What are the key differences between Amazon and Alibaba? [Part 2 of 2]
Amazon and Alibaba truly are two disruptive and innovative companies. Check out the characteristics of each tech giant
Disclaimer: please note this article is a collection of personal thoughts and a few quotes from experts. All info is publicly available. The content hereby written does not reflect in any way the position of the company I work for.
With this article (this is the second part, the first can be found here) about the differences between Amazon and Alibaba, I highlight the key characteristics of each one. Knowing more how they play and operate could help you build a better business plan. I hope you enjoy the reading.
- If we had to describe Amazon in just a couple of words, in short, we would say that Amazon is a massive retailer for both new and used goods. Here an interesting angle from Investopedia, describing its most famous business models: “[...] First and foremost, the company sells goods directly. A percentage of products are offered to buyers through Amazon’s online storefront with a small markup, and inventory is kept in the company’s large network of warehouses. Most consumers visit the company’s site assuming its products are less expensive and readily available for purchase and shipping. In addition to direct sales, Amazon provides a platform for other retailers to sell products to buyers. Products sold through Amazon’s partner retailers are often less common items or those with a higher purchase price, allowing Amazon to avoid holding slow-moving inventory that could dilute profit. While Amazon does not assess a fee for its retailer partners to list items for sale, the company does retain a portion of the sales price as commission. Amazon also maintains a subscription-based business model through its Amazon Prime service as well as a small electronics product line. Under a Prime account, customers pay an annual fee to secure free two-day or same-day shipping on eligible items and have access to streaming media, such as digital music or movies. Amazon also generates revenue from selling its e-reader, the Kindle, and the e-book and mobile application purchases offered to Kindle owners”
- There are also many more business models that allow Amazon to make a huge profit: Amazon Web Services is one of these models. As a service platforms for cloud infrastructure, Amazon provides companies, even competitors like Netflix, with the possibility to leverage scalable and fast solutions for streaming and more. Other models, like Private Labels, empower Amazon to become not just a retailer but also a manufacturer for final consumers. The most famous and successful example is with AmazonBasics batteries, which basically replace all other solutions, like Duracell, and become the first choice on Voice and Search. A nightmare for many manufacturers that slowly but relentlessly can see their market share being eroded
- L2 recently predicted that, within two years, Amazon will become the fifth largest media company worldwide after Google and Facebook, and the ad revenue it will generate will surpass the ad revenue of Snapchat, Instagram and Twitter combined. Why is that? Because, compared to other US retailers, they are better at monetizing their traffic: 16% of search volume on Amazon has an ad on it, vs. 2% Walmart and 1% Target
- Amazon also became the second largest spender in digital content after Netflix: the estimated content budget for 2018 is $5.0Bn vs. $12Bn–$13Bn from Netflix or, in third position $3Bn–$4Bn by famous CBS. Amazon can basically compete in any sector with brute force
- CB Insights informs us that, “over the longer term, Amazon is gathering huge amounts of data on shoppers’ online and offline habits. Beyond the data it offers brands about their own products’ performance, Amazon’s able to track shopper behavior across its site, at Whole Foods and its other brick-and-mortar stores, and, increasingly, through its millions of Echo devices. The more brands that focus the bulk of their e-commerce efforts on Amazon, the more data on those brands’ shoppers Amazon gets. Amazon can also spot holes in the market where new private label products might be most impactful. And Amazon’s datasets will only grow. A patent last year listed data that Amazon’s considering collecting through smart video screens, including people’s facial expressions and moods, the brands of products they have sitting around the house, and even pulse rates. Just a couple of days ago, Amazon was granted a patent on using the Echo to monitor people’s physical and emotional states. If an Echo user’s voice sounds sniffly, Amazon could proactively suggest chicken soup”
- Amazon recently opened its first pop-up shop and chose Italy as the ideal location, right on time for the Black Friday Week 2018: “called Amazon Loft for Xmas, the temporary carries a wide selection of products, which are associated with a Smile Code that can enable customers to discover more about each item from the Amazon app”
- Amazon has fourteen guiding leadership principles. These are the pillars of the company and every employee is hired and evaluated against them. The principles at Amazon are like a constant mantra. Everybody talks about them, write about them, adhere to them. Let’s go through them. I am adding some personal experience on each one of them:
- Customer Obsession. Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers. There is a legend about this principle that goes this way: some years ago, one of the “Supreme Leaders” of Amazon was sitting at the table of discussion with Jeff Bezos and many other Senior Executive level employees. At some point, he said: “this is not good for the business”. The story tells he was fired immediately. Amazon is willing to sacrifice short-term results for the sake of the customer loyalty and happiness
- Ownership. Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job”. The nice thing about Amazon employees is that they all are truly committed and dedicated to the success of the company? Why? Because Amazon leaders treat them as equals and leaders. They are responsible and fully accountable for their action. They all try to take care of their projects, in some cases like their lives depend on it
