Amazon and Alibaba are two giant stores that are conquering the world. On the one hand, Amazon is already a global phenomenon. On the other side, Alibaba is expanding globally. It is interesting to compare the two business models from three standpoints:
An essential part of the business is still based on the revenues coming from the online store.
Both companies generate most of their revenues (at lower margins) from their e-commerce consumer-facing platform.
It is important to notice how Amazon has been decreasing its dependence on the online stores’ revenues while increasing the revenues from AWS and Amazon Prime services.
Alibaba’s revenues come from services like Cloud, digital media, and entertainment.
Amazon vs. Alibaba: international expansion
As noted in Forbes in 2017, its founder Jack Ma “has spent more than 800 hours flying to dozens of countries, meeting business leaders and head of states to introduce his grand vision: small businesses from all corners of the world trading freely and securely on Alibaba’s platform.“
Both Amazon and Alibaba are investing considerable resources in going global.
As reported in The Economist, Amazon has spent over $5bn in India, while not long after, Alibaba invested $500m into an Indian digital-payments company.
Amazon vs. Alibaba: net income margin
I focused on this metric because it’s interesting to see the difference in margin between Alibaba and Amazon.
Alibaba is an e-commerce platform that generated over $134 billion in revenues in 2022 and over $7.4 billion in net income. Alibaba has six main segments: core commerce (revenues generated in China), international commerce, local consumer services, cloud services, Cainiao (logistics), digital media, and other innovation initiatives.
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services, Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
