Alibaba and Amazon: Two Sides of the E-Commerce Coin?

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Amazon and Alibaba are two of the biggest e-commerce companies in the world, dominating the American and Chinese markets, respectively. They might seem similar at first glance, with their focus on online retailing, but a closer inspection reveals the stark difference in their business models.

With both companies posting record annual earnings and ever-growing household ubiquity, pitting their modes of operation against each other is inevitable.

Words from the Founders

Jack Ma has a specific mission statement for Alibaba: to aid growth of small businesses by using the power of the Internet, buying and selling goods across continents. Ma’s humble origin as a struggling professional informs us of this desire to help small-scale entrepreneurs expand beyond local territories.

Amazon CEO Jeff Bezos’s vision for his company, on the other hand, is to be as customer-centric as possible. If you have transacted with Amazon, you will know this to be true. Amazon customer service is excellent, especially with pricing, deliveries and after-sales support, even at the expense of compromising the confidence of suppliers and third-party sellers.

These philosophies give us a clue to how each executive employs e-commerce strategies and innovations, and ultimately, what places them in different leagues despite playing the same ball game.

customer-centric business modelHelping the Little Guy

Alibaba has its sights set to connecting small businesses with manufacturers overseas, facilitating transactions between parties through their Alibaba.com portal and its extensive network of sites. Acting as the intermediary, Alibaba takes no commission from sales conducted through the portal, and earns revenue mostly from ads posted by sellers to boost visibility, similar to the PageRank system by Google.

In this respect, Alibaba operates more like a software company rather than a strictly retail one, since they do not actually sell products. A bulk of the company’s income comes from their Taobao subsidiary, which includes the Taobao Marketplace and Tmall, accounting for a whopping 80% of all online purchases in China. Additionally, Alibaba is a growing name in the US, thanks to its B2B trading platform, which connects American businesses with global manufacturers.

Alibaba has an estimated 350 million active users, more than the entire population of America.

The Customer Above All Else

Amazon, meanwhile, has carved a niche for itself by being an actual online retailer, though far from a traditional one. They have products in warehouses they operate and maintain, and ship products to customers who browse and order goods on the Amazon.com. Third-party sellers post their wares on the site as well, and Amazon profits from sales commissions.

Interestingly, Amazon expands its business further to include Internet services like the subscription-based Amazon Prime, which includes free two-day shipping for retail orders, a video streaming service featuring original content produced by Amazon, and free access to its vast Kindle e-book library.

Amazon prioritizes bringing the best value proposition to the consumer at almost any cost, sometimes to a point where shareholder dissatisfaction is no troubling concern.

Although Amazon is pretty much king of the hill of North America’s online retail sphere and has made Jeff Bezos one of the richest men in the world, its revenue stream is still dwarfed by Alibaba. Is there a chance for the former to tread the latter’s market, or vice versa?

Crossing Paths

Currently, the two e-commerce giants have made moves to emulate each other’s lucrative operations. Alibaba now has AliExpress, an online international marketplace that connects Chinese businesses to customers worldwide, adopting more of a B2C system rather than B2B. Multiple observers have pointed out its parallels to eBay, Etsy, and of course, Amazon.

Conversely, Amazon reportedly plans to mobilize a global delivery system to enable exchange of goods from Chinese businesses to American customers. This implies a direct effort to take on established shipping services like FedEx, DHL, and yes, Alibaba. Amazon certainly has the means, with its robust Fulfillment by Amazon service acting as a test run for a massive-scale delivery network.

It is interesting to observe how distinct approaches to e-commerce dominate a certain market, and then evolve to try to adopt each other’s origin of success. Given how Alibaba and Amazon are huge and versatile enough to pull such stunts, it is safe to assume these excellent choices in online retail have consumers spoiled.