Alibaba vs Amazon: evaluating marketplaces to enter the Chinese market

The fundamental differences between the digital empires of Alibaba and Amazon are determined by their monetization models. The founder of Alibaba in one of his interviews compared Amazon to “an empire that controls everything, buys and sells itself.” Alibaba is an ecosystem that enables any seller to become Amazon.

Indeed, first, Amazon resells products directly to end consumers at a small markup. At the same time, the company owns its own warehouses and supply chains. Secondly, Amazon provides its platform to other retailers to sell their products. Placement on the site remains free.

Typically, retail partner products are different from Amazon's resold products—they are more expensive, rarer, or have a long selling cycle, for example. This is beneficial for Amazon, otherwise the company would have to keep such goods in the warehouse itself, which will entail additional costs. In addition, Amazon earns a commission on the selling price of the retail partner's product.

An additional source of monetization here is also an Amazon Prime subscription. An annual subscription that gives a number of privileges to customers: fast delivery, special prices, access to music and video services. Don't forget about Amazon's book and digital business, the Kindle e-readers and all that goes with them.

Alibaba, on the other hand, works like a classic marketplace, acting as an intermediary between buyers and sellers, without owning warehouses and supply chains. For small and medium businesses, listing on the Taobao platform is free.

Monetization is carried out by promoting goods on the Web and online advertising. Alimama, which is part of the Alibaba ecosystem, is responsible for such services. it occupies about 33% of China 's online advertising market and generates up to 60% of Alibaba Group's annual revenue.

For Alibaba, financial services are an important part of the business. Alipay's own payment system dominates the Chinese market and is actively spreading in other countries. Fintech project Ant Finance, which started as a platform for providing microloans to small and medium-sized businesses, has grown into a financial giant with its own bank, a credit rating system with a total value of more than $34 billion. However, in 2020 the company had to suspend its IPO due to changes in the rules of regulation of the financial and technological sphere of the PRC and claims from the Chinese regulator.