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Alibaba and Amazon: A New Breed of Omnichannel

As Wall Street anticipates the Alibaba IPO, which should come either the first week of August or just after Labor Day, those more familiar with Amazon’s business model are trying to understand the differences–and the similarities–between the two companies.

Amazon’s story is well-known. Currently trading at $320, with $74.4 billion in revenue, the Internet giant leads the Western digital marketplace. Success with streaming videos and online music sales, combined with a recent HBO deal, have made Amazon a force to be reckoned with even for industry leaders like Apple. However, Amazon’s recently launched Fire phone, seen by some as a possible iPhone competitor, has left the market resolutely unimpressed.

By contrast, Alibaba is China’s largest omnichannel retailer. The company was founded as a B2B platform in 1999 by Jack Ma, who has been compared to both Steve Jobs and Jeff Bezos for his extraordinary vision and eccentric nature. Today, the online marketplace serves both consumer and B2B customers by connecting buyers and sellers through what it refers to as “the Alibaba ecosystem.” According to The Economist, Alibaba’s IPO “may approach $20 billion in size, [and] could value the firm at well over $150 billion.” That would make this IPO one of the biggest in history.

The main difference between Alibaba and Amazon is that Alibaba does not maintain any of its own inventory. Rather, it puts buyers and sellers together in a community that facilitates both wholesale and retail purchasing. Buyers are not charged a fee to participate, and are able to search through multiple platforms for goods. Channels include AliExpress, a wholesale platform, and Tmall, a business-to-consumer platform featuring independent stores from brands including Gap, Uniqlo and Nine West. Customers are also able to pay for goods using Alipay, a payment system similar to PayPal.

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This combination of commerce channels has led to a massive amount of transactions. In fact, the total value of sales across all of Alibaba’s sites combined was $248 billion in 2013, putting Alibaba leaps and bounds ahead of Amazon in terms of transactional volume.

By contrast, Amazon maintains its own inventory, warehouses, and shipping facilities. This means the company is also able to bring in significantly more direct revenue–$74.4 billion to Alibaba’s $8.4 billion. It also means that Amazon is competing directly with retailers like Walmart and Target in the U.S., and Tesco in Europe. Those retailers have, in turn, significantly upped their online game in order to compete with Amazon.

While Alibaba is also competing with retailers in China, it is partnering with them too. Its online model allows customers to order from a website and pick up in a brick and mortar partner chain store, and it has been a leader in developing online to offline purchasing channels. In addition, the company is testing geo-service mobile solutions that will allow customers to find what they want–from food to clothing–near wherever they are. Since Alibaba makes the bulk of its profits from seller and marketing fees, plus transactional fees, expanding its reach only cements its place as an omnichannel power player.

Still, it remains to be seen what Alibaba’s IPO will mean for Amazon. Certainly, there are other players in the game as well, including eBay and Rakuten Ichiba. However, the real issue is not which of these giants will ultimately come out on top. What’s really at stake is whether there are any traditional retailers able to compete with the tech advantage, or the significant online headstart, of this new breed of omnichannel retailer.