Will Alibaba, Amazon clash?

Updated: 2015-07-03 11:29

By William Hennelly(China Daily)

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Amazon China

Will Amazon try to counter Alibaba's US advance with a stronger presence in China?

"Amazon is already trying to compete in China, but for now with little success," Lauria said.

Amazon had just a 1.3 percent share of the total business-to-consumer market in China in the third quarter of 2014, nearly a 14 percentage-point loss of market share from the same quarter in 2008, according to a wsj.com report.

Started by Jeff Bezos in 1994, Amazon has been in China since 2004, when it bought Joyo for $75 million. In 2011, Amazon China's Chinese name was changed from Joyo Amazon to Amazon China.

Brian Olsavsky, Amazon vice-president of finance, was asked about the company's international business, especially in China, during an April 23 first-quarter earnings call.

"You're seeing a lot of invention from us in China right now," reported Investor's Business Daily. "We're doubling down now with an Amazon Global Store on our own site, which gives Chinese customers access to over 1 million Amazon products globally."

Amazon opened an online storefront on Alibaba's Tmall in March.

"We continue to be selective in our investments there, but we're taking the long-term view, and we have hopes for the new initiatives with the Global Store and the Tmall flagship store," Olsavsky said.

Amazon said in April that its store on Tmall "features thousands of Amazon China's popular, directly imported products. Additionally, Amazon Global Store selection on Amazon.cn has grown to over 1 million items".

But Amazon's international unit saw first-quarter sales fall to $7.75 billion, almost 2 percent. Amazon's decision to turn to Alibaba's Tmall platform reflects how tough it is to enter China's markets without a Chinese partner.

As for potential challenges Alibaba could face in the US?

"The regulation Alibaba needs to worry about is copyright and trademark protections," Lauria said. "This is an area of great sensitivity in the US market."

On June 24, Alibaba and The International Publishers Copyright Protection Coalition in China announced that they have strengthened their collaboration with a Memorandum of Understanding. The parties will cooperate to combat copyright infringement on AliExpress (a global business-to-consumer site with a strong presence in Brazil and Russia) and Taobao.

Alibaba has been making other inroads into the US. It set up offices near Amazon headquarters in Seattle last year, creating speculation that the site will be its US headquarters, IBD reported. In March, Alibaba announced that it was opening a cloud-computing data center in Silicon Valley, which will be run by Aliyun, Alibaba's cloud-computing arm.

"If Alibaba does bring its China business model to the US, there is a high likelihood they will be disruptive to incumbents," Wingo told IBD. "By planting these seeds with their investments, they are learning a lot about US consumers."

To reach $1 trillion of gross merchandise sales by 2019, Alibaba will need to almost triple the current volume of goods sold, according to Bloomberg.com. Annual gross merchandise volume this year through March 2015 was 2.44 trillion yuan ($393 billion), an increase of about 46 percent from year earlier.

Cross-border purchases by China's Web shoppers increased to more than $20 billion in 2014 from less than $2 billion in 2010, according to EMarketer.

Cross-border purchases by China's Web shoppers increased to more than $20 billion in 2014 from less than $2 billion in 2010, with the US preferred for clothing and personal care and baby products, according to EMarketer.

Ma's overseas push coincides with new policies that make it cheaper for Chinese to import goods and also with trial programs on TMall Global selling Washington state apple and cherries, Alaskan seafood and ice cream from Ben & Jerry's, Bloomberg reported.

"We want to help as many US entrepreneurs, small businesses, and companies of all sizes sell their goods to a growing Chinese consumer class," Jennifer Kuperman, Alibaba's vice president of international corporate affairs told Bloomberg. "Alibaba's international ambition is to help Chinese consumers get the American products they want, and in turn, create jobs and increase exports to China from the United States."

Another area where Alibaba is looking to compete is in the cloud. A bright spot for Amazon in the first quarter was its cloud computing business, Amazon Web Services, which recorded sales of $1.56 billion, up 49 percent.

Picture gets cloudy

On June 8, Alibaba announced that Aliyun would launch Marketplace Alliance Program (MAP), a global program that provides enterprises with access to Aliyun's cloud services and international partners.

The initial Aliyun's MAP partners include Intel, Singaporean telco Singtel and Equinix, a US provider of data centers and Internet exchanges.

"The new Aliyun program is designed to bring our customers the best cloud computing solutions by partnering with some of the most respected technology brands in the world," said Aliyun VP Sicheng Yu. "We will continue to bring more partners online to grow our cloud computing ecosystem."

According to IDC, which provides IT and consumer technology intelligence, worldwide cloud services spending will be $32 billion in 2015, up 28 percent from 2014.

Alibaba, though, has a long way to go on the cloud to compete with Amazon. The US cloud market will be a $75 billion business in 2018, while China's cloud is expected to be only $2 billion, according to IDC.

But that will change if CEO Daniel Zhang has his way.

"We believe data is oil in the new economy," Zhang told a consumer conference on June 24 in Washington.

"Considering the number of people on TMall each day, their promotions give us a level of publicity we could never afford to pay for," Alexa Tonkovich, international program director for the Alaska Seafood Marketing Institute, told Bloomberg. "We see online commerce in China as having excellent potential for Alaskan seafood."

"Alibaba's opportunity in Brazil and Russia and other places like that has grown substantially, so they're looking to penetrate what is the other extremely large e-commerce market in the world, which is the US," Zia Daniell Wigder, research director of e-commerce at Forrester Research told China Daily.

Amy He in New York contributed to this story.

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