for quotes for trading partners monthly.

Mr Ma said that it would be several years before Alibaba would go back to a transaction-based model: 'Maybe in three years. It was a good model, but the wrong time.'