Together, Alibaba and Amazon have about a $1.4 trillion market cap, ($459 billion for Alibaba and $910 billion for Amazon)
Both Jack Ma and Jeff Bezos have the same global vision: Digitize Earth and everything on it.
Ma’s original declaration, “Alibaba’s mission is to make it easy to do business anywhere.”
Bezos said, “Our vision is to be Earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”
They have both spread their dominance across a vast array of industries – retail ecommerce platforms, cloud computing, entertainment, finance to name a few
While Amazon’s market cap outperforms Alibaba’s today, there are plenty of signs that Alibaba could overtake Amazon in the race to dominate retail’s future.
We assess 5 key factors – growth rates, market potential, current innovations, r&d investment and shareholder profit – to determine which one is ahead in the race to dominate the world
1. Growth Rates
At US $177.8bn, Amazon’s 2017 revenue is 4.7 times Alibaba’s $37.5bn. But over the last 5 years, Alibaba’s growth has eclipsed Amazon’s at an eyewatering CAGR of 52.3%, more than double Amazon’s at 24%
If both can continue their current trajectory, Alibaba will overtake Amazon in 2028, when both break the USD $3 trillion mark.
$6 trillion+ between Amazon & Alibaba is a pretty scary thought, but who is going to stand in their way?
2. Total Addressable Market
Amazon currently dominates North America and Europe, but it is aggressively entering India, and making moves in Australia and Singapore. Alibaba controls China and has made a web of strategic partnerships and investments in Southeast Asia. But like Amazon, Alibaba is also making large bets in India and entering Australia.
Analysts Barron’s have done the numbers and assert that growth for Amazon in the next 10 years will mostly come from adding more regions in which it sells. The global “total addressable market” for Amazon’s retail operations right now is $8.9 trillion dollars, of which $2.62 billion is in the U.S., $2.88 trillion is in “new categories” of retail products; and $3.4 trillion is from overseas sales.
Come 2027, analysts expect Amazon’s opportunity will expand to $15.9 trillion, but the biggest single chunk of that would be from “global expansion,” they predict, which could make up $4.94 trillion in retail sales annually.
In contrast, Alibaba can see its own addressable market expand from $10.6 trillion this year to almost $24 trillion by 2027 just by expanding further in the China market, which could double to $10.5 trillion in that time.
Alibaba already accounts for more than 80% of all online purchases in China. But with just a 53% internet penetration, there is still lots of room for growth at home
“Said another way, BABA’s China TAM is larger than AMZN’s Total Global Opportunity,” the authors conclude.
For the company where it is always day one, innovation is ingrained the heart & soul of its people. Three big initiatives that drive Amazon today are: an incursion into the physical world with brick-and-mortar stores; Prime; and their fulfillment center that has human workers and high-tech robots working together, restlessly rethinking logistics.
About 60% of the total value of all merchandise sold on Amazon is accounted for by Prime. Almost all of their most recent innovations share a connection to Prime, which has between 40 and 50 million users in the U.S. alone. These customers annually spend $2,500 on Amazon (4 times more than non-members).
Amazon is making big acquisitions to make Prime even more seamless
In the first quarter of 2018 Amazon made its second-biggest purchase ever after Whole Foods, the acquisition of video doorbell/smart home vendor Ring.
And, in December, Amazon bought home security vendor Blink.
It’s one more step toward control of the last mile of delivery. That is, Amazon packages left on doorsteps sometimes get stolen, or there are mismatches between delivery time and when someone is home.
By making smart home — and especially smart doorbell — technology part of its empire, Amazon can coordinate the entire delivery path. Perhaps smart home tech can be integrated with your delivery, helping to let you know when it’s there, or perhaps the tech might even let the delivery person in when you’re not there.
Amazon’s state-of-the art cashierless stores were beta tested in Seattle was opened to the public in January. Latest reports indicate Amazon Go will open in Chicago and San Francisco shortly
It’s really about Amazon’s strategy to completely understand consumer behavior, he said. In other words, filling out the data about how you live your life.
Amazon has a “deeper understanding of consumers than any other company,” he said, based on its enormous retail operation. Holiday sales in 2017 on Amazon, for instance, accounted for an astounding 89% of all sales for major e-commerce providers.
While most of us are fixated on Amazon, we are blissfully unaware of the innovations coming thick and fast from companies like Alibaba in China.
A great place to start is grocery. Chinese e-commerce giant Alibaba has a strategy around what it calls “New Retail.” Where Amazon has experimented with its cashier-less convenience concept Amazon Go, and is rolling out two new stores this year, Alibaba has 25 of its futuristic Hema supermarkets in place, with another 30 planned to open this year.
