If you’re a tech savvy investor or even a general United States consumer, you know who Amazon is. They are one of the leading online market places in the United States today. However, most of us have been getting to know the name Alibaba, as they are just about to go public with an IPO. For, those of you who don’t – Alibaba, is a China based online market place where more sales than Amazon has ever dreamt of happen. To put it into perspective, last year Amazon did 20.1 billion dollars’ worth of sales while Alibaba generated more than 170 billion dollars in gross sales! So, will Alibaba pose a threat? Definitely! Here’s why…
Amazon and Alibaba Business Models
One of the biggest ways Alibaba poses a threat to Amazon is its business model. Here’s how the business models differ…
Amazon – Amazon runs its business based on a simple model. Get lower prices than other suppliers and charge incredibly small markups. By doing so, Amazon’s cheap prices spread through word of mouth to the masses, and they earn amazing revenue off of mass quantities of sales. However, as a result of their business model, Amazon earns no revenue from visitors who do not make a purchase.
Alibaba – Alibaba runs their business completely differently. Although they are also an online market place, Alibaba doesn’t charge a markup at all. This is where they’re services are going to pose a threat to Amazons minimum margin strategy. After all, with absolutely no markup, even minimal markup models are going to have a hard time being successful. Alibaba is able to do this because they make money off of every single customer that visits their portal, no matter if that customer buys or not. That’s because they don’t earn their money from sales, they earn it from advertising and premium services.
Will The Made In China Stigma Hurt Alibaba?
When you talk to Americans about China made products, there’s a negative connotation that seemingly takes over the conversation. The simple fact is that although tons of products in the United States are made in China, there’s a negative stigma surrounding china made products. Some experts say that although Alibaba is a giant in China, they’re going to have a hard time appealing to a United States audience while in competition with Amazon. Personally, I beg to differ.
Personally, I use Amazon all the time. The way I look at it is this…no matter if I buy the product from Amazon or Alibaba, there’s a strong likelihood that the product is going to be made in china. Although Amazon is a United States brand, many of the products I’ve purchased on Amazon come with a “mad in China” sticker on the back. With that said, I think that if the made in China stigma was going to have an effect on Alibaba, it would also have an equal effect on Amazon; one that we haven’t seen yet.
Another reason that I don’t think this will hurt Alibaba is that we Americans love deals! We love to get a product that’s worth more for less. It’s engrained into our society. By not charging a markup, Alibaba is going to provide prices lower than we’ve ever seen. As a result, I think that they’re going to take the United States market by storm.