Tag: Ecommerce

Alibaba vs. Amazon: Who Will Win the Global eCommerce War?

This article is by Mohanbir Sawhney, professor, and Sanjay Khosla, senior fellow, at Kellogg School of Management. They are the authors of Fewer, Bigger, Bolder: From Mindless Expansion to Focused Growth.

Move MOVE +1.29% over Amazon. There’s a new e-commerce leader in town. With its triumphant $21.8 billion initial public offering, Alibaba has eclipsed Amazon as the largest and most valuable e-commerce company in the world. In fact, based on the first day of trading, Alibaba is more valuable than Amazon and eBay combined. Alibaba’s vast e-commerce empire encompasses wholesale, retail, group buying, and payments. It has also been aggressively investing in startup firms, shelling out $8 billion just in the past six months. Alibaba’s charismatic founder, Jack Ma, has made no secret of its global ambitions. Alibaba is knocking on Amazon’s doorstep in the United States and Europe.  Meanwhile, Amazon is making efforts to expand its small presence in the lucrative Chinese e-commerce market.

As these two titans of e-commerce cross borders, who will win the global e-commerce war? Will Alibaba become a viable competitor for Amazon in the West? Will Amazon be able to compete on Alibaba’s home turf? The battle is just beginning, but we can make some predictions about how it may play out by looking at the similarities and differences between Amazon and Alibaba.

Jack Ma, Founder of Alibaba Group

Jack Ma, Founder of Alibaba Group (Photo credit: Wikipedia)

At first glance, the companies seem to have a lot in common. Both companies focus on helping people buy a vast variety of products at low prices without stepping into a store. Like Amazon, Alibaba has built up a massive customer base and data infrastructure and has emerged as the dominant player in its home market. But the similarities end there. Alibaba is not a traditional e-commerce company. It operates an “open marketplace” that connects buyers with sellers. It has created an e-commerce platform that helps small businesses as well as branded manufacturers reach consumers. It does not sell anything directly and does not own any warehouses. As a result, Alibaba is vastly more profitable than Amazon, with margins of almost 40% and earnings of almost $2 billion in the most recent quarter, according to its IPO filing documents.

In contrast, Amazon operates a “managed marketplace” that is closer to traditional retailing. It owns massive distribution centers, sells a majority of its products directly, and even manufacturers its own brands of smartphones and tablets. Amazon’s model gives the company far greater control over the customer experience and has allowed it to build a storied reputation for customer service. The downside: It has to make massive investments in infrastructure, employ legions of people, and operate on a wafer-thin profit margin.

Both Amazon and Alibaba have built e-commerce platforms uniquely suited to their home markets. Alibaba has a deep understanding of Chinese consumers and of nuances in terms of tone, approach, and product variety. The company has mastered the intricacies of Chinese regulations and how to work with state and national governments. Conversely, Amazon is a master of logistics and supply chain management, and it is the world leader in cloud infrastructure services. Its Kindle Fire devices rely heavily on its vast catalog of music and movies and its shipping services as well as its cloud infrastructure. Unlike the iPhone, which is a truly global product, the Kindle Fire tablet and the Fire phone cannot deliver on their value proposition without hooking up with Amazon’s data centers and distribution system.

Amazon and Alibaba will find it difficult to export their finely tuned business models to each other’s markets. Amazon will need billions of dollars and several years to build out its distribution and content delivery infrastructure in China. It will have to engage in a costly battle for market share against a firmly entrenched competitor that knows its way around China way better than Amazon can ever hope to. Similarly, Alibaba will find it very difficult to compete with Amazon’s strong brand and well-honed supply chain and logistics skills in Western markets.

So how can Alibaba or Amazon conquer the world?  They will need relentless focus on their home markets and disruptive innovation to win in their competitors’ markets. Alibaba will be well-served to continue to focus on the Chinese consumer, as the Chinese e-commerce market is still under-penetrated. It should rein in its confusing series of acquisitions and investments and focus them on e-commerce, cloud computing, digital content, and logistics. Flush with IPO cash and a lucrative stock as currency, Alibaba will be tempted to continue its acquisition spree in Western markets. But it should be cautious not to spread itself too thin and stay focused on assembling a coherent set of e-commerce platform assets in the United States and Europe.