- Invent and Simplify. Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here”. As we do new things, we accept that we may be misunderstood for long periods of time. This is one of the funniest and most rewarding principles. Many employees would spend days and nights trying to find creative ways to increase efficiencies, automate processes and talk about it for days, constantly reviewing and improving. There are even some symbolic rewards for the ones who really have an impact on the business. One of these awards it is called Just Do It, and recognizes employees who exemplify two specific core values: Innovation and Bias for Action. This is not about the money, in fact, the prize is a little shoe and public recognition during one of the quarterly All Hands meetings organized by the company
- Are Right, A Lot. Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs. I met so many talented people at Amazon. In some cases, geniuses in their field. Once upon a time in a Senior level meeting with the CEO, I heard him say that there is no social cohesion in the company, which basically means that everybody is welcome to challenge anybody, if the challenge comes based on facts, data and not pure opinions
- Learn and Be Curious. Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them. This is one of my favorite principles. Competitions I participated like “Think Big”, area good way to stimulate employees to come up with creative and disruptive ideas that could span from improving a process to changing an entire industry or the way we buy and sell online. The birth of Kindle is a good example
- Hire and Develop the Best. Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice. This is one of the biggest advantages of tech companies like Amazon: they hire the best talents. The problem is, the turnover is pretty high. So there is a challenge for companies like Amazon to not just convince people to join, but to stay. When you work for a company where it is “always Day 1”, you have to go the extra mile every day. And that, sometimes, it is exhausting.
- Insist on the Highest Standards. Leaders have relentlessly high standards — many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed. In start-ups, speed wins over perfection, especially when you are building a minimum viable product. But working sloppy and making mistakes do not always pay off. Often, at companies like Amazon, you have to go into the tiniest details to understand the root cause of a problem, to make sure it does now show up again. You push yourself to the limit, and challenge other to do the same. There is no glory in just doing your daily job well. It simply not enough
- Think Big. Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers. To think big you need to be surrounded by great talents, buddies, mentors, advisors. You have plenty in Amazon. Once upon a time I was in a meeting with the creator of Microsoft Excel, now working for Amazon, which was telling us this anecdote that he had great fun in mocking his fellow colleagues that were developing Winword, a program “with limited capabilities” according to him. Think Big means that you need to be a visioner, you just don’t limit yourself to build and sell a bunch of products. When Amazon says it wants to be/build ‘The Everything Store’, believe it, it is going to happen
- Bias for Action. Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking. It is midday of Black Friday. The website crashes due to traffic overload. What do you do? Simple: you gather a bunch of crazy people like you and with the speed of light you turn off all merchandising on the website, giving time to your developers to fix the issue and be back online in less than an hour. Real. Time. Action. No time to lose, no hard calculations to make. This is the just do it approach, which is, as written before, also awarded by Amazon to the employee he demonstrates the capability to think fast and well to improve processes, increase efficiencies, not just for his benefit, but for the whole company and his peers
- Frugality. Accomplish more with less. Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size or fixed expense. Senior leaders flying in first class? Not at Amazon. Usually, directors and category leaders fly in Economy like the majority of the human beings. The problem is not about not spending money, but spending it for the “right” things. Amazon know what’s best. This translates into an incredible attention to spending in all part of the business. Frugality is another of the constant mantra within the company
- Earn Trust. Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best. Amazon employees feel so much responsible about their projects and work, because lots of responsibility and accountability is given to each single one of them. Amazon employees are more than employees: are extremely talented leaders that always look for constant improvement. In my career at Amazon, I met geniuses, but also very humble people always ready to help each other and share best practices and learnings. No silos, at Amazon
- Dive Deep. Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them. Are you familiar with the concept of Cause of Error (CoE)? Often avoided by employees because of the effort it takes to do one, but extremely important as it is through a CoE you can really understand the root cause of an issue and prevent it from happening again. How many memories I do have about all the CoE that happened during big events such as Prime Day and Black Friday during my time at Amazon! That is not the only thing that let you understand how important dive deep is for tech companies. There is also another good example which has the name of Post-Mortem. When a big event ends, when a new product category launch finishes, it is not time to celebrate. It is time for a post-mortem. What does it entail? Lots of hours spent on retrieving performance and understanding wins and misses, with a clear action plan and task list for the following weeks or months so that the next big event or launch is performing better than the first. Always raise the bar!