Alibaba’s futuristic supermarket in China offers 30-minute deliveries and facial-recognition payment — and it shows where Amazon is likely to take Whole Foods
Shopping at Hema is a smartphone-powered experience—you can do it from home or in the store. When you’re in the store, you’re able to scan a bar code with your phone to get product information. Payment is also cashless, done through the Alipay platform embedded in the Hema app.
At Hema you can choose your own fresh seafood and decide whether you want it to go home with you—raw or cooked—or have it prepared to eat in-store.
The Hema app logs all of your purchases, saves your preferences and delivery address, and allows you to pay with Alipay, Alibaba’s mobile-payments provider. After shopping at Hema, you’ll have a personalised product page
Thanks to Alibaba’s deep trove of data on consumers — the company had 515 million active consumers on its platforms last year — as well as the data collected by the Hema app, each Hema store can tailor its stock based on the spending habits of those who frequent the shop
For those who live within three kilometres of the market, Hema’s ability to deliver in as fast as 30 minutes is its best asset. Each store serves as its own warehouse and logistics centre that collects, fulfils, and delivers customer orders as fast as they come in, online or offline
Aside from Hema. Alibaba has been forging into physical retail with investments in the supermarket Sun Art, the department-store operator Intime, the electronics seller Suning, and the furniture store Easyhome, among others.
Auto Vending Machines
Instead of visiting one dealer at a time and spending hours perusing mega-lots and facing pressure from a salesman, Alibaba is helping roll out “Auto Vending Machines.” It’s a model that lets customers browse makes and models inside their app, choose a car they want to test drive, pick it up from an un-manned vending machine, and drive it for up to three days. After experiencing the car in a no-pressure situation, they can make an appointment to visit a dealer when they’re ready to buy.
The World’s First Mass-Produced Internet Car
In July 2016, Alibaba Group and SAIC (Shanghai Automotive Industry Corporation), one of the largest auto manufacturers in China, teamed up to launch the Roewe RX5, a brand new SUV that incorporated Alibaba’s ALIOS operating system and that was dubbed “The world’s first mass-produced internet car.” Just one year later, in July 2017, the Roewe RX5 was already the 6th best-selling SUV in its category in China. And, most importantly, when asked about their buying decision 75% of customers said they purchased the RX5 because of its connectivity.
Digitising Mom-and-Pop Convenience Stores
Alibaba custom built an app to digitise the inventory management of each store. It tied these business into a central warehousing and logistics system. It also provided them with an analytics platform that anticipates customer preferences and lets proprietors know what they need to order, how much, and when. Ling Shou Tong also modernized the insides and signage of the stores.
In the year to March 2018 Amazon pushed further and once again topped the list on r&d, spending $22.6 billion in 2017, 41 percent more than in 2016 (when it also topped the list).
Alibaba recently announced a big push to do more research and development, ploughing US$15 billion into new innovation over the next three years.
Alibaba also announced it was launching a new research institute dubbed the “Academy for Discovery, Adventure, Momentum, and Outlook” (DAMO), which includes seven new research labs in China, the United States, Russia, Israel, and Singapore
DAMO’s research centers will tackle a number of different areas, including internet of things, quantum computing, fintech, human-machine interaction, network security, and natural language processing.
5. Profit & Shareholder Return
Last but by no means least we take a look at the metrics
Alibaba and Amazon share price has grown at very similar rates over the last 12 & 24 months
Source: Finance.yahoo.com 5/4/2018
While it’s not yet clear which of the two companies will deliver better performance to its stockholders in the long run, one thing is clear: Alibaba’s formula of success consistently beats Amazon’s in a key metric: operating margins.
Source: Finance.yahoo.com 5/4/2018
Our ratings pit Alibaba ahead of Amazon.
Amazon’s future may appear bright, but it may be eclipsed by Alibaba’s awe-inspiring business model.
The following factors are going to be the critical differentiators for Jack Ma’s e-commerce giant in the years ahead
- Going Beyond Ecommerce
- Getting Deeper into Payments
- Cloud Momentum
- R&D Vision
Alibaba has delivered growth while simultaneously yielding profits – something Amazon has long been criticized for failing to deliver. They rarely compete, with each staying in their respective corners, but it’s worth wondering who would win in an all-out battle. The four little-known assets laid out above, and Alibaba’s exceptional cash-flow generation, make it the odds-on favourite.
Sign-up to our news