Comparing Amazon and Alibaba
In this article, I will be looking at two of the largest e-commerce companies in the world - Amazon.com and the Alibaba Group. They are rather different in structure, business models and even their growth strategies so it is worth it to take a look at the differences between these two behemoths of the industry.
First, let us gain an understanding of Amazon.
Amazon
Amazon is the largest Internet company in the world by revenue as well as the largest retail company by market capitalisation. The company has been referred to as "one of the most influential economic and cultural forces in the world", as well as the world's most valuable brand. It is listed on the NASDAQ as AMZN. Amazon is known for its disruption of many well-established industries through technological innovation and mass scale business. It’s main shareholders are Jeff Bezos, Advisor Group Inc., Vanguard Group Inc. and BlackRock Inc. It has been criticized for practices including technological surveillance overreach, tax avoidance, a hyper-competitive work culture and anti-competitive behaviour.
History of Amazon
•Amazon was founded as an online bookstore in 1994 by Jeff Bezos.
•It held its’ IPO in 1997 at $18 per share, raising $54 million in total.
•In 1998, Amazon started to expand its services beyond books. It started offering services like Free Super Saving Shipping and declared its first profits in 2003.
• From 2005-2011, Amazon moved into the cloud computing area and eventually dominated it. Amazon also launched several products including the Amazon Kindle. In 2008, Amazon started offering streaming services like Amazon Music.
•In 2015, It’s market capitalisation surpassed that of Walmart.
•In 2021, Jeff Bezos stepped down as CEO. Andy Jassy took over.
Business Strategy
Amazon was founded as a result of Jeff Bezos discovering the incredible growth rate of the internet in 1990s – around 2300% back then. As a result, from the very beginning, the strategy for Amazon has been to expand their business and services aggressively even to the point of making losses or reducing profits. As a result, its first profit was only declared in 2003.
Amazon is relentlessly committed to the customer experience. They focus on customer satisfaction rather than what their competitors are doing. It wants to be the most customer-centric company in the world.
Amazon’s business strategy is based on one goal – to seamlessly link the digital and the brick and mortar shopping experience in order to be a part of every purchase made. Thus, it focuses on investing in technology, improving logistics and web services and R&D.
Amazon looks for an opportunity in many industries and uses its high margins to help it grow. As a result, it now has a very diversified business model.
Industries and Subsidiaries
Amazon as a company focuses on e-commerce, cloud computing, digital streaming and artificial intelligence. It is the world’s largest online marketplace, AI assistant provider, live-streaming platform and cloud computing platform by revenue and market capitalisation.
Some of its products and services are – Amazon Fresh, Amazon Prime, Kindle, Echo, Alexa, Amazon Web Services, Amazon Music, Fire TV and Tablets, Amazon Publishing and so on. It’s major subsidiaries that Amazon has bought over the years include Audible, IMDb, Goodreads, Zappos, Twitch, Annapurna Labs, Junglee and Whole Foods Market. It has a very diversified business model with investments in many industries.
Alibaba Group
Alibaba Group Holding Limited, also known as the Alibaba Group or Alibaba.com is a Chinese multinational company and one of the world’s largest retailers and ecommerce companies. It is the sixth most valuable brand in the world. It owns and operates a diverse portfolio of companies all over the world in numerous industries.
It is listed as BABA on the SEHK(Hong Kong SE) and as an ADR on the NYSE. It’s largest shareholders are the Softbank Group, Joseph Tsai, Jack Ma, T. Rowe Price Associates Inc. and BlackRock Fund Advisors.
Alibaba has been criticised for selling many counterfeit products on their websites especially on Taobao and Alibaba.com. Recently, the company has facing problems in China and has faced several investigations and fines.
History of Alibaba
In December 1999, Jack Ma and a group of 18 tech pioneers founded Alibaba.com (B2B) as a way to leverage the power of the wholesale internet marketplace. In 2000, it raised $25 million from SoftBank and others. Alibaba became profitable 3 years after launch in 2002. In 2003, to improve the global ecommerce market, it launched Taobao Marketplace (C2C).
