Amazon Vs Alibaba - A Comparative Study into the Two Major E-commerce Giants

Amazon.com was established as an online retail store in 1995 from the garage of its founder Jeff Bezos in Bellevue, Washington, with a product list of mainly books and electronics that were encompassed sometime later. The growth of the company was slow towards the beginning; Amazon did not anticipate profits until 4 or 5 years after its initiation. It made its first profit towards the end of 2001, with a margin of $5 Million from revenue of around $1 Billion.

On the other hand, Alibaba.com was initiated on 1999 by the founder Jack Ma and is centred in China. The website works as a platform for consumer to consumer and business to consumer sales via web portals. Alibaba.com is noted to have raised its first profit two years after its commencement in 2001.

Statistics show that in the year of 2012, Alibaba.com achieved gross sales of $170 Billion which is approximately 43% higher than Amazon’s revenue of $74.4 Billion for the fiscal year 2013. Additionally, Alibaba’s revenue is estimated to reach $420 Billion for 2014. There are a number of reasons for the vast differences in their success. Some of which, being the type of business models each of the two e-commerce sites use and their customer base demographics.

Amazon.com incurs more costs due to their storage facilities, the company has warehouses and customer service centers throughout U.S, U.K, Germany, China, etc. They exercise the process of storing the products in their inventory and delivering to customers from their warehouses when sales are made. They also provide lockers around U.S where one can pick up or return purchases made from the website. Amazon also ventured into producing consumer electronics such as tablets and set-top box systems namely Amazon Kindle, Kindle Fire and Amazon Fire TV by investing in research and development.

Alibaba.com however does not buy and store products in bulk; it provides a means for sellers to display their products for sale to consumers. It initially began by providing a platform for business to business sales for small businesses and later was joined by Taobao, which provides billions of products for retail sale directly from sellers to consumers.

Secondly, the demographics of their customer base also affect their market size. Amazon enjoys its highest consumer segment from United States whose population consists of only 327 million people. Whereas, China holds the largest population by a number 1.4 billion people and results show that 80% of the country’s online sales were made by Alibaba.com. Additionally, research shows that Chinese customers have the highest record of shopping online on average of 8.4 times a month with United States customers next in line at 5.2 times a month.

Alibaba.com makes 80% of its revenue from advertising content on their website and Amazon gains most of their revenue by the regular retail system from sales.

Although both the companies are major E-commerce websites facilitating buying and selling of products online, their unique business models and customer segments show the effective as well as efficient growth of Alibaba over Amazon in the current scenario. 



References: 

- Alibaba is a threat to Amazon, ebay, Walmart & everyone else.(2013). Retrieved at 19-10-2014 from http://www.forbes.com/sites/walterloeb/2013/07/24/alibaba-a-threat-to-amazon-ebay-walmart-and-everyone-else/ 
- AmazonGroup. N/A. Retrieved at 19-10-2014 from http://en.wikipedia.org/wiki/Alibaba_Group#Taobao 
- 10 Reasons Why Alibaba blows away Amazon & eBay. (2014). Retrieved at 19-10-2014 from http://www.forbes.com/sites/walterloeb/2014/04/11/10-reasons-why-alibaba-is-a-worldwide-leader-in-e-commerce/