When it comes to e-commerce, Westerners are very familiar with Amazon.com. Alibaba, the Chinese e-commerce giant, is largely unknown. Amazon’s revenues of $74.4 billion dwarf Alibaba’s $8.4 billion.
But Alibaba has a different business model. Unlike Amazon they do not take ownership of inventory, stock it in their distribution centers, and then fulfill the orders. Alibaba has an e-commerce platform and a “community” to connect buyers and sellers. So while Amazon’s revenues are bigger, transactions on Alibaba’s online sites, at $248 billion last year, were about two and half times bigger than Amazon’s. And Alibaba is hugely profitable, Amazon barely so. Alibaba will soon go public and this is forecast to be one of the biggest tech IPOs ever.
Because of these different business models, the companies have difference approaches toward omni-channel logistics. Amazon has been stealing market share from traditional retailers for years; consequently traditional retailers are spending billions of dollars developing their omni-channel capabilities to better compete with Amazon. Amazon competes against the omni-channel initiatives of retailers.
Alibaba is also a competitor to retailers in China, especially in Tier 1 cities. But China is underserved by the retail sector, particularly in small and medium sized cities. Consequently, there is more room for collaboration between China’s e-commerce behemoth and retailers.
Alibaba, for example, entered into an agreement to take an equity stake in one of China’s leading department store operators, Intime, to develop a new “offline-to-online” (O2O) multi-channel retailing model. Specifically, those opportunities include giving one of their e-commerce sites access to Intime’s store inventory. This gives this website the ability to increase its offer of products from international brands and then use Intime’s physical department stores as fulfillment hubs for those online orders and deliver them to customers more quickly (Alibaba’s average delivery time is 3 days).
Similarly, by partnering with chain stores that have lots of outlets, Alibaba can give consumers the option of picking up their merchandise themselves from stores in their neighborhoods. Last year a convenience store chain in Taiwan teamed up with an Alibaba website to give shoppers the ability to have orders delivered to one of the chain’s 2,900 stores across Taiwan for pick-up.
Alibaba has also entered into an agreement to acquire one of China’s leading providers of navigation and location-based services. With this location-based mobile app, merchants on Alibaba’s e-commerce platforms can advertise their offline locations to the app’s users. During a festival in March, this location based service application was combined with another of Alibaba’s online food delivery website to make it easier for users to find restaurants.
Why would an e-commerce retailer make it easier for customers to buy from other retailers? Because they don’t monetize sales in the same way that Amazon does. They primarily derive revenue from online marketing services where sellers pay them marketing fees to acquire user traffic, as well as from commissions based on completed sales transactions settled through a sister company.
Finally, some of the newer flow paths that are coming into being can be used by e-commerce or omni-channel retailers equally well. Alibaba, like Amazon, seeks to expand internationally. Alibaba recently took a 10 percent stake in Singapore Post. As my colleague Bob Gill pointed out in a recent column, one particularly visible part of this logistics infrastructure in Singapore is the POPStation (Pick Own Parcel Station). Singapore Post recognized that a large part of the e-commerce demographic is out at work during the day when most parcel deliveries are made; this solution enables customers to conveniently (24/7) collect purchased goods from specially constructed lockers, after receiving a coded text message (which is used to unlock a specified locker).
I had thought of omni-channel flow paths as something that applied to brick and mortar retailers. It had not occurred to me until reading Alibaba’s IPO prospectus that e-commerce players could play in omni-channel.