In 2005, Yahoo! Invested in Alibaba for a 40% stake in the company. In 2009, Alibaba introduced its cloud computing platform. In 2013, Jack Ma stepped down as CEO of Alibaba. Jonathan Lu took over. In 2014, Alibaba went public with a $68 IPO – the largest IPO ever.
In 2016, controversy regarding counterfeit products grew. The US government labeled Taobao as a counterfeit e-commerce platform. In 2019, Jack Ma stepped down as chairman of Alibaba. Daniel Zhang took over. In 2020, an anti-trust investigation into Alibaba is launched by China, causing huge stock market losses. In 2021, Alibaba is fined $2.75 billion for anti-monopoly violations.
Business Strategy
Alibaba’s vision is that “New Retail” is the global future of retail. New Retail is the company’s strategy to digitize the entire retail value chain. Alibaba thus wants to create an international e-commerce marketplace. To this, their approach is twofold – to get international brands to sell goods in China through Tmall acting as a gateway to China and to buy or build e-commerce marketplaces in developing markets to acquire customers.
Alibaba is comprised of three main businesses – Alibaba.com (B2B), Taobao (C2C) and Tmall (B2C). These three websites connect various types of buyers and sellers thus acting as a middleman to China’s e-commerce industry. Alibaba holds no inventory and owns no warehouses.
Alibaba has created an ecosystem of companies to support these three – Alipay, Alimama, Aliyun, etc. as well as invested in various companies such as Snapchat and Lyft as well as the Guangzhou Evergrande Football club.
Industries and Subsidiaries
Alibaba has three main businesses – Alibaba.com, Taobao and Tmall. Alibaba.com is the largest B2B marketplace for small businesses and has three main services – Alibaba.com, 1868.com and AliExpress. Taobao Marketplace is the largest C2C online marketplace in China. Taobao Mall or Tmall is an online retail platform for affluent goods.
It has many other companies under it as well all of which create an ecosystem for their dream of an international e-commerce marketplace such as FreShippo, Cainiao Network, DingTalk, Alimama. Some companies owned by Alibaba are Youku Tudou Inc. , Alibaba Pictures Group, South China Morning Post, Lazada Group and Intime Department Store.
Since 2012, the Chinese government has had a Party Committee in place in the company and has over 2000 officials as Alibaba employees.
Differences between Amazon and Alibaba
- Amazon’s long standing goal is to be the world’s most customer-centric company where customer satisfaction and the best possible prices are the most important while Alibaba focuses on helping small businesses grow and connects them to the wider world.
- Alibaba accounts for more than 80% of all online purchases in China – it has a stranglehold on e-commerce in China. Amazon does not have that kind of monopoly in the USA.
- Alibaba’s platforms merely facilitate transactions. They manage the marketplace and charge a small commission but they do not hold or sell any merchandise themselves. On the other hand, Amazon sells many products from third party sellers but is also in the business of stocking items and selling products directly to consumers.
- Alibaba has 84% of its business coming from China and 16% from outside whereas Amazon has only 60% of its business from North America and 40% from outside. Alibaba collects significantly lower service charges and commissions thus despite having a marketplace that moves significantly more goods, it does not earn nearly as much in sales commission or fees as Amazon.
- Due to the cash flow requirements inherent in owning warehouses and selling their own product, Amazon makes a lot less profit than Alibaba does. Amazon had a 0.8% profit margin in 2013 where Alibaba had a 44% profit margin.
- Thus, while Amazon is a massive retailer for both new and used goods, Alibaba operates as a middleman between buyers and sellers.
- Amazon’s competitive edge is based on Fulfillment and Delivery whereas Alibaba focuses on a fee-free marketplace with small commissions and merchants paying for higher rankings on the websites – similar to Google’s advertising fee plan.
- Both these companies began around the same time and had similar growth trajectories but their basic business models are quite different. Due to the superiority of their business model, in the medium to long term Alibaba is likely to outperform Amazon.
