Alibaba (BABA), a little-known company to the majority of people outside China, created history with its grand debut at the New York Stock Exchange (NYSE) in September 2014 beating records of the biggest IPO collections ever made. From the time that news of its proposed IPO in the U.S. came out, Alibaba the Chinese ecommerce giant has been analyzed and compared to global players like Amazon and eBay. Alibaba is basically an ecommerce company that does not operate like a typical one – it doesn’t own warehouses and distribution channels, nor does it indulge in direct selling. It is a platform “open marketplace” where small businesses and bigger manufacturers can reach out to prospective customers. Though Amazon and eBay top the list as Alibaba’s global competitors, interestingly they have more differences than similarities with Alibaba. (Further Reading: Navigating E-commerce: Alibaba, eBay and Amazon)
Let’s look at Alibaba’s top competitors to understand perceived and real competitive threat to Alibaba.
- Amazon.com Inc
Amazon.com Inc (AMZN), founded in 1944, is a Fortune 100 company. The company in its model is much closer to the traditional style of retailing, as it indulges in direct selling, owning distribution centers and warehouses (unlike Alibaba). Amazon has built a strong reputation among its customers by providing satisfactory service and customer experience. Since the year 2000, Amazon opened its platform to individual and retail sellers to reach out to customers via Amazon.com. Amazon’s company website reveals that “over 2 million third-party sellers participate in Amazon where they offer new, used, and collectible selections at fixed prices to Amazon customers around the world.” Amazon has excellent logistic potential and manufactures self branded products in addition to being a platform for publishers and authors.
- eBay Inc
Alibaba is closer to eBay Inc (EBAY) in its set-up, bringing buyers and sellers together on a platform and even providing a payment system like eBay’s PayPal, called AliPay. According to eBay’s 10-K, it is “primarily a transaction-based business that generates revenue from the transactions and payments that we successfully enable.” eBay comprises three segments, with each being a distinct brand; eBay (buy and sell online), PayPal (digital payments) and eBay Enterprise (commerce, retailing and digital marketing).
Alibaba and Amazon are giants in their respective worlds. The two will find it difficult to breach each other’s territory and should continue to enjoy their dominance respectively. Though Alibaba and eBay have similar models, it would be hard for Alibaba to crack the brand recognition enjoyed by eBay. These companies are likely to compete with each other for markets outside the U.S. and China (like Brazil for example) but it is unlikely that these brands will unseat each other from their homeland. (See: Alibaba's Goal: Supplant eBay, Amazon and PayPal)
Tencent, primarily an internet company, was founded in 1998. With its steady growth over the years, it is among the largest and widely used Internet service portals in China. The company’s stock, Tencent Holdings Limited (0700.HK) is listed on the Hong Kong Stock Exchange. Its most popular products are: QQ, WeChat, QQ.com, QQ Games, Qzone, 3g.QQ.com, SoSo, PaiPai and Tenpay. Though Tencent is more into social media and entertainment, its strong internet presence and changing interests have started to overlap with that of Alibaba’s. The company via its messaging app “WeChat” has been lately getting into ecommerce.
JD.com is China’s largest direct online sales company in terms of transaction volume, with a market share in China of 54.3% in the second quarter of 2014, according to iResearch. JD.com is similar to Amazon.com Inc in its business model – it involves in direct sales, holds inventory, manages logistics and shipping – the way a typical ecommerce company works. The company is listed in the U.S. (JD).
Tencent and JD individually do not pose much risk to Alibaba but the strategic partnership between Tencent and JD is a big boost to their power and a threat to Alibaba’s consolidated position in the home ground. Tencent has great outreach out to smartphone users with its very popular mobile app WeChat (with approximately 438 million users) and JD is a good player in retail, the two together can reach out to many users, influence shopping decisions and pose problems for Alibaba.
Baidu (BIDU) is China’s dominant internet-search engine which is aggressively pushing for O2O (online-to-offline) services, creating demand for products in physical stores through mobiles and internet. Baidu was founded by Robin Li in the year 2000 and is listed on Nasdaq. The company is very similar to Google in terms of products and services, offering videos, maps, encyclopedia, anti-virus software, internet TV and more.
Baidu alone is not a strong enough competitor for Alibaba but the deal between Dalian Wanda Group (70% stake), Tencent Holdings and Baidu (15% each) to set up a 5 million yuan ecommerce company sure is. This deal makes Wanda the world’s biggest online-to-offline ecommerce platform. The three have united forces with each bringing in its expertise to battle against Alibaba.
The Bottom Line
Alibaba has a lead over its competitors back home not only in terms of revenue and market share, but also the publicity it gained by virtue of its listing on NYSE. However, in the long term, an IPO launch in the U.S. cannot solely guide its profits or market share; rather, its performance and profits will decide the stock’s valuation.
The company till now has largely been a domestic player with just 10% of its revenue from international markets. Though Amazon and eBay do qualify as Alibaba’s competitors, given the unique advantages each has in its domain, it seems difficult for Amazon or eBay to enter the Chinese markets and gain a lead (and vice versa). Thus the bigger threat doesn’t seem to be coming from Amazon or eBay; it’s homegrown. The situation back home is more aggressive: Basically, it's Alibaba vs. everybody else (Tencent, Baidu, JD, Wanda), the latter of whom are setting up an alliance to take on Alibaba.
Disclosure: At the time of writing, the author did not own any shares in the companies mentioned in this article.