E-commerce is an industry that seems to be in a constant state of growth, with emerging technology and the increasingly mobile consumer. You don’t have to be an industry expert to know that Amazon is the major player in the U.S. e-commerce industry, but with Chinese e-commerce giant Alibaba’s IPO and growth plans that include the U.S., online retail could face a shake-up.
Scot Wingo is the co-founder and CEO of e-commerce software firm ChannelAdvisor, and he also contributes to the industry through writing, speaking and connecting with e-retailers across the U.S. SmartBrief spoke with Wingo about Alibaba’s entrance into the U.S. e-commerce market and what that could mean for the future of the industry.
Can you talk a little bit about Alibaba’s expansion plans, particularly in the U.S.?
Alibaba has been very active in their recent U.S. investments:
First they acquired two eBay selling tool vendors back in 2010. They are launching a curated main-street-like marketplace called 11Main.
Second, ShopRunner — Alibaba bought out eBay’s investment in this Amazon Prime competing service which recently partnered with American Express and seems to be scaling nicely.
Third, Alibaba has hired Michael Zeisser who was previously an e-commerce focused executive with Liberty Media.
When we add all these together with their planned IPO, it wouldn’t surprise us to see Alibaba get much more active in the U.S. One prevailing thought is perhaps they launch a Taobao/Tmall-type marketplace. Those marketplaces proved to be robust competitors to eBay and Amazon in China because of their business model and stronger local capabilities. We’re watching eagerly to see if this comes to fruition.
How do you think Alibaba will go about capturing market share in the U.S., where Amazon has a significant presence in the e-commerce industry? What kinds of challenges do you think Alibaba faces on that front?
Alibaba doesn’t have much of a brand here in the U.S. That being said, we know that consumers love marketplaces as illustrated by the growth and scale of eBay and Amazon. Consumers love these aspects of marketplaces:
Selection — Marketplaces have near infinite shelf space and thus products on offer under one roof. This is great as a consumer as you don’t have to search around looking for what you want to buy at hundreds of sites.
Value — Because you have multiple sellers frequently selling the same item, you create competition on the marketplace which drives prices down. Consumers love low prices.
Convenience — Marketplaces like eBay and Amazon provide “umbrella” policies and information — this is helpful as a consumer. For example, when I order from Amazon, I know I’m going to get my products in two days (Amazon Prime) or five (non-Prime).
Trust/Confidence — Finally, while I maybe buying from sellers I don’t know, I am OK with that because I know that Amazon and eBay are not only going to show me ratings and other seller reputation factors, but they are going to 100% stand behind that order.
With that in mind, how could Alibaba innovate (and disrupt) across these dimensions? Let’s pick value as an example.
In China, the way they do it is by disrupting the economic model. EBay and Amazon charge about a 10-15% “take rate” for sellers. In China, Alibaba is free on Taobao and about 5% on Tmall. They then allow sellers to do advertising and other optional economic models. The result is there is less cost in the ecosystem.
What if Alibaba came to the U.S. with a 5% take rate marketplace and asked sellers to reduce their prices 5% for consumers? That would mean that everything at this mythical marketplace would be 5% cheaper than Amazon and eBay, which has the potential to be quite disruptive and is a platform you could build a U.S. brand and marketplace around. Perhaps it also has free two-day shipping with ShopRunner.
You can start to see how Alibaba has the pieces globally to put something like this in place pretty quickly once you get to know its different pieces. Only time will tell if it decides to do something like this or not, but it certainly has the pieces and could do it quickly if it wanted to.
What does Alibaba do well? What could the merchant do better, especially as it enters the U.S. market?
Alibaba is a builder of marketplaces. So unlike Amazon, they don’t compete directly with merchants/retailers. Thus the question for the retailer becomes, so I want to partner with this company and be part of their marketplace or other components. If retailers want to get ready for this potential future, one idea would be to go ahead and integrate with ShopRunner. I suspect many retailers will take a “wait and see” approach.
All that being said, what Alibaba tells us (via their Tmall division) is that Chinese consumers have an insatiable demand for Western goods. So another option for retailers is to consider partnering with Alibaba/Tmall for cross-border trade.
The other thing that Alibaba does very well is give the merchants on their marketplaces a lot of flexibility and options for promotion. Both eBay and Amazon are quite limited on there. A common theme from eBay and Amazon sellers we hear is they don’t feel they are treated like a customer, that the consumer is the customer and the seller is a necessary evil. It seems from talking to our customers in China that sell on Alibaba, that they are treated very well by the marketplace.
What lessons can other merchants take from Alibaba?
Alibaba has been the first company I have seen to really innovate around the whole supply chain. They have a B2B offering a “big b to little b offering” (Aliexpress) and the way they have segmented Taobao and Tmall makes for an interesting case study that I think U.S. merchants would benefit from diving into. Also, in China the use of mobile devices and social media is easily two years ahead of us in the U.S., so we have been studying that carefully and learning a lot. It is a bit like a time machine; I think the U.S. will look like China in two to three years, as the previous leaders in a lot of this thinking, I don’t think most U.S.-based companies realize that.
What kind of implications does Alibaba’s expansion have for the e-commerce industry as a whole?
At a 30,000-foot view, in the U.S., e-commerce is about 10% of retail. I think having more options for consumers in the digital landscape will help us as an industry to get that up much higher. For example, in the U.K. it’s in the 18% range and in some APAC countries it is well north of 20%. Alibaba could bring increased competition and innovation that will be a net positive for everyone in the e-commerce landscape.