Amazon vs Alibaba: What differentiates the two?
Do they have anything in common?
Although these two giants in the e-commerce industry may seem similar, they are quite different in their operations.
This post provides a comparison of Amazon and Alibaba, citing their differences, and similarities in their current market & supply chain.
Curious about it?
Overview Of Amazon vs. Alibaba’s Business Model
Amazon’s Business Model
Amazon has a multi-faceted business model. First, it offers a platform for retailers as well as other third party sellers to sell their products and retains a portion of the sales price & fulfillment fees as its commission. This e-commerce marketplace giant is also in the business of stocking and selling goods directly to customers at a small markup.
The company also has a subscription and online streaming services as well as an electronics product line, plus a logistics network.
Alibaba’s Business Model
Through its expansive logistics network of websites, Alibaba primarily facilitates transactions by acting as the middleman between buyers and sellers and charges some commission.
Its largest site, Taobao, is a free marketplace where sellers pay to rank higher on the site’s internal search engine bringing in advertising income for Alibaba.
Its other site, Tmall, is a B2C logistics network targeting well-known brands from which it earns from sales commissions, deposits, and annual user fees.
History of Amazon
Jeff Bezos founded Amazon in the mid '90s. Although it started originally as an online bookstore, the company has since expanded and included various categories to become the largest online retailer in North America and with active buyers and sellers worldwide.
History of Alibaba
Jack Ma founded Alibaba Group Holding Ltd in 1999, five years after the establishment of Amazon. Despite his lack of business and technology prowess, he managed to launch this B2C platform that is a fee free marketplace. Alibaba has since grown to the largest e-commerce company in the world as it connects western businesses & Chinese consumers to products made in China.
Alibaba Vs. Amazon | Key Differences & Similarities
Various aspects set these two competing e-commerce giants apart. These include:
Amazon’s primary goal was to build a customer-centric company that entirely focused on customer satisfaction above everything else. They have undoubtedly achieved over the years with remarkable customer service in terms of delivery, customer support, and pricing. Amazon focuses on obtaining the greatest prices for its customers and can go to any length to achieve it. This can be seen from their tendency to alienate suppliers, publishers, and digital media content partners.
In reality, Amazon has manufactured their private-label goods to increase market dominance by undercutting their 3rd party merchants. However, Amazon has still been a forward path for many small businesses to launch their brand and maintain some cash flow to generate revenue.
Alibaba’s primary goal is to aid their growth by providing solutions to their problems via internet technology. This is evident from the quote on their IPO prospectus our proposition is simple: we want to help small businesses grow by solving their problems through automation technology. We fight for the little guy. Since our founding in 1999, we have helped millions of small businesses to achieve a brighter future.”
In keeping up with its goals, Taobao, Alibaba’s largest site, does not charge its merchants or customers to complete transactions on its platform. Instead, it makes money by charging sellers to rank higher on the site’s search engine.
In short, the biggest difference is that Amazon is more buyer-focused while Alibaba, on the other hand, is all about the seller.
Amazon assesses various fees to sellers to be able to list their products on the site. This is in Amazon seller fees, fulfillment fees, monthly seller plans, prime memberships, and many others.
On the other hand, Alibaba does not charge fees on its sites. Its primary source of revenue is from sellers paying to rank higher on their sites. Alibaba’s Taobao marketplace accounts for 80% of its total sales.
Rather than charging sellers to rank high in their search engines, Alibaba employs SEO algorithm business relationships and other metrics to help them achieve this.
Besides offering direct sales, Amazon also provides business opportunities for other retailers to sell their products via Amazon.com. Third party sellers can utilize Amazon’s vast network of warehouses, which they offer to buyers through their online storefront for a small markup. Additionally, Amazon allows its partner retailers to sell the less common products or the high-priced goods avoiding slow-moving products. Although no fee is charged for listing the goods on the sites, Amazon does earn a commission on part of the sale. More than 50% of Amazon’s revenue growth comes from third-party sellers.
Amazon Prime is another revenue source for the company. This allows customers to obtain free two-day or same-day shipping on certain purchases, as well as access to Amazon’s movie and music streaming services for a yearly subscription.
Alibaba also has a B2C business model, yet they don’t charge a commission of the goods sold like Amazon does. They facilitate transactions between sellers and buyers via its vast network of websites. Alibaba’s primary revenue source & net profit comes from their payment transaction fees through Alipay from sellers online.
Its other sites include AliExpress, which serves the international market, and Tmall, which facilitates large brands to sell directly to consumers.
Although Amazon is a North-American-based company, the vast majority of its sales come from other countries. While only 40% of their business comes from North America, 60% comes from other international countries. On the other hand, Alibaba operates most of its business within the Chinese market. Its money-making operations account for a vast 84% of Chinese users, while international countries have a mere 16%. This implies that Amazon has a more prominent global presence than Alibaba.
Despite their undeniable differences, Alibaba and Amazon can relate to each other in a few aspects. These include:
Both Are E-Commerce Platform Giants
This is the most obvious similarity. Both Amazon and the Alibaba group are purely online businesses in the ecommerce market. These e-commerce giants operate primarily without physical stores.
Global Leaders In The E-Commerce Industry
Amazon and Alibaba have grown to become the two biggest forces in the e-commerce industry. Besides being the dominating players in their respective countries where they were founded, these two platforms have gained massive popularity globally to become the top e-commerce platforms in the world.
Both companies enjoy dominance in their respective countries where they were founded making billions in revenue. However, their market shares are different, with Amazon enjoying 39% of all US sales while Alibaba owns a whopping 65% of all Chinese e-commerce revenue in China.
Both face very little competition.
By 2019, Amazon had more than 50% market share in the US e-commerce market, outdoing eBay at 6.6%, Walmart at 3.7%, and Apple at 3.9%.
Alibaba accounted for 80% of China's total online retail sales from Alibaba’s Tmall, JD.com, and Pinduoduo websites making it China's e-commerce market leader.
Proprietary Payment Systems
Besides dominating the e-commerce sector, both Amazon and Alibaba have proprietary payment services. Amazon’s Amazon Pay, a payment service, allows users to use their Amazon account to purchase products on non- Amazon sites.
Alibaba has Alipay, a mobile and online payment system that boasts more than 700 million yearly active users.
Third Parties Sellers
Amazon and Alibaba both offer a platform to third parties to sell their products on their sites. In exchange, these companies earn some revenue either in commissions or fees. Amazon retains part of the sales price from its sellers as commission, while Alibaba charges sellers to rank higher in their internal search engines as well as transaction fee through Alipay.
Big International Expansion Plans
These two companies have dared to establish themselves in other countries outside their homes. They still have huge ambitions of making more entrance in the international markets. Amazon targets to expand to over 100 markets by 2025 through European and Australian expansion; it also intends to invest heavily in India.
Alibaba, on the other hand, has set its foot in the Eastern territories and African markets. It is also targeting to enter into the European market and also reach Australian consumers.
Final Thoughts (Who Wins Out?)
Amazon and Alibaba are ecommerce company leaders. These two have grown over the years and established themselves as the most outstanding ecommerce companies globally.
While both companies have some similarities, the business models are quite distinct, with Amazon being more customer-focused while Alibaba caters to the sellers more.
Although the two are great key players in the ecomm market, Amazon has more international presence and dominates the industry. However, Alibaba has made significant progress and has the potential of overtaking Amazon with time.
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