Part 2 – The Global eCommerce War

Posted in Retail
By Laura Leslie on October 3, 2014

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Due to the natural competition we see between China and North America it is easy to debate the significance and power of Alibaba/JD.com and Amazon/eBay.

In my previous article I discussed China and its ever-growing respect as the worlds new eCommerce leader. Today I want to delve deeper into the commonalities and variations we see between the worlds largest eCommerce kings.

There’s not been much talk lately of JD.com, China’s second largest online retailer. It priced its initial public offering at $19 per share, having raised $1.78 billion. Although considerably less than Alibaba, it was still over $5 billion more than they had originally anticipated, and a considerable contender.

Alibaba & eBay and JD.com & Amazon are fair opponents, as you can more accurately compare their business models.

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Alibaba VS eBay (sharks vs crocodiles):

eBay and Alibaba have been the internet’s version of David and Goliath since the early 2000’s. eBay focused on growing its presence in China and Ma knew it would begin to take market-share. Alibaba’s defense was free service and keeping the site fun and friendly, knowing what appealed to the Chinese audience.

Alibaba and eBay have adopted a business model that allows them to sell no product directly, but rather serve as a conduit to the merchant/consumer relationship. The benefits to this model are savings on distribution and no need for producing or storing product. A platform for goods and service exchange is far less expensive than the actual production of goods and services.

Taobao is Alibaba’s division that is almost identical to that of how eBay operates. Taobao however, only asks users to pay for their promotional ads, it does not collect a commision like eBay. Prior to this week eBay had its own payment system, Paypal much like Taobao’s Alipay. Paypal and eBay split earlier this week stating that each company had too much to gain from being their own separate entity.

At one point eBay controlled 85% of the eCommerce market even in China, however recent stats have shown that now Alibaba is larger than eBay and Amazon combined. One can only assume Alibaba’s savvy business decisions, confidence in free offering,s and catering to the eccentricities of their targeted audience have allowed them to boast the largest IPO in US history. It is still early to predict if eBay should be uncertain of their future as a result, but Alibaba is certainly a formidable foe.

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JD.com Vs Amazon:

JD.com is China’s leader in B2C direct sales and offers fast delivery through integrated supply networks. They maintain a low gross margin to offer lower prices.

Unfortunately earlier in September JD’s stock sank in anticipation for Alibaba’s IPO. Although investors claim their business model will keep them sustainable and they are growing, they have not yet been profitable.

It is more difficult to quickly become profitable when, like Amazon, there is a huge initial cost around infrastructure. Amazon and JD have distribution centers, selling the majority of their products directly and even manufacturing their own brands. Holding on to that traditional form of retail leads to massive investments in things like supply-chain and warehouses. Amazon however, is the world leader in cloud infrastructure and is well positioned to handle such a challenge.

Amazon has a wide array of available merchandise. At times it seems that there is almost nothing you can’t purchase there, while 85% of JD.com’s revenues come from consumer electronics. JD is also not yet armed with its own payment system like Amazon Payments.

Conclusion:

The variables to compare are endless, but in a high level overview it’s seemingly apparent who would win in a head-to-head battle on even playing ground. Overall, Alibaba has gained the most notoriety The variables to compare are endless, but in a high level overview it’s seemingly apparent who is beginning to take the lead. Overall, Alibaba has gained the most notoriety in recent months and has the most buzz about its potential future. Like any recently turned public company, there are concerns about some of its acquisitions as Alibaba has spent around $7.5 billion in the last year acquiring new companies. There is certainly potential for backlash, but outside of that and some lesser concerns, Alibaba has a very promising future. The global eCommerce war has officially begun, as we add more contenders to the list, it will be exciting to see who takes the lead in online domination.