Analyzing ecommerce; Amazon vs. Alibaba

alibaba-vs-amazon-docThe eCommerce phenomenon is defining both the present and future success of any business; small or big. Small or large businesses can leverage on eCommerce for prosperity; particularly small business success can be achieved through eCommerce. The tales of Amazon and Alibaba are a great illustration of just what leveraging eCommerce can do in growing small businesses to such world giants. To begin with; let us get to briefly know who Amazon and Alibaba are in eCommerce.

Unique business models; selling

software vs. selling stuff

Both Amazon and Alibaba are renowned pure ecommerce websites but with very distinct business models; Amazon massively retails both new and used goods while Alibaba operates as a middle man between sellers and buyers offering a website where the two meet.

Amazon sells its goods and services directly to its customer base with the goods stored in Amazon’s large network of warehouses. Most customer’s view of Amazon is that of readily available stocks with relatively low prices. Amazon also allows other retailers to use its platform in selling their products and Amazon gets its commission by retaining a given percentage of the sales. Amazon also has a subscription based business model dubbed Amazon Prime. With Amazon prime, customers pay an annual subscription fee which secures for them a two-day or one-day free shipping for their eligible products. In addition, such customers can access streaming media like digital music and movies. Amazon also generates its revenues through selling its e-reader, kindle, eBooks, and mobile applications for kindle readers.

While Amazon dominates the US eCommerce market, Alibaba commands a whole 84% market share in China. While Alibaba has several other businesses, its core business is that of a middle man; connecting buyers and sellers through its vast network of websites. Its largest website, Taobao, is a marketplace that does not charge for either buying or selling. The more than 7 million active sellers on Taobao pay a fee to be ranked higher on the website’s internal search engine. This helps generate huge advertising revenues; more or less what google does. Taobao majorly caters for smaller business merchants. Tmall on the other hand carters for the well-known brands like Nike, GPS, and Apple. It also provides complementary financial services to its eCommerce business.

It is important to note that of the two companies, Alibaba operates a more lean structure as it is software based while Amazon has to deal with logistical challenges that may inflate its expenditure.

Customer base

Alibaba is a very strong China ecommerce website with more than 80% Chinese market share which translates to 423 million active buyers annually. Amazon on the other hand exists in a crowded ecosystem with about 30% market share of the US market. In this sense, Alibaba seems to be ahead and Amazon has to put more efforts in either increasing its local footprint or even in expanding globally. And while the Chinese economy has been showing signs of fatigue; Alibaba’s performance has continued to be strong both locally and now globally. Alibaba has continued to expand into remote towns to increase its local foot print.

A face off for the global markets?

Just a week after Daniel Zhang was named as the new CEO of Alibaba, he mentioned that accessing international markets was top on their list. Amazon too is seeking international expansion. Amazon is already present in China through its retailing website and has a presence in Alibaba’s Tmall. The Launch of its ‘Prime’ product is geared at penetrating the China market further. It however faces a hard to crack China market even with all the above strategies in place. The China based giant on the other hand has ventured into the US and other global markets. Through its recent cloud expansion strategy, it has launched heavy investment in cloud

An interesting drama is however playing in Southeast Asia; Alibaba vs. Amazon for over 600 million customers. And although internet shopping only accounts for 5% all retail in the region, the two giants see more growth opportunities in the region particularly as we see a continued growth in mobile technology. Amazon is set to launch January 2017 while Alibaba is already investing in acquisitions of financial money transfer businesses in both Singapore, Thailand, Indonesia, Philippines, Cambodia, Myanmar and Vietnam. Alibaba has a stake in Singpost which is giant company in delivering parcels in Singapore. Alibaba too has built a quiet empire by acquiring control over the Rocket internet’s Lazada which in turn has agreed to buy online grocery store; Redmart. Lazada is said to be the Amazon of Southeast Asia and is the leader in the six markets in which it operates. Amazon is reported to be planning to launch in Singapore whose culture and expenditure are more aligned to the western patterns. As it currently looks, Alibaba seems to have an upper hand in the Southeastern Asian markets.

Giants’ Deep pockets

While announcing its exemplary performance for the 3rd quarter, Alibaba credited its performance to diversified business particularly its investments in cloud and media. For the quarter ending September 30th 2016, Alibaba’s revenues increased to 55% translating to $5.1 billion sales and a net income of $1.1 billion.

Amazon on the other hand had $32.7 billion which would seem dwarfing for Alibaba. But despite these huge gap, Amazon disappointingly recorded a net income of $252 million. Alibaba’s revenues would then be more than those of Amazon and eBay combined; investors in Alibaba are now breathing much relief after a stormy period that followed the IPO of 2014. Sadly enough, remains down by 7% over the last month. Amazon has been in the blacks for six straight months. With the coming in of a new POTUS, we are yet to see how that will play for both Amazon and Alibaba.

alibabaI would do great injustice to leave this section without mentioning the grandiose and record breaking Singles day festivals that recorded $17.73 billion sales in 24 hours of 11th November, 2016. And although growth was significantly slower than 60% of last year, this year recorded a 32% growth rate; buyers appear to have been more cautious.  This will only strengthen the promising performance of Alibaba.

Alibaba vs. Amazon; who wins

With all these fights for gaining more market share, both companies are putting their best foot forward; they are improving their own core businesses, they are investing in more tech savvy products and recent innovations, and they are fighting for more customers. The good news is that the customer wins!