The strategy for Amazon in China and India will also need to concentrate on building local market understanding and capabilities. This will require smart acquisitions of local e-commerce companies and a differentiated value proposition. For now, the money and the momentum is on Alibaba’s side, but success on Wall Street does not guarantee success on Main Street in the United States. The one sure winner in this battle of titans will be the e-commerce consumer.


Q&A: YOOX CEO Federico Marchetti on online fashion

YOOX Group was launched in Italy in 2000, and runs Yoox.com and thecorner.com, as well as providing e-commerce sites for brands such as Diesel and Emporio Armani. 

I’ve been talking to founder and CEO Federico Marchetti about the growth of YOOX, the challenges of selling fashion online, and why great customer service is more important than marketing..

Federico Marchetti YOOX

When did you launch YOOX? 

Yoox.com was founded in Italy in 2000. How is pretty simple: my dream has always been to become an entrepreneur. I pursued other careers but without great passion; I was always waiting for the right idea.

In 2000, I was 30 and was so bored with the job I was doing that I decided to start YOOX, combining those that are still my main interests: retail, fashion, luxury goods and the media. I consider the Internet as the most important invention of the past 30 years and in 1994, despite never having been a high-tech. person, I was one of the few people who used Internet to find information.

How big is YOOX now? 

As of December 31st, 2009, YOOX posted consolidated net revenues, net of returns and customer discounts, of €152.2m, up 50% from €101.5m in 2008. We sell in 67 countries around the world.

How have you funded the business since launch? 

At the time of its founding, I had clear ideas about our future goals. The first sentences of the business plan of 2000 were, in fact, very similar to those of our last three-year strategy document: we consider ourselves a global Internet retailing partner for leading fashion & design brands.

At that time, Italy was not prepared for e-commerce, so I put together a small team of trusted people. On June 21, 2000, yoox.com started to accept the first orders. So, YOOX Group, was founded in 2000 with yoox.com, the virtual boutique of Multi-brand fashion & design, and today has extended its expertise and infrastructure by designing and managing Mono-Brand Online Stores and launching the virtual space thecorner.com.

How big is the team behind Yoox? 

Every person is important for YOOX’s success. We rely very much on the strength and creativity of our team: a team of young people who have developed unique skills in a market that did not exist before the creation of YOOX.

YOOX Group today employs nearly 300 people, with an average age of about thirty and 60% of women who work at the headquarter in Bologna, and in the offices in Milan, New York, Tokyo, Paris and Madrid, a team of people from different countries and from different cultural backgrounds: from United States to Japan, from fashion to technology, to media distribution, united by the enthusiasm of being part of a single project.

You sell to several different countries, and customers in different languages? Do you tailor the websites to suit individual markets?

YOOX Group delivers in 67 countries in the world and the website is translated in 7 different languages and we offer services to cater to all costumers’ needs. We offer also a website with size, currency and language localized for the main countries.

To complete the service offer there are secure transaction systems, guaranteed by fully-backed and global processor and acquirer network, 48-hour average delivery time in the European Union, 4-day average delivery time in the United States and Japan as well as a real-time online order tracking. And finally a fast and guaranteed Return Service and phone and e-mail contact center service in 7 languages.

What are the challenges of selling fashion online? Do online retailers have to work harder to sell fashion online than other sectors?

E-commerce has become, for the fashion world, a different way to make a purchase, a somewhat less institutional, more fun way that requires the individual’s interaction. So, the customer of an online fashion product has become a wide category and not easily definable.

In general, doing shopping online is definitely a new and enjoyable shopping experience, possible from any place and at any time, even in the office. In 2000, when I opened yoox.com, I had to convince – and it was not easy – the brands to sell their products for the first time in an online store. The first one, then the second, then slowly it came to dozens, then hundreds.

In the first years, they were always suspicious but at least had the desire to try. In 2000, few people would have thought that even Italians would buy fashion online, something that has happened thanks to yoox.com. And slowly brands have become increasingly interested and began to think about having their own online store on their website.

