When I wrote my first post on Amazon in which I looked at the competitors it will face; back 2012, I had 7 major ecommerce businesses that could destabilize Amazon’s domination in ecommerce:
- Amazon is and still is it’s own biggest concern
- Apple
- Alibaba
- eBay
- Walmart
- Rakuten
- Regional players (Netretail, Ozon, MercadoLibre)
Fast forward 2 years and a variety of changes (global economic changes, investments and the rate of offline and online retail convergence) – the above list changes considerably. The growth in single global brand ecommerce businesses has grown remarkably primarily through the globalisation of ecommerce.
Let me be clear – I am of the opinion that regional ecommerce competition is a less of a factor now as the global competitors can at any time launch in a market. Global ecommerce businesses (Amazon, eBay, Rakuten etc) have the potential to invest significantly in a market through funds and staff.
Amazon still has hurdles or challenges it will face ( market penetration in the US, its prime market of operation is bordering on saturation; a lack of success in terms of global movement – take away the US and Europe from Amazon’s online retail businesses) and the company only has a few regions in which it operates. Its most important product Amazon Prime is still only US and European – which makes Amazon not having a defensible position in markets such as India, Australia, China and Brazil.
The present situation
The Challengers are now in the following order:
- Alibaba
- Walmart
- eBay
- Rakuten
- Apple
- Regional players
Why has Apple fallen so badly you ask? In the last 2 years Apple has not shown the inclination to be a factor in terms of ecommerce. I am fully aware of their high user account numbers but those accounts are primarily used for App downloads and music purchases.
Apple has sold 700 million iOS devices. Google claims one billion Android device activations. Microsoft has about 1.5 billion Windows users and Facebook about 1.19 billion. LinkedIn has 259 million users and Twitter has 232 million. Amazon has 215 active account holders and PayPal 137 million. Source: Asymco
The Powerhouse dragon from the East
I have been thinking and reading about Alibaba over the last few months as I believe we are in a very interesting period of time with regards to overall ecommerce leadership. Amazon has been selling books since 1994. In the 20 years, Jeff Bezos has been building a business that has been able to disrupt and cannibalize itself before a competitor is able to do it. Amazon has taken away a lot of inefficiencies in retail by being able to negotiate from a position of strength. Borders, Barnes and Noble, Kozmo etc have all been either closed or deeply affected by Amazons operation. Amazon has already created a defensible position in the US by heavily investing into technology (robots and AWS) and by building distribution centers. Anyone that wants to compete against a few billion dollars that have been invested over the last 10 years is going to battle.
However, there is a sysmic shift that will be occurring in 2014. It looks like this:
Alibaba = Amazon + eBay + Walmart (in terms of annual sales)
Alibaba is in my opinion also a very difficult business to understand. It has a B2B platform (Alibaba.com), 2 B2C businesses (Tmall and Taobao) and a international business that is silently building up traction in Latin America and Russia. Alipay (imagine PayPal and multiply it by a 100) is growing in size in Asia. It is also moving into personal finance and with the exception of Walmart no other ecommerce powerhouse has operations in that vertical.
Alibaba has over the last 4 years invested in ecommerce companies in the US to boost its operation in terms of operations. It acquired Vendio to ease the process of merchant on-boarding to its platform via feeds (Vendio acquired SingleFeed) and then Alibaba started its venture investments into Quixey (app search platform), it acquired Kanbox and then invested into Shoprunner.
Alibaba has the potential through its scale to be able to have a day a year (Singles day) in which it can do the following:
The Alibaba Group said transactions on its websites yesterday topped $5.75 billion, surpassing last year’s single-day sales of 19.1 billion yuan.
- Taobao took just over four minutes to complete RMB 100 million ($16.4 million) in mobile purchases. By 7:35 a.m., mobile sales volume reached RMB 2 billion ($328 million).
- Xiaomi passed the RMB 300 million ($49.2 million) benchmark in sales in about an hours trading on Tmall.
- Total unique visitors on Tmall on 11/11 2013 hit 402 million, up from 213 million on the same day in 2012. The sales on Alibaba’s Tmall involved over 20,000 merchants on its online marketplace.
However Alibaba is not widely known in the English speaking west and seemingly is interested in moving into South East Asia to protect its territory from another Amazon rival, Rakuten. Any other region that is not in Asia will lead Alibaba to either acquire or invest in local companies to build market share. Imagine Alibaba with $10 billion looking to enter markets..
When I read Alibaba: The First Real Test for Amazon’s Business Model earlier today I felt that the author missed a few important parts to the test that Amazon and Alibaba will face.
Alibaba and Amazon are not the same
Amazon has invested heavily in logistics and methodology to get purchased items to customers. This is the one big weakness that Alibaba has currently – it is investing into warehouses and logistics via joint ventures (Haier) or partners, China Smart Logistic Network. The China Smart Logistic Network will only be completed by 2018-2021. If you give Amazon an 8 year period of less competitive behavior based on logistics alone – Alibaba will struggle to compete with Amazon globally.
I personally don’t see a reason why Amazon would create a business that has Tmall like experience. eBay I can see them doing it but not Amazon. Amazon will look at models and regions in closer detail but I cant see any deviation from the marketplace model as that significantly lessens the risk on them in terms of merchandise needs from customers. Does Alibaba have the same partners that will ship from their warehouse as Amazon does currently in the US with Proctor and Gamble?
So where does the battle occur? By just looking at global ecommerce – Latin America looks to be a battleground as it only has 1 incumbent (MercadoLibre) what will need to be taken note of. Europe in my opinion has pretty much been sown up by Amazon and eBay. Australia is a definite battle ground for me, as it is close to China and Amazon has rolled out its first line of offense (Kindle). Amazon has not shown an interest in South East Asia (Alibaba will compete with Rocket Internet); Russia is also a possibility but the market leadership that Ozon has there thought logistics investment is significant.
Jeff Bezos has kept us all guessing and I think in 2014 Jack Ma will be added to the list of ecommerce disruptors. The great battle of 2014 is going to create a lot of interesting ecommerce news and data. It boils down to efficiency (Amazon) vs Scale (Alibaba)