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How Alibaba is Building Up Its Yelp Alternative

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Ele.me operates in over 600 cities and reaches millions of consumers

Ele.me, the online food delivery startup that Alibaba (BABA) is on the verge of swallowing, operates in more than 600 cities and reaches millions of consumers. Additionally, Ele.me boasts an extensive local delivery network, made up of ~2.0 million merchants across China.

By acquiring Ele.me, Alibaba is not only looking to capitalize on China’s rapidly burgeoning online food delivery market but also to leverage Ele.me’s local delivery network to strengthen its local business listing service. Alibaba and affiliate Ant Financial run a joint venture known as Koubei, which connects people with local service businesses.

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Yelp is funded by ads

Alibaba’s China-based Koubei can be seen as a form of Yelp (YELP). Yelp, which last year sold its food delivery operation to GrubHub (GRUB), generates most of its revenue from providing online advertising services. In the first quarter, for instance, advertising contributed 96% of its overall revenue. Advertising contributed 85.5% of Google parent Alphabet’s (GOOGL) overall revenue and 86.5% of Twitter’s (TWTR) in the same period. Snap (SNAP), which is backed by Alibaba’s archrival Tencent (TCEHY), drew 99.3% of its revenue from advertising in the first quarter.

Improving advertisers’ return on investment

Owning both Ele.me and Koubei and having them complement each other could help Alibaba deliver a better ROI (return on investment) for merchants who advertise on its platform. As a result, Alibaba could draw more marketers to its platform and tighten its grip on China’s digital ad budgets. Alibaba, China’s top digital ad seller, controlled 31.9% of the market last year, according to eMarketer.

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