Amazon vs. Alibaba

Amazon vs. Alibaba – The Clash of Two Business Models

Ayxoo Comments 0 02/04/2018

Alibaba is often touted as the Chinese Amazon, and in terms of dominating online commerce, it is. However, the business models of these two companies are very different. Indeed, Alibaba does not consider itself at all as an e-commerce company.

Alibaba is often touted as the Chinese Amazon, and in terms of dominating online commerce, it is. However, the business models of these two companies are very different. Indeed, Alibaba does not consider itself as an e-commerce company at all. Keeping this in mind, Charles Sunnuncks, assistant manager in Jupiter’s Emerging Markets team, highlights the key factors that differentiate these two giants.

Support More Than a Small Business Competitor

First of all, the positioning of each of these companies is fundamentally different. While Amazon seeks to sell the majority of its products directly to the end consumer, competing with smaller brands, Alibaba is simply positioning itself as a platform that connects merchants and consumers as well as major brands and distributors. As Jack Ma, the founder of Alibaba, explains: “The difference between Amazon and us is that Amazon is like an empire – they control everything by themselves, they buy and they sell … we want more to be an ecosystem. “

Make Money with a Free Platform

The monetization of models is also very different. Amazon’s direct sales activity is that of an online supermarket – buying at a low price and selling at a high price – and sales that take place on its platform give rise to a percentage commission. In contrast, Taobao (one of the nuggets of Alibaba) uses an advertising model that is more like that of Google insofar as it is mainly to monetize the 7 million active sellers.

It is a sustainable source of income. In contrast to what is happening in the West where the online shopping experience is split between a search site (eg Google), the merchant site (eg Amazon) and the payment platform (eg Paypal ), Alibaba centralizes the entire online shopping experience. Consequently,

Expand the Target Market

The third point that sets them apart is how each of these companies chose to approach the ordinary goods market, a priority for both companies. Although this market is characterized by the fact that these are items with a low unit price, the high purchase frequency, the low cyclicality and the greater customer loyalty give it a very profitable profitability.

Interesting. Amazon has rushed in with AmazonFresh and a clean brand “AmazonBasics” that offer simple products ranging from batteries to cat litter. Alibaba chose a different approach. The proportion of online purchases in China is in the order of 15%, double the US figures. It has put in place a new strategy called “New retail” whose goal is to make “online” the remaining 85% of the trade that remains “offline”. For example, Alibaba has rolled out its Hema stores, a chain of about 20 stores in China, whose purpose is to serve customers living within a 3-km radius.

Thanks to Alibaba’s application users can order a food delivery or pick it up themselves at the store. This has proven to be a very good way to integrate quickly into local communities, and this is a concept that Alibaba wants to eventually franchise throughout China. Thanks to Alibaba’s application users can order a food delivery or pick it up themselves at the store.

This has proven to be a very good way to integrate quickly into local communities, and this is a concept that Alibaba wants to eventually franchise throughout China. Thanks to Alibaba’s application users can order a food delivery or pick it up themselves at the store. This has proven to be a very good way to integrate quickly into local communities, and this is a concept that Alibaba wants to eventually franchise throughout China.

The Consequences of These Differences

The differences in these business models are beginning to bear fruit, and mainly in favor of Alibaba. Its e-commerce business has much higher operating margins, a much lighter infrastructure and requires less and less investment as sales grow.

In addition to this, compared to Amazon’s, Alibaba’s sales are much less dependent on the growth of the site in terms of the gross value of the goods (in other words, the number of transactions made on the platform). On the other hand, Alibaba’s sales are much more dependent on its ability to take more space in the cost centers of its customers. In 2018 for example,

Beyond the Trade

In the future, these two companies will continue to innovate and evolve. One of the pillars of their respective strategies is development beyond trade, for example in finance or the media. In many fields, they can boast of having a long-term structural advantage given the low cost of customer acquisition and their ability to quickly collect a lot of customer data to better personalize their experience. In addition to consumer services, Amazon and Alibaba are also beginning to advance their pawns on the corporate side. They are already competing for marketing, resources and logistics expenses,

In short, if these two companies serve the same market and have similar aspirations, their approaches to e-commerce are totally different. So far, they have done everything to avoid a direct confrontation, however, the pool of structurally underserved geographical areas in e-commerce is declining rapidly, so it’s only a matter of time before two models do not collide.

For investors, the question is no longer simply whether they should own these companies or not, but also how other companies in the portfolio will adapt to such a changing business environment. This will continue to create a variety of opportunities and risks that are very diverse in emerging markets,

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