{"id":70084,"date":"2018-03-19T01:23:00","date_gmt":"2018-03-19T00:23:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/amazon-vs-alibaba-battle-of-the-business-models\/"},"modified":"2018-03-19T01:23:00","modified_gmt":"2018-03-19T00:23:00","slug":"amazon-vs-alibaba-battle-of-the-business-models","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/amazon-vs-alibaba-battle-of-the-business-models\/","title":{"rendered":"Amazon .vs. Alibaba – battle of the business models"},"content":{"rendered":"

With this in mind, Charles Sunnucks, Assistant Fund Manager on the Jupiter Global Emerging Markets team, outlines a number of ways in which the two giants differ. <\/strong> <\/em> <\/p>\n

Seeking to support rather than compete with small business<\/strong> <\/p>\n

Firstly, the positioning of each company is significantly different. While Amazon looks to sell the majority of its products directly to the consumer, competing with other smaller brands, Alibaba simply acts as a platform connecting merchants and consumers as well as larger brands and retailers. As Alibaba\u2019s founder Jack Ma explains: “the difference between Amazon and us is Amazon is more like an empire \u2014 everything they control themselves, buy and sell… we want to be an ecosystem.” <\/p>\n

Making money out of a fee free platform<\/strong> <\/p>\n

Model monetisation is also very different. Amazon\u2019s direct sales business is equivalent to an online supermarket – buy low sell high – and sales through its third party platform are levied with a percentage sales commission. In contrast, Taobao (one of Alibaba\u2019s key assets) uses an advertising model more similar to Google as the core means to monetise their seven million active sellers. This is a viable source of income, unlike in the west where the online shopping experience is separated in terms of the search site (e.g. Google), the ecommerce site (e.g. Amazon), and the payment platform (e.g. Paypal); Alibaba caters to the entire online shopping experience. Consequently, Alibaba\u2019s user engagement metrics are well beyond Amazon\u2019s, providing far greater scope to customise searches\/advertising, driving significantly higher conversion for merchants. <\/p>\n

Expanding the addressable market<\/strong><\/p>\n

The third contrast is the way in which each company is scaling its capability in the everyday goods market, a key focus for both firms. While this space is characterised as having low individual item prices, the high frequency, lower cyclicality and better customer stickiness of this space makes it an attractive profit pool. Amazon has waded in with AmazonFresh and their own brand \u2018AmazonBasics\u2019 to cover simple goods ranging from batteries to cat litter. Alibaba is taking an alternative approach. With the proportion of commerce online in China at approximately 15%, already double that of the US, they are now emphasising a \u2018new retail model\u2019. This stresses digitally transforming the remaining 85% of retail done offline. For instance, Alibaba has been rolling out its Hema stores, a chain of so far ~20 stores in China which aim to serve customers living within 3km of the store. Using only the Alibaba app, users can either order fresh food for home delivery, or go to the store themselves. This is proving a very successful means of creating a quick footprint in local communities, and is a concept that Alibaba wants to franchise out across China in the future. <\/p>\n

The consequence of being different<\/strong> <\/p>\n

The effects of these contrasting business models are starting to show \u2013 for the most part in Alibaba\u2019s favour. Its ecommerce operations have a vastly higher operating margin, a far lighter supporting infrastructure, and demands less investment as sales grow. Additionally, relative to Amazon, Alibaba\u2019s sales are far less dependent on the site\u2019s growth in gross merchandise value (the amount transacted on the platform). Instead, Alibaba\u2019s sales opportunity is far more a function of their ability to eat further into client \u2018cost pools\u2019. In 2018 for instance, ecommerce sales will likely experience roughly double the growth rate of the actual gross merchandise value, and even with company sales virtually doubling over the past two years, the proportion of sales to gross merchandise value transacted (the \u2018take-rate\u2019), is still under half Amazon\u2019s third party platform, suggesting scope to increase rates further. <\/p>\n

Beyond commerce<\/strong> <\/p>\n

Going forward, both businesses will continue to innovate and evolve. One key leg to both their strategies is developing beyond commerce, for example finance or media. In many of these new spaces they boast a long-term structural advantage due to their low customer acquisition cost, ability to scale fast and vast client data pool providing greater scope to customise the user experience. Outside consumer services, Amazon and Alibaba are also advancing into corporate pockets. Already the companies compete for marketing, channel and logistics spend, but are investing heavily to eat into enterprise IT budgets via cloud services, an opportunity with phenomenal future growth prospects. <\/p>\n

Ultimately, while these companies serve the same market and have similar aspirations, they are fundamentally different in their approach to online retail. Historically, the two firms have done well to steer clear of direct confrontation, however, with the pool of under-served structurally attractive ecommerce geographies swiftly shrinking it is only a matter of time before the models collide. For investors, the question is no longer simply whether to hold these companies or not, but additionally how do other portfolio companies adapt to a fast changing commercial landscape. This will continue to create a deeply diverse range of opportunities and risks within emerging markets, making the market an increasingly attractive hunting ground for active investors able to anticipate and position to profit from change.<\/p>\n","protected":false},"excerpt":{"rendered":"

Alibaba is often heralded as the Amazon of China, and in terms of online retail dominance, it is. The business models of the two businesses are however very different. Indeed, Alibaba doesn\u2019t consider itself an ecommerce company at all. <\/p>\n","protected":false},"author":1,"featured_media":70082,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1663,1655,1651,2087,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/70084"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=70084"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/70084\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/70082"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=70084"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=70084"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=70084"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}