Wednesday, February 01, 2017

Amazon vs. Alibaba, Why is Alibaba GMV equal to 5x Amazon ?

Can Amazon ever be a capable and credible competitor to Alibaba ? Amazon with a GMV of app $ 255 billion is less than half of Aliababa's GMV of $ 550 billion. Jack Ma needs to be complimented as one of the greatest from the e-commerce world as from a virtual non-entity, spearheaded by Amazon, e-commerce has now grown to be a great business across the world wsorth billions of dollars.s
Jack Ma Founder of Alibaba, courtesy Reuters .

Even though Jeff Bezoz of Amazon brought the concept of e-commerce really to the forefront, resulting in many startups opening and thriving, increasing the wealth of the world, because of limited opportunities and a matured market in the western hemisphere Bezoz could not make much headway.

Getting to know of the power and potential of Internet, a 30 year old school teacher from Hangzhou, China changed the future of electronic commerce forever .. Now at 52 years Jack Ma, after 21 years of starting Alibaba in 1996 is the greatest entrepreneur the world has ever seen. The company he founded against all odds of Communist one party rule and a stifling leadership, now annually generates more than half a trillion dollars of gross merchandise value.

The major reasons for his success, in spite of the relatively closed business environment within China after the cultural revolution from 1949 to 1976 and the subsequent opening up of Chinese economy since 1979, has been his dogged belief in the potential of electronic commerce to change the future of commerce around the world. With great courage and foresight, Jack Ma transformed the closed-door business environment within China constrained by regulations, control, corruption and nepotism, to one of competition, fair playing ground and vast global reach, powered simultaneously by a national push to improve the transportation infrastructure around the country.

Nasdaq data ..
By helping startups to exploit the internet, he gave employment opportunities for the people and growth prospects for businesses willing to trade with the outside world through Alibaba.  More than his or his company's personal growth, Jack concentratred on empowering and legitimizing small vendors to do business with customers from around the world and benefit in the long run.

Click on this very recent youtube video from Alibaba Jack Ma's talk at the World Economic Forum in Davos, SWITZERLAND in January 2017  where he speaks of how Alibaba overtook Amazon even though Amazon and Alibaba started their journey in 1994 itself. (watch from 13:40 min)
Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance. Essentially, it's a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions or tax environments.

Gross merchandise value is the total value of merchandise sold over a given period of time through a customer to customer exchange site. It is a measure of the growth of the business, or use of the site to sell merchandise owned by others.
     (credit for definition : www.investopedia.com)

Amazon has an asset heavy model where it maintains its own assets, warehouses and distribution setup.

Alibaba on the other hand, believes in having as asset light model, it does not have much of assets and facilities, it enables a business ecosystem, empowering others to do big business. The stocks are majorly kept by their partners, not Alibaba. We could even postulate this asset light model of Alibaba to be the Just-In-Time business model of the trading and commerce world.

Alibaba is to e-commerce what Toyota is to Manufacturing ..

Click here for the Nasdaq  link ..

In the GMV/EBITDA ratio we find Alibaba is 2.5 times Amazon while in the GMV/Revenue ratio Alibaba is almost 14 times Amazon. The business earnings of Amazon is greater than Alibaba as Alibaba believes in creating a business ecosystem where all the partners get to share in the benefits from the better business environment (socialistic style) while Amazon wants to control the whole business and does not believe in sharing the benefits of improved business with its partners (truly capitalistic style) ..

In the final run, it is the business ecosystem that will survive and thrive and not the business entity, as the results show after both Amazon and Alibaba are in business for 22 years each. This should be a great learning for the rest of the business entities around the world. Try to create a business ecosystem where everyone gets to thrive depending on individual efforts ..

Jack Ma is not the greatest retailer, like Sam Walton or Jeff Bezoz, Alibaba will always remain a retail platform. Jack Ma thus is empowering millions of entrepreneurs from China to succeed globally. Click here to listen to this youtube video on the philosophy of Alibaba .. It also gives an idea of what should the companies in the rest of Asia, America and Africa do to launch counter offensive to Alibaba in these countries focusing on strategy, structure and implementation with omnichannel distribution, in other words how to counter the Alibaba effect .....

george ..

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