Alibaba & JD.com: Monetisation Lessons from China's Leading Marketplaces

When talking about successful marketplaces the same cohort of unicorn companies always comes to mind: Uber, AirBnb, Amazon and Farfetch (alongside a couple of others). After all, they are valued at $1B+ for a reason and fellow platform entrepreneurs could (and should) learn from them.

Alibaba & JD.com: Monetisation Lessons from China's Leading Marketplaces

When talking about successful marketplaces the same cohort of unicorn companies always comes to mind: Uber, AirBnb, Amazon and Farfetch (alongside a couple of others). After all, they are valued at $1B+ for a reason and fellow platform entrepreneurs could (and should) learn from them.

The other marketplace cohort that might not be as well known globally but definitely worth drawing inspiration and learning from is China’s platform leaders: the Alibaba group marketplaces (Taobao, Tmall, Alibaba, Juhuasuan, 1688, Aliexpress) and JD.com. I want to draw your attention to how they monetise their marketplaces, and hope you get some inspiration and make more money as a result of it (lofty goal but one can hope!).

First, let’s lay some foundations. Multisided platforms, Chinese or not, generally monetise one or more sides. Some of the most widespread marketplace monetisation strategies are the following,

  • Sales commission or sales fees
  • Listing fees
  • Premium listings
  • Advertising, featured listings, PPC, etc.
  • Add-on services (ie marketing, shipping)
  • Subscription and membership fees (monthly or annual)
  • Selling data to 3rd parties (like trend forecasting agencies or researchers)

Given marketplaces' relatively thin margins (that we discussed last week) it doesn’t take a rocket scientist to understand that the most successful marketplaces adopt hybrid (aka multiple) revenue models to finance their growth. For instance, Amazon (referring to the marketplace part here) takes 6-20% sales commission, heavily commercialises on advertising/promos, charges pro vendors listings and membership fees, and also offers warehousing and fulfillment solutions at extra costs. That’s quite a solid marketplace commercial strategy right there.

If you look at the Alibaba Group marketplaces or JD.com though then you will discover an even wider and more interesting monetisation menu. As a rule of thumb, Chinese marketplaces charge lower sales commission compared to their Western counterparts but make money on other things. For instance, if we look at Alibaba marketplaces they make money via 20+ revenue streams,

  • Commission on transactions. Mostly concentrated in a 2% and 5% tier, distribution further varies between 0,5% to 10% depending on the category.
  • Deposit fees: taken from vendors to secure the quality of products sold. For Tmall between $6K-17K per vendor.
  • Annual membership fee.
  • Additional charges for partner schemes that include daily operations, customer service, logistics, and e-commerce management.
  • Aliexpress payment gateway fees.
  • Annual technical service fee: between 2 and 5% (of total sales) per year (JD.com charges the same fees for tech).
  • Data analytics.
  • Customer targeting. Vendors can not only pay for ads but also specifically target users they want to attract (think of it as Facebook ads targeting).
  • Storefront fees: monthly subscription fees for Wangpu, Alibaba’s storefront software that includes a suite of tools that assist sellers in upgrading, decorating, and managing their storefronts.
  • Software fees for POS.
  • Premium storefronts (ie featuring videos, etc.)
  • Import/export business solutions like custom clearance, value-added tax, VAT, duty refunds and more.
  • Online marketing services consisting of the following,
  • P4P, or pay-for-performance, marketing services.
  • Display marketing services/Placement services.
  • Taobaoke program - commissions to Alibaba based on a percentage of GMV for transactions settled through Alipay from users sourced from third-party marketing affiliates.

JD.com is less creative than Alibaba when it comes to monetisation, however they also offer a couple of interesting commercialisation options,

  • Deposit, on average $15K. If a vendor manages luxury brands such as Chanel and Dior, then they need to pay a deposit of up to $30K.
  • Financing for vendors (i’m genuinely surprised this is not coming from Alibaba given how much effort and money they invest in small businesses)
  • Platform usage: $1K PA
  • Technical service fees: 2-5% range

Adopting multiple revenue streams not only generates more money for marketplace operators and diversifies risk, but it frequently offloads heavy charges from one side of the marketplace and offers greater flexibility and alternative “payment” options to all parties involved.

Do you know of other interesting ways to monetise a marketplace? Share in comments!