Key differences between Alibaba and Amazon

While Alibaba is successfully entering the US, Amazon is making efforts to expand in the profitable Chinese ecommerce market.

Both companies are leaders in their home markets, offer a wide variety of products to be bought online and have a big customer base and top level data infrastructure. However there are some big differences between both companies:

-       Type of operation: Alibaba operates an “open marketplace” that connects buyers and sellers. It doesn’t sell anything directly nor have any warehouses. Amazon operates a “managed marketplace”, selling most of their products directly and owning distribution centers. It even manufactures some of the products. In consequence, Alibaba has much higher margins than Amazon (~40% vs. ~1%) but the latter has a better reputation in customer service because it controls most of its processes.

-       Competitive advantage: Alibaba’s competitive advantage in the Chinese market is given by its understanding of the Chinese consumer and its mastery of the “intricacies of Chinese regulations” and how to work with governments. Amazon’s competitive advantage in Western markets is given mainly mastering logistics and supply chain management. Both would have a hard time trying to acquire the needed capabilities in each other’s home markets.

-       Scale: In 2014 Alibaba has 24,000 employees while Amazon has 88,400 (almost 4 times more). In 2013 Alibaba’s revenue was $7.95 billion and Amazon’s was $7.95 billion -almost 10 times more. This is given in big part by their type of operation.    

Sources:

Forbes. http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

Business Insider. http://www.businessinsider.com/alibaba-vs-amazon-2014-8

The relationship between Amazon and their third-party sellers

I was impressed last week when my friend sent me a link to buy the bridesmaid dress for her wedding and it directed me to Amazon.com. I’ve bought electronics, books and costumes there, but bridesmaid dress!? I wouldn’t have imagined.

This couldn’t be possible without the third-party merchants who sell their products on Amazon. In those relationships the website earn fixed fees, revenue share fees, per-unit activity fees, or some combination thereof. Therefore, the amount of compensation that Amazon receives sometimes is partially dependent on the volume of the other company’s sales. If he offering is not successful it impacts Amazon negatively.

One of the programs offered to sellers is Fulfilment By Amazon (FBA). With it they can store their products in Amazon’s fulfillment centers, and they pick, pack, ship, and provide customer service for these products. Benefiting from one the best logistics systems in the world sounds like a great deal for sellers! That’s why the number of them who’re using the service grew more than 65% in 2012-2013.

Besides being a source of revenue for Amazon, sellers also increase the company’s risks. It may be subject to product liability claims if people or property are harmed by products they and sellers do not have sufficient protection from such claims. Amazon could also be liable for fraudulent or unlawful activities of sellers. In any case, it’s worth the risk.

Source: Amazon.com, Inc., Annual Report 2013.