- Have Backbone; Disagree and Commit. Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly. You do not like a proposal coming from one of your peers or even your manager? Say it. Once upon a time, the former Country Manager told me in a meeting that there is no social cohesion at Amazon. There is no need or willingness to find a common agreement. Once you express your concerns, if backed by data, you can hope somebody will listen to you. In any case, there is no guarantee your proposal will be taken into account. Even if right. If that’s the case, you will need to just stick to it and be loyal to whatever different decision has been taken. Then, during post-mortem phase, you will have the opportunity to recommend how to improve. This is how it works at Amazon
- Deliver Results. Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle. If you work at Amazon, like any other company actually, you need to deliver. Full stop. If you don’t, the company will give you some time to correct and improve, but you will have to work even harder for not being fired. Working for Amazon is not a joke. But that is the price to pay should you want to work for one of the most amazing companies on Earth
- If we had to explain main Alibaba’s business model, in short, we would say that Alibaba operates as a middleman between buyers and sellers. Some interesting info from Investopedia, describing its most famous business models: “Though the company operates through a unique combination of business models, Alibaba’s core business resembles that of eBay […] The largest site, Taobao, operates as a fee-free marketplace where neither sellers nor buyers are assessed a fee for completing transactions. Rather, the 10M active sellers on Taobao (in 2017) pay to rank higher on the site’s internal search engine, generating advertising revenue for Alibaba that resembles Google’s core business model. […] Alibaba also has a dedicated space for larger retailers. Tmall is the e-commerce site owned and operated by Alibaba that caters to well-known brands, including Gap (GPS), Nike (NKE) and Apple (AAPL). Even though Tmall has a fraction of the number of active sellers listed on Taobao, Alibaba is able to generate revenue from deposits, annual user fees and sales commissions charged to retailers utilizing the site”
- “In addition to its e-commerce sites, Alibaba has emerged as a competitor in the Chinese financial system. To combat customer concerns over the security and validity of transactions completed online, Alibaba created Alipay. As a secure payment system, Alipay protects buyers in the event sellers are unable or refuse to deliver goods sold. In addition to its PayPal-like platform, Alibaba also generates revenue from its newly launched micro-lending business arm that caters to individual borrowers”
- CB Insights tell us that, opposite to Amazon, “Alibaba’s hoping to compete by posing itself as a pure platform, in contrast to Amazon’s double-dipping of business models (platform + private label). Instead of using its data to launch its own private labels, Alibaba’s trying to become an outsourced R&D center for brands. It partnered with Mars, using anonymized data on ~500M Alibaba shoppers to develop a new chili-infused Snickers flavor. In the future, other marketplace companies could choose between the Amazon model of turning data into products, and the Alibaba model of turning data into insights”
- The recent Alibaba’s Single Day Event happened on November 11th, obliterated once again Amazon biggest sales event with a whopping $30.8Bn in sales and set a new record for the platform, as CNBC reported. The figure represents a 27% YoY rise over 2017’s total of $25.3Bn, and was helped in part by the e-commerce giant’s expansion into in-store retail, combined with China’s large and tech-savvy middle class. The figure dwarfs the revenue taken during similar major shopping days of US retailers. Amazon’s Prime Day sale in July, the retailer’s biggest day of the year, is estimated to have generated around $4Bn in sales (although Amazon doesn’t report exact numbers), selling 100 million items across the 17 countries. Meanwhile the Black Friday weekend is estimated to have generated a total of $14.05Bn in online sales for 4.5K retail websites over the course of four days, with $6.59Bn of those sales taking place as part of Cyber Monday[2a]
- Although it’s useful to compare the two, Alibaba is less of a traditional retailer than Amazon. Alibaba is better thought of as a platform for everything from takeout apps to supermarkets and even film production[2b]
- If Amazon focuses on customers as final consumers, Jack Ma has a slightly different angle: he told CNBC newscasters, minutes after Alibaba listed on the New York Stock Exchange on September 22, “Customers first, employees second, and shareholders third”. What the newscasters didn’t realize was that when Ma thinks of customers, he’s not talking about everyday consumers in the same way as Bezos. To Ma, his customers are the small businesses that use the firm’s Taobao and Tmall marketplaces
- The following seven guiding principles have been recently discussed by Daniel Zhang, the Chief Executive Officer of Alibaba Group. I am reporting here an extract (the full interview can be found on CNBC):
- Management is not leadership. I differentiate between ‘managers’ and ‘leaders.’ A manager runs a business and gets expected results — those are the key performance indicators. But a leader’s mission is to lead the team, not just to get results. A leader also crafts the future
- Compete with yourself. Fierce competition in business isn’t a bad thing. It’s a lucky thing. You need to be awake at all times, even when you’re sleeping. You have