Amazon vs Alibaba Business Models: Similarities and Differences

Amazon vs. Alibaba Business Models: An Overview, the differences and the similarities

When you think of making purchases online, 2 names more than anyone else quickly come to mind – Amazon and Alibaba. Both are giants when it comes to the eCommerce industry.

As a business model, eCommerce or online marketplace is one of the fastest growing models for close to 3 decades. This is because more people prefer the convenience of purchasing goods online from the comfort of their homes using their internet-enabled devices. And this doesn’t look like a trend that is changing anytime soon. A number of companies both large and small have embraced the advantages of combining brick-and-mortar locations and supplemental internet-based storefronts to meet the needs of the vast majority of consumers. This model is known as Bricks-and-Clicks business model.

However, 2 of the biggest players in eCommerce; Amazon and Alibaba, became the giants they are today by operating through an online presence alone. While Amazon and Alibaba are both eCommerce businesses yet there are significant differences in their respective business models.

Today we shall explore the differences between the business models of Amazon and that of Alibaba.

Table of Contents

Amazon’s Business Model

Amazon has a similar business model to Alibaba, but there are differences

Amazon is regarded as the largest online retailer in the world. It operates a business model with multiple dimension. And here are the dominant ones:

1. As a Direct Retailer

First, the company sells goods directly. So it is a direct retailer of goods. A percentage of products are offered to buyers through Amazon’s online storefront with a small markup, and inventory is kept in the company’s large network of warehouses.

Two strong value proposition that drives this are:

Most consumers visit the company’s site assuming its products are less expensive
There is a wide variety of products to choose from, so whatever you want is readily available.

2. As an Aggregator

In addition to direct sales, Amazon also provides a platform for other retailers to sell products to buyers. These other retailers are referred to as Amazon partners.

Products sold through Amazon’s partner retailers are often less common items or those with a higher purchase price. The result of this is that it allows Amazon to avoid holding slow-moving inventory that could dilute profit. Amazon allows retailer partners to list their items on Amazon website free of charge. However, for every sale made Amazon takes a portion of the sales price as commission.

3. Subscription-Based Model

The third dimension of Amazon eCommerce model is that it maintains a subscription-based business model through its Amazon Prime service, as well as a small electronics product line. Under a Prime account, customers pay an annual fee to secure free two-day or same-day shipping on eligible items. And they also have access to streaming media, such as digital music or movies.

4. Amazon Kindle

Finally Amazon also generates revenue from selling its e-reader, the Kindle, and the e-book and mobile application purchases offered to Kindle owners.

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Alibaba’s Business Model

Alibaba is the Amazon of China. It is the clear market leader in China and as popular as Amazon is in America. As a complete marketplace Alibaba acts as a middleman between buyers and sellers online and facilitates the sale of goods between the two parties through its extensive network of websites. The model allows sellers on Alibaba to compete among themselves with customers getting the best bargain.

Their 2 largest sites, 1688 and Taobao, both operates as a fee-free marketplace where neither sellers nor buyers are assessed a fee for completing transactions. Rather, sellers pay to rank higher on the site’s internal search engine. With this it equally generates advertising revenue for Alibaba. Think of Google’s core business model.

While the majority of sellers utilizing the 1688 and Taobao website are smaller merchants, Alibaba also has a dedicated space for larger retailers. Tmall is the eCommerce site owned and operated by Alibaba that caters to well-known brands. Some of the major brands under Tmall include Gap, Nike, and Apple and many more.

In addition to its e-commerce sites, Alibaba is equally a competitor in the Chinese financial system. To combat customer concerns over the security and validity of transactions completed online, Alibaba created Alipay. As a secure payment system, Alipay protects buyers in the event merchants fail to deliver goods sold.

In fact, the model works in such a way that a customer must confirm receipt of their order before the payment can be released to the merchant. So basically, all payments has to go through Alipay. Though there are few cases where the customer can chat up the merchant and agree to pay through other channels. That is however, very risky as Alibaba will not be liable for anything that goes wrong.