Technology of the week: Battle of the Big
Alibaba vs. Amazon
Last Friday Alibaba became famous by America’s biggest tech IPO and the market value of Alibaba was around $230 billion then (http://moneymorning.com/tag/alibaba-ipo/, 2014). Our curiosity rose after the announcement of Alibaba’s IPO, and therefore we chose to compare Alibaba with ‘our Western’ most innovative E-commerce company, Amazon. Another reason is that both companies first had their own markets (Amazon in U.S. and Alibaba in China) and are now expanding internationally. Thus, the competition will be more fierce.
The e-commerce market is expanding rapidly with an estimated 20.1% growth in 2014 compared to 2013 worldwide sales (www.emarketer.com, 2014). There is a new development which is called the cross-border e-commerce. As a consequence, Clemons et al. (2006) state that traditional placement and physical distribution are replaced by far complex alternatives with more complete range of offerings, which enable new business model opportunities for e-commerce companies.
One of the e-commerce companies is Alibaba, which is originally designed as a digital market place where buyers and Chinese merchants can connect with each other. Nowadays, Alibaba’s unique competitive advantage is their ability to combine their set of characteristics into one company. Alibaba is known as a marketplace, a search engine and a bank, all in one. This combination of characteristics has facilitated the enormous growth of Alibaba in recent years.
Amazon on the other hand serves mass markets. They operate as online retailer and bookstore and provide Internet services. Amazon also manufactures and distributes Kindle tablets (a form of an e-reader) since 2011. Its business model is built on three pillars. The first pillar are their low margins: Amazon takes a little share of each transaction made. Second, Amazon wants to make sure their customers can find deals with almost no effort. Their value proposition consists of price and convenience. Amazon wants to offer these, no matter the product or service, for a low price. Third, Amazon offers and develops many customer-oriented services. They promote the concept of purchase frequency (stimulating people to buy more). For this, Amazon requires customers with a certain amount of income (Sampere, 2014).
Business Model Comparison
Alibaba and Amazon both have unique characteristics and use IT innovations to develop a competitive advantage over their competitors. First, Amazon is planning on using drones to facilitate a thirty minute delivery system. This IT innovation will make it possible for Amazon to be the first in the e-commerce market to deliver this fast. Second, Alibaba uses an unique set of businesses to construct an innovative business model. One of the advantages Alibaba has over Amazon is that they do not take ownership over inventory, but solely provide the marketplace for buyers and sellers. Amazon in contrast has the ability to deliver their products within a day, whereas Alibaba takes three days on average. As we saw in our analysis, there are more differences than similarities between both e-commerce companies.
In the future we will see which of the business models turns out to be superior. What is your prediction?
Alibaba IPO, retrieved 19-09-2014:http://moneymorning.com/tag/alibaba-ipo/
Global B2C Ecommerce Sales to Hit $1.5 Trillion This Year Driven by Growth in Emerging Markets’ Retrieved 19-09-2014 from eMarketer: http://www.emarketer.com/Article/Global-B2C-Ecommerce-Sales-Hit-15-Trillion-This-Year-Driven-by-Growth-Emerging Markets/1010575#sthash.YeYTG3er.DEbJEN8C.dpuf
Clemons, E.K. (2008) ‘How Information Changes Consumer Behavior and Consumer Behavior Determines Corporate Strategy’, Journal of Management Information Systems, 25(2): pp. 13-40.
Juan Pablo Vazquez Sampere, (2014) ‘Alibaba: The First Real Test for Amazon’s Business Model’ retrieved 20-09-2014: http://blogs.hbr.org/2014/01/alibaba-the-first-real-test-for-amazons-business-model/)