) and Chinese rival Alibaba have been in the news a lot since the
Chinese ecommerce giant decided to go for a U.S. IPO.
But while Amazon is primarily a retailer, i.e. it buys and sells
goods and services directly; Alibaba is a marketplace that helps
buyers and sellers to connect. It also generates advertising
revenues from its retailer partners based on the number of views.
Therefore, Alibaba's revenue model is closer to
) than Amazon's. And while Amazon necessarily rivals traditional
retailers, the Alibaba (or eBay) model treats them as allies.
This means that Amazon's model requires more work and higher
expenses. Amazon needs to directly woo buyers, maintain warehouses
and suitable inventory, ship products in record time and ensure
that the buyer gets the best value for money. Amazon tries to
increase stickiness of customers with its aggressive pricing
strategy and Prime subscription model. The only reason it works is
because of the significant scale of operations.
Because of the high cost of operation, Amazon needs high volume
growth in order to succeed. Alibaba's strategy for capturing
volumes is subtle. Although it's early days yet, Alibaba is taking
pains to maintain a very low profile. It is downplaying the fact
that it is a Chinese company (this can upset people because it will
gain access to their credit card information). Instead, it is
investing in small U.S. ecommerce companies like ShopRunner that
could work as its American front. It has also got itself a very
American-sounding store brand: 11 Main, which appears to be a
high-end niche brand according to the description. So Alibaba is
Americanizing and looking for niches where Amazon doesn't dominate
in order to chip away at Amazon's market share.
The IPO filing has put the two companies in sharp contrast since
Alibaba generates significantly higher margins than Amazon. It will
be an interesting fight since both companies are giants in their
own right and not averse to innovation. But Alibaba seems like a
better place to put your money, at least for now.
Amazon shares carry a Zacks Rank #3 (Hold), similar to peers
) and Blue Nile. But
E-Commerce China Dangdang
), which has a Zacks Rank #2 (Buy) is another Chinese ecommerce
company worth considering.
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