It might be difficult to fathom from the vantage point of the United States, but Amazon is not the world’s number one online retailer. The crown is currently worn by Alibaba, which is three times larger than Amazon, and has a lock on the Chinese market, every bit as complete as Amazon’s lock on the American market.
While Alibaba is unlikely to unseat Amazon in the US, and Amazon is unlikely to gain much ground against their larger competitor in China, the rest of the world is very much up for grabs. Both sides in the looming confrontation have certain advantages, and it is too early to say who will come out on top.
Alibaba’s main advantage is one of sheer size. Size creates economies of scale, and that in turn, creates cost savings and efficiencies. This gives Alibaba an enormous amount of muscle on the global stage. Their other big strength comes from the fact that the cost of online retail in China is essentially zero. Amazon has adopted the Costco model, and charges 12% commissions. Zero is smaller than 12, so the nod here, goes decisively to Alibaba in terms of cost.
Amazon has two advantages. Individually, neither are as compelling as Alibaba’s size advantage, but both are vitally important. The first is in Amazon’s world class customer service. That plays well in Europe, and it’s something that Alibaba has struggled with. In terms of perception and customer experience then, Amazon gets the clear nod here.
The company’s other key strength lies in AWS (Amazon Web Services). This is a huge, multi-trillion dollar market in which Amazon has no peer. The company is literally five times bigger than it’s next fourteen competitors combined. That amounts of an essentially unassailable lead, and even if Amazon falters on the retail side of things, this is a huge cash cow for them that will invariably give them a ton of breathing room.
As far as response goes, Amazon’s likely first move will be to slash those commissions. They won’t drop to zero, obviously, but they won’t necessarily need to. Alibaba doesn’t have AWS (though they do have a clone that isn’t as popular), and they don’t have the seamless, world class customer support infrastructure. They may well dominate in places outside of Europe, but Europe will be the primary battleground for the near to medium future, and here Amazon has some key advantages that should help them win the day. Africa and the rest of Asia however, seem like tougher battles for the company.
Again, it is too early to say, and Bezos is known for his brilliance and his unpredictability. In the company’s early days, they were threatened with annihilation by Barnes and Noble, and we all saw how that story played out. Bezos proved himself to be a scrappy fighter and came out on top. Will he again? This battle stands to be even tougher, and will span the whole of the globe. It will be exciting to watch how it unfolds.