Alibaba Case Study

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1.Lock-in effect is the phenomenon whereby technologies remain dominant as a result of large sunk investment costs, complimentary technologies, and widespread usage. Since Alibaba.com is the first portal market mover in China, it will be difficult to create another portal market which is just as successful as Alibaba.com. The lock-in effect causes people to have preference for Alibaba.com than any other portal market because they have already established their brand. Some customers also develop loyalty while other prefer brands that are familiar to them. It was also mentioned that many of Alibaba.com’s registered members are happy with the results they obtain, as indicated by the annual membership renewal rate, which exceeds 70%. This just further proves that it will be very difficult for a second mover or a new portal market to compete with Alibaba.com since they provide excellent service to their customers.

2.Alibaba.com charges foreign sellers an annual fee of about $400 for a TrustPass membership because he sees that global companies focus in doing business with large companies. In order for global companies to do business with SMB’s in China and all over the world, Alibaba.com created an affordable deal which is the annual fee of $400 for a TrustPass membership. However, SMB’s in China pay $8000 as their annual membership fee because by being members of Alibaba.com, these SMB’ save a handful amount of money; by being registered to Alibaba.com, they no longer need spend extensive money to travel and meet with suppliers. This fee is also charged because Alibaba.com translates and lists their information. In summary, Jack Ma charges SMB’s a higher price because companies like these needs Alibaba.com. However, it is Alibaba.com that needs the foreign companies in order to work with SMB’s that are pursuing to do business internationally.
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