Commercial transactions have taken place for centuries, but currently there is a revolution happening that is transforming the market. This transformation is occurring due to the relationship between organizations and consumers being increasingly facilitated through electronic information technology. This is generally referred to as e-commerce, its major component being electronic markets.
In the last couple of years, e-commerce competition has been fierce. Companies must innovate not only their products, but also their business models if they hope to keep up with the ever changing circumstances. Here we compare Alibaba.com, the giant wholesale, cross-border marketplace to Amazon, the largest retailer in the world.
Let’s start with Alibaba, whose story started indeed like a fairy tale, and has become one of the most valuable companies of the world today. The Alibaba Group, or just ‘Alibaba’, is a Chinese internet conglomerate that includes China’s largest B2B e-commerce site, Alibaba.com and the largest C2C marketplace in China, Taobao Marketplace. In addition to its e-commerce businesses, the company has also expanded into cloud computing, mobile chat & financial services just like Amazon.
A few years earlier, in 1994, there was another company pioneering in ecommerce – Amazon. Today it is an online platform with 329 distribution centres worldwide. They have a heavy focus on customer satisfaction and sell a wide variety of products.
Alibaba.com focuses on connecting the suppliers with consumers, removing any ‘middle man’, and their profit requirement, which ultimately results in cheap prices. Amazon, however, puts a lot of emphasis on its services and has also been focusing on media streaming and B2B services. While Amazon sets up delivery centres overseas to deliver only to locations it chooses, Alibaba uses its logistics service for 11 countries and then outsources delivery for the rest of the world. The reason why Alibaba.com was able to become a global marketplace is that it does not own the products it sells. There is no need for having a single physical store or warehouse, which provides competitive advantage through cost saving.
What are the strengths and weaknesses of these business models?
It is no secret that Alibaba’s biggest one is sheer price advantage. Amazon, on the other hand, has been continuously perfecting and optimising its services and increasing the range of its products in order to ensure customer satisfaction and building a strong brand. Nevertheless, presentation of the items sold on Alibaba is usually inferior to a complete product listing. Sometimes consumers have to wait very long until they receive their item even if it is in stock and although a ratings system is in place, consumers are less willing to trust companies whose names they don’t recognise. Amazon suffers from a strict organisational culture and an incredibly high rate of employee turnover as a consequence. This may be the company’s biggest weakness, since it relies heavily on human resources.
Finally, let’s talk about the future trends in the ecommerce industry that should serve as directives for both firms in order to expand as well as protect their current market positions.
- Smartphone revenues will overtake desktop revenues and mobile payment and loyalty programs will become new norms
- Beacon technology will drive more retail sales
- Predictive analytics and increasing location accuracy will increase business margins
- User generated content will be refined by advanced personalization and customer centric technology
- Omnichannel will overtake traditional ones
- Same day delivery will be the norm
Our video contains an in-depth analysis of the two companies in respect to Porter’s five forces, check it out if you are interested!
Jahnavi Ghelani, Zoltán Szilassy, Andrei Letcanu, Balázs Harza (Group 85)
