Amazon Vs Alibaba: Who is Winning and Why
Amazon vs. Alibaba refers to respective investment potential between these two online trading companies. Alibaba (baba.us opening at $88.7 US today) is rapidly becoming a serious rival to Amazon (opening at $322.44) for investment cash and for overall consumer spending. The Chinese online trading company started trading on the New York stock exchange in September at $68 and has now increased to $88.7. The initial offering placed the Hangzhou market company’s capitalization at over $17 billion more than Amazon.
There are reasons for this valuation of course, not the least being the relative populations of the two countries, and hence their respective customer potential. Both are global companies now, and is Alibaba in a position to threaten the market share of Amazon for online consumer goods? Perhaps – and much may depend on the relevant investment levels made in each firm.
Amazon is the United States’ largest e-commerce company, with a significantly larger turnover than even huge traditional retailers such as Wal-Mart Stores. It has extended its influence into areas such as Smartphone’s, cloud computing and grocery delivery in the US, with most of its products being available for worldwide delivery. Maybe this is its weakness: over-differentiation of products.
Amazon was a breakthrough in online shopping, enabling customers to purchase new or used goods at low prices, frequently with no delivery charge. It acts as both as a regular online retailer, offering goods from stock, and as an intermediary between sellers and buyers. Customers can choose from a range of prices of the same item, and choose alternative delivery options.
Alibaba, on the other hand, does not have a warehouse and holds no stock. It merely mediates between sellers and buyers, in much the same way as eBay does – but without the auction. Because it is now publicly traded, Alibaba offers an opportunity to investors with a desire to benefit from the rapidly growing demand for online shopping. This demand is global, and many believe that before long, the majority of non-food goods will be purchased online.
That said, Amazon is still the world’s largest e-commerce firm in all respects. It sells most and makes most money. Its sales totaled $74.5 billion for the last fiscal year compared to Alibaba’s $8.6. However, while Amazon sales are expected to increase by 20% over the next year, those of Alibaba are expected to rise by 33%. Yes, in dollar terms Amazon will still make much more, but it will not be long before Alibaba catches up, particularly with the increasing freedom in Chinese consumerism
Alibaba will not only give Amazon a run for its money, but it will eventually catch up and then take the lead. So let’s take a closer look at how each operates and how their respective markets may differ. These are two important aspects of each company that will have a significant bearing on any future serious competitive situations.
Amazon Vs Alibaba
- Produced $250 million profit last year.
- It maintains physical warehouses with inventory of products to ship.
- It pays for warehousing
- It pays for delivery and logistics infrastructure for delivery.
- It also acts as an intermediary between shippers and customers.
- It spends cash on new technology such as tablets and Smartphone’s.
- Produced $3.7 billion profit last year.
- Has no warehouses or inventory.
- Has no delivery or infrastructure costs.
- Is not involved in new product development.
- It acts only as an intermediary between sellers and buyers with its main websites: Taobao Marketplace, Tmall and Juhuasuan.
- It collects fees for sales and it sells advertising on its site for merchants wanting a higher level of exposure on the website.
- It has no emerging technology development costs.
As Chinese people get more freedom to purchase online, Alibaba profits grow. The Chinese market is many times that of the USA and is growing. Amazon has been criticized by its investors for not turning as much profit as it should, and this has resulted in a drop in the firm’s stock of around18% over the past year.
These are the reasons why Alibaba is now more highly valued than Amazon. Can Amazon recover from this challenge? It is highly doubtful while it maintains its current business model. Alibaba seems a better investment bet, but is it too highly developed now to attract venture capitalists? Maybe not, in view of China’s potential market for online goods.