Amazon and Alibaba to Clash in the European Market

Amazon is the world’s largest e-commerce company, and Alibaba is China’s largest e-commerce player. Although they are in the same industry, Amazon and Alibaba are not incompatible competitors. However, in the European market, Amazon and Alibaba are about to confront each other, staged a battle for e-commerce supremacy.

Business structure of the two giants

Alibaba’s e-commerce, mobile payment and cloud computing businesses focus on the Chinese market. Although Alibaba dominates China’s online retail market, so far, the internationalization of its e-commerce business has not achieved significant success. In the past, Alibaba’s e-commerce platform built in the United States closed for a year. In India, Alibaba supported Indian mobile payment company Payam and launched a retail platform, but it was too late to enter and has no sufficient strength to compete with Amazon and Wal-Mart, two Indian market monopolists.

Amazon is a company with a more international perspective. Whether it’s online retail, cloud computing, or online video, online music, or physical retail, Amazon has a global footprint.

Surprisingly, Amazon has not been successful in China’s highly competitive e-commerce market. Previously, Amazon has shrunk many businesses, but is still operating some successful businesses, such as digital reader Kindle and digital books.

However, the European market has become a common goal for the two giants to expand their markets. Alibaba sees Europe as its primary goal of expanding beyond China. This expansion includes the introduction of AliExpress and Alibaba’s cloud computing services in Europe. It may formally compete with Amazon’s online store and cloud computing business in the near future.

Impact on Amazon

Alibaba launched AliExpress in 2010 as a cross-border e-commerce platform. It initially focused on business-to-business, allowing Chinese companies to sell products to international buyers, but the platform has gradually expanded to include business-to-consumer and consumer-to-consumer transactions.

AliExpress became one of Russia’s largest e-commerce markets and Brazil’s largest website. Alibaba launched AliExpress in Europe last year to maintain this momentum, initially focusing on the Spanish, Italian and Turkish markets. Last August, Alibaba Group also opened its first physical store in Madrid, Spain, displaying about 1,000 products from 60 brands.

In order to attract sellers, AliExpress reduces seller fees and charges Amazon’s third-party seller fees. This move convinced department store chain giant El Corte Ingles to open a store on AliExpress, but front-line clothing brands such as Mango and Benetton rejected Alibaba’s platform.

However, Alibaba’s expansion strategy is likely to continue. The company believes that gaining overseas shoppers will help it reach over one billion global active shoppers by the end of fiscal 2024 and double its number to 2 billion by 2035. That’s the size of Facebook’s social network active users today.

Alibaba has adopted a similar strategy for its cloud computing business. This business is second only to Amazon and Microsoft in 2018, ranking third in the world. To challenge its European competitors, Alibaba offers free trials and double-digit annual membership discounts for cloud computing customers.

The company currently has only two data centers in Europe, located in Frankfurt, Germany and London, UK. In contrast, Alibaba operates nine data centers in China.
However, Alibaba’s cloud computing business has begun to expand overseas. Two data centers have been established in the United States, and data centers have been opened in the Middle East, Japan, and Australia. This number will continue to rise.

For cloud computing giants, continued market expansion means building more data centers in more geographic locations. Close to local businesses, government agencies and consumers, and launch a richer cloud computing product line.

Should Amazon be worried?

It is obvious that Amazon has cultivated in Europe for many years and has set up branches in multiple countries, but Amazon has not released specific revenue figures for the European market so far.

At present, Germany has become Amazon’s second largest market after the United States. As some of the measures to deepen the market, Amazon has launched localized Internet media content services in Germany, including audio broadcast of the Bundesliga. Recently, Amazon has obtained the network broadcast right of the Champions League in Germany.
In accordance with conventions, rich Internet media content services help Amazon increase the number of free shipping members and further expand the scale of online retail.

In addition to Germany, Amazon’s important overseas markets include the United Kingdom and Japan.

Germany and the UK have not directly entered Alibaba’s Aliexpress’ high-growth regions. These two countries generated $ 34.4 billion in revenue for Amazon in fiscal 2018, equivalent to 15% of Amazon’s total revenue. It is reported that Amazon’s “rest of the world” statistics section includes large AliExpress markets such as Russia and Brazil. These regions account for less than 11% of sales.

Amazon is the top e-commerce platform in most European countries, but it faces stiffer competition than smaller e-commerce competitors in the United States. Amazon controlled about 27% of Germany’s e-commerce market last year, and technology market research firm Edge by Ascential estimates that Amazon controls more than 30% of the UK’s e-commerce market. The large crowd at the time of the opening of the Aliexpress store in Madrid showed that European shoppers were attracted by Chinese manufacturers’ quality and cheap products.

The cloud computing business accounted for 11% of Amazon’s revenue in 2018 and 13% of its sales in the first nine months of 2019. In these three quarters, the division also generated 62% of the company’s operating profit, mitigating the adverse impact of its weaker profitability of its online stores.

In contrast, Alibaba subsidizes its unprofitable cloud computing business with a profitable e-commerce business. The difference in business models makes Alibaba a dangerous competitor because it is willing to bear larger losses to hit Amazon’s core profit engine.
Last but not least, Amazon’s market advantage may be counterproductive. It has already faced antitrust investigations in Europe and feels that physical retailers threatened by Amazon can store their data on the Alibaba cloud computing platform instead of the Amazon platform.

In the US market, Amazon’s dominance in the e-commerce field and its expansion in the physical retail sector have made the company the target of the US retail industry. In cloud computing services, these retail companies are more willing to buy services from companies such as Microsoft than to send money to Amazon’s cloud computing business.
Alibaba’s expansion into Europe may not affect Amazon in the coming quarters. However, long-term investors should keep an eye on Alibaba’s overseas initiatives, as they may affect Amazon’s growth in the coming years or decades.

There is also a Southeast Asian

It is worth mentioning that compared with the mature and developed European Internet market, Southeast Asia, which has hundreds of millions of people, has become another Internet potential market outside India. Amazon and Alibaba also began to collide to some extent here.

In the past few years, Chinese Internet companies, including Alibaba, have flocked to Southeast Asia. The main means are acquisitions and mergers, investment and shareholding, support for local mobile Internet companies, and copying the successful experience of the Chinese local market.

Alibaba earlier acquired Southeast Asian e-commerce platform Lazada, which has taken the initiative in the region.

In the Asia-Pacific region, as Amazon has become one of the two leading monopolies in the Indian market, Amazon has begun to enter Southeast Asia and compete with Alibaba.
At the end of last year, Amazon also launched an e-commerce platform in Singapore, the core country of the Southeast Asian market. In addition, Amazon is also preparing to launch an e-commerce service in Vietnam.

In markets including Southeast Asia, Amazon’s package membership system and Internet media services covering the world will be a plus factor. The customer service ecosystem around these e-commerce companies is also lacking in emerging Southeast Asian e-commerce companies.