In 2006, YOOX Group opened the doors of its own know-how to its historical partners starting to create and manage online stores on their behalf: marni.com, emporioarmani.com, diesel.com, robertocavalli.com and now we are becoming a group that operates on a global scale – in addition to our “historic” yoox.com and thecorner.com – seventeen online stores for many super brands, all “Powered by YOOX Group.”

Has your approach to customer service and a flexible returns service been a key factor in your growth?  

Sure. The principle on which yoox.com was founded is a great attention to quality both in terms of selection and service with the aim to build the best shopping experience for our customers characterized by quality, secure payments, delivery with original packaging in record time thanks to UPS and efficient customer service by phone and e-mail, and last but not least, returns.

In fact, our return policy is very convenient for our customers, because if for whatever reason are not satisfied with their purchase, they can return it, getting a refund of the purchase price. We have chosen to invest on customer service rather than advertising, believing that the “word of mouth” is the best communication tool.

What are some of the future challenges for online fashion stores? 

Internet is becoming a “jungle”, very crowded. The future is to build online stores that are so unique and entertaining that people know them and find them without having to go through Google.

Is a preference for offline shopping, especially the desire to try clothes on first, holding back the online fashion market in any way?

It’s not true that people can’t try clothes on. Products are delivered directly to customers’ doors. This has the added advantage of someone being able to try them in the comfort of their home, with items from their own wardrobe.

Our Multi-brand and Mono-brand online stores offer a very “relaxed” return policy. If for some reason you are not fully satisfied with your order, you may return as many items as you wish without paying return shipping cost and receive a refund for the item price. The online shopping experience is more complete and enjoyable.

YOOX Group has always invested in service: we’re a service company, not a marketing one, because we’re built to last.

How do you see online fashion sites developing over the next few years? 

My idea is that these online stores must be made not so standard but rather tailor-made. On the internet it is important to maintain and highlight the image of the brand: today you can’t have a chain of beautiful traditional stores and an unappealing virtual space on the web.

Indeed, my view of the online store is that it should be most beautiful because it is done to get in touch with a global audience and it can generate a turnover 100 times more than a single store.

In addition, the web allows you to unite the commercial and media aspects, providing users with additional options such as video, information and other content that will be increasingly important in the near future.

We will continue to run faster, because who innovates is forced to “never rest on one’s laurels,” especially in the internet era.

You have one of the better mobile commerce websites I have seen – any other plans around mobile? 

Last December, yoox.com announced the launch of a new iPhone app, an interactive mobile shopping application available for free via Apple’s App Store. The new application for iPhone and iPod touch, “YOOX.COM Style Gift Guide”, was developed in-house by YOOX Group’s Technology team and offers consumers the chance to explore yoox.com’s selection of fashion & design pieces anytime, anywhere, and ship items worldwide.

This is the second foray for yoox.com into the world of mobile e-commerce, after the successful launch of yoox.com web fashion shopping application for iPhone and Android in April 2009. The “YOOX.COM Style Gift Guide” App present the user with a special interactive questionnaire that will accompany them through the yoox.com shopping experience. Questions which appear include: Where would you like to ship your gift – Spain, United States, Russia or Japan?

What type of item are you looking for – Handmade or Classic? What is your budget? In just a few steps and thanks to a cover-flow interface, the items will be displayed with a 3D-effect, allowing users to make the perfect choice for their purchases. A few quick clicks make it easy to have the perfect piece delivered anywhere in the world. Now the purchases can be sent with a few easy taps directly from the airport, holiday vacation, or simply street-side. Sales as a result of the iPhone app have been very encouraging since our soft launch in April.

Is it harder to sell fashion via mobile? 

No, I think the possibility to sell online is a further great service to meet  customer needs…it’s a way to offer the maximum amount of freedom to our customers; in this way, they can buy the product all over the world, wherever they are…it’s simply something that really works.

Are you confident about the future of mobile commerce?  Will you be developing more mobile sites and apps? 

The mobile application is the perfect way to blend retail, fashion and technology. We like to focus on cutting-edge technology in order to give our customers the option to shop on yoox.com from their iPhones wherever they are.

In the future, we continue to foresee this technology applying to our current portfolio of seventeen Mono-brand online stores “Powered by YOOX Group”, as we have already done last November introducing the Emporio Armani online store for mobile phones.