Ecommerce has gained a lot of popularity in the last few years and is even preferred over brick-and-mortar locations. This is partly due to the global pandemic, COVID-19, that has caused many businesses to give up on their physical stores and switch to ecommerce. Nobody knows for how long COVID-19 is here to stay, but we all have adapted to new ways of living, including new business ways and ideas.
However, a few of the ecommerce platforms have existed for a very long time. Two of them are Amazon and Alibaba, which have managed to attract numerous customers to their platforms. Both these ecommerce platforms provide distinctive features for their users globally and cater to the specific needs of their users.
Alibaba vs. Amazon- which platform is right for your business? Let’s discuss!
The Alibaba Group Holding Limited was started in 1999 by Jack Ma, along with 18 people. Today, it is a multi-technology company that comprises core commerce, cloud computing, digital media and entertainment, and other innovation initiatives. This platform is used by consumers, merchants, brands, retailers, third-party service providers, strategic alliance partners, and other businesses. Alibaba is headquartered in the Yuan District, Hangzhou, Zhejiang, and George Town, Cayman Islands, and serves businesses globally. The Alibaba Group Holding Limited is a platform for consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) business models in various business sectors. It is most commonly used in China.
The Alibaba Group Holding Limited provides the following services:
- Alibaba Cloud
Launched in 1994, by Jeff Bezos, Amazon has become one of the leading companies in the world. Initially, it was started as an ecommerce platform, that slowly ventured into cloud computing, digital streaming, artificial intelligence, self-driving cars, and consumer electronics. Headquartered in Seattle, Washington, U.S., Amazon serves customers and merchants globally.
Amazon offers the following services:
Logistics including Amazon Air, Amazon Flex, Amazon Logistics, Amazon Prime Air
Products and services including AmazonFresh, Amazon Prime, Amazon Web Services, Alexa, Appstore, Amazon Drive, Echo, Kindle, Fire tablets, Fire TV, Video, Kindle Store
Subsidiaries including IMDb, Shopbop, Amazon Maritime, and others
Since we have some background about both platforms, we can now discuss their business models.
The Alibaba Group is the most widely used ecommerce platform in China. The Alibaba Group does not get involved in any direct sales and neither does it have any warehouse to store products. As discussed earlier, Alibaba has numerous websites running under its brand name that helps businesses to reach their consumers easily. Alibaba facilitates this by acting as the middle man between the two parties.
It runs the biggest free marketplace, Taobao, where sellers and buyers are not charged any transaction fee. However, due to higher competition, sellers pay Taobao to get a higher rank on the internal search engine for better visibility. This is a great practice for sellers to help increase their sales; this is how Taobao makes money. Taobao is mostly used by small businesses that are striving to do better.
Aliexpress is similar to Taobao, with the only difference being that Aliexpress caters to the international market, whereas Taobao only serves in China.
Tmall, on the other hand, is a website for bigger and well-established businesses, including Nike and Apple. Since Tmall caters to bigger names, it earns revenue by annual user fees, deposits, and sales commissions.
Alibaba.com is a marketplace for Asian suppliers. It generates revenue for the Alibaba group by charging the sellers a commission for every transaction, and by charging the sellers from their storefront on Alibab.com’s platform.
Running ecommerce platforms requires a robust financial system. Alibaba has launched Alipay, to provide security, validity, and protection to buyers and sellers on these ecommerce platforms. Alibaba charges a cut for every transaction made through Alipay.
Unlike Alibaba, Amazon sells goods directly to the seller (direct sales), and they have a stocked up inventory, making the goods readily available for shipping. Those goods that are not stocked in the warehouses can be sold directly by the retailers to the buyers. These goods are usually expensive or have a low demand; stocking such goods in the inventory is just a waste of space. Amazon charges the seller a portion of the sales price as commission.
Ecommerce is not the only source of revenue for Amazon. There are e-reading services, known as Kindle, offered by Amazon, that add to the total revenue. Amazon Prime is another subscription-based service for media streaming that is another source of revenue for Amazon. With an Amazon Prime Account, customers have to pay an annual fee for steaming the media, and with that fee, they can enjoy the perks of having a same-day or two-day shipping option for the goods they purchase.
As ecommerce platforms are providing their name to various merchants, they charge either the buyer or seller and maybe even both! The Alibaba Group and Amazon earn money differently. For Amazon, it is the customer that matters the most; and for Alibaba, it is the seller who matters the most. Both platforms generate revenue differently.
Alibaba does not charge as much as Amazon; there are no fees for sellers or buyers. However, on Taobao, sellers must pay to get a higher rank on the internal search option.
Amazon charges the seller and buyer both. Sellers are expected to pay a percentage of their revenues to Amazon, as well as pay an advertising fee for their business.
As ecommerce platforms generate revenue, they can generate profits for themselves too. Profits depend on the sales made by each ecommerce platform. Let’s see who is the true winner here.
As Alibaba is the main ecommerce platform in China, it generates most of its revenue from sales in China. Alibaba does cater to the international market, but the sales are very low, as compared to the sales made only in China. Reaching out to the international market is one of the goals of Alibaba that they are trying to achieve. One step that they have taken for it is that they have introduced new platform features that would be beneficial to American-based sellers. In 2019, Forbes had quoted that Alibaba generated a net profit of $13.1 billion.
Being an American ecommerce platform, you would expect Amazon to earn mostly through sales in the States, but that is not the case. Amazon earns mostly through its sales made internationally. In 2019, Forbes had quoted that Amazon generated a net profit of $11.6 billion.
SO WHICH PLATFORM IS DOING BETTER?
By looking at both the values, it is pretty evident that Alibaba made more profit than Amazon. Although these values are only for the year 2019, generally also, it is seen that Alibaba tends to make more profit than Amazon. This brings us to the main question: why are there such great differences between both the ecommerce platforms?
The answer to this lies mostly in the infrastructure of both platforms. As Amazon has its inventories and warehouses, it spends a lot of money on warehousing and shipping. This adds to the cost of running the platform. Alibaba, on the other hand, does not own any warehouses, thus, saving up on the overhead costs. It just acts like a mediator between the seller and buyer, without getting involved directly. With the approach taken by Alibaba, they can earn higher profit margins and more scalability.
So coming back to the main question: which ecommerce platform is the best for my business? The answer to this question depends on the goods you sell, your location, and your target market. If you are based in China, you must sell on Alibaba as that is the most famous and widely used ecommerce platform there. If you sell on Amazon, being based in China, your sales will be high, but not as high as you would experience in China.
Your sales are not just dependent upon the ecommerce platform you choose to sell on. The marketing and store managing bit is also important. If you feel you do not have the technical knowledge regarding these, you should consider relying on professional help. DigAptics is a team of professionals, who work closely with their clients, to help them achieve their goals. Whether these goals are better to store management or an increased ROI (Return On Investment), DigAptics can provide the best solutions for your business. Contact them today to get estimates for your business.