How Amazon and Alibaba are splitting the global online shopping business between them

Of course, the coronavirus caught both large and small players equally unprepared. Initially, not even the online giants were able to meet the exploding demand for goods such as hand disinfectant, face masks and medical protective equipment with anything other than “out of stock”. Nevertheless, it looks as if two mega-names in particular are coming out of the current situation stronger than ever. Amazon in grand style and Alibaba after a brief dip. Surprising?

The world of Amazon

At first glance, Amazon and the Alibaba Group appear to have much in common, and yet their business models and company philosophies are entirely different.

The US online retailer Amazon, founded in 1994 by Jeff Bezos, initially focused only on selling books. In just a few years, however, thanks in part to the persistence – some might say pure ruthlessness – and innovation of its founder, the company grew into the online giant we know today.

Today, Amazon can claim to offer the largest selection of books, CDs, DVDs and electronic devices in the world. But it isn’t only the selection of products available online that has changed significantly over the last few decades. Amazon has diversified its products and services considerably, particularly through the acquisition of other companies, including the online streaming service Twitch and the US organic supermarket chain Whole Foods. In addition, the company has expanded its brand to include electronic readers like the Amazon Kindle, cloud computing services, voice assistants like Echo and Alexa as well as entertainment services like Amazon Music and Amazon Prime. It also developed its own payment service, Amazon Pay, which allows even third parties outside of the Amazon Group to accept cash-free payments. Amazon can therefore be considered a versatile and extremely successful “diversified enterprise.”

Innovation is part of the image

Having grown to be the largest online retailer in North America and Europe within just a few years, reaching a market value exceeding 400 billion US dollars and – despite all the critics – making its founder the richest man in the world, the company has focused in recent years primarily on ambitious technological innovations. Although not officially part of the Amazon empire and belonging directly to Jeff Bezos himself, the launch of the privately owned space flight company Blue Origin garnered plenty of media attention around the world. It would hardly be a surprise to see Amazon selling orbital transports in the distant future. Perhaps the matching satellites will also be available for purchase.

Furthermore, Amazon has declared the goal of becoming carbon-neutral by 2040. By 2030, all packages should be delivered by electric vehicles, and the company’s transshipment hubs should run on 100% renewable energy. Whether this schedule can be met even after COVID-19 remains to be seen.

Network in the East

Alibaba had a similar origin as a small online platform that quickly grew into an international, diversified IT group. In 1999, 18 students, including Jack Ma as the driving force, founded Alibaba.com in the Chinese city of Hangzhou. Unlike Bezos, Ma had no professional background or experience in business. The former English teacher made it his goal to use the B2B portal Alibaba to connect western markets and customers with Chinese providers and manufacturers.

Today, Alibaba has a wide range of subsidiaries as well as online platforms and websites where goods are offered for sale or even auction. Its own payment system, called Alipay, functions similarly to PayPal, while its own financial service provider, Ant Financial, offers customers micro loans and other services.

Added to these are web services for cloud computing and data management, film production studios and digital entertainment providers, which are regularly acquired by the Alibaba Group. 

Target group strategy times two

What might look like similarities at first glance prove after all to be differences in the target group strategies of the two retail giants with major impacts on the logistics of each company. While Amazon has its eye on the end customers, Alibaba views itself as a B2B platform that functions as an interface between buyers and sellers.

Amazon’s strategy drives the company to invest in its own infrastructure and transport structures. This means its own warehouses, inventories, delivery vehicles, air freight division and 1.2 million employees – all to make good on promises like “next day delivery.”

At Alibaba, on the other hand, the focus is on the selection offered on its digital platforms. The goal is to enable companies to access international markets no matter their size. With every successful business transaction, Alibaba earns its share. How well this model functions can be seen in platforms like AliExpress, Taobao and Tmall, which today process over 80% of all online purchases in China.

An ambitious competitor

Even if Alibaba’s 72 billion dollars in revenue appears relatively modest compared with Amazon’s 280.5 billion, the future growth potential looks good. After all, Jack Ma has repeatedly stressed the company’s global ambitions in recent years – especially in the US and Europe.

In other words, a fight between these two giants is already in the cards. The biggest indication may be the European logistics center known as the “Electronic World Trade Platform” (eWTP), which Alibaba is currently building in Liège, Belgium, with the intent of accelerating the company’s expansion into Europe. This will be the fifth logistics center of the Chinese corporation after Hong Kong, Moscow, Dubai and Kuala Lumpur, and will even boast its own freight train connection between Europe and China. This railway line will support the e-commerce logistics between the two regions, transporting goods from Yiwu, China, to Liège in 17 days. The trains have been rolling since 2019, while the gigantic warehouse is expected to open in 2021.

But before then there is still the Christmas shopping season and a global pandemic to bring under control. All we can recommend from our vantage point is to sit back and enjoy some Christmas cheer while we wait and see. The stage is already set for next year.

Christmas is coming

And it will likely be very lucrative for all involved. In Germany alone, the share of e-commerce has already been predicted to reach 48%, a ten percent increase over last year. This means that our neighbors will buy every second gift online, and the logistics industry will hit a new record of roughly 420 million shipments. The situation in the rest of Europe will hardly be any different. Brick and mortar retailers will come under pressure, and shipping services will be challenged to deliver on time – and that is without even factoring in the return shipments.

It’s no wonder that Amazon, even coming off its largest quarterly profit in 26 years in July (96.1 billion US dollars, a 37% year-on-year increase), can also look forward to the best Q4 result in its history.

And Alibaba, even after the coronavirus setback at the start of the year due mainly to a decline in its B2B business, is now back on a clear upward track. After all, this year’s Singles Day once again brought in record sales of 47.7 billion euros – an increase of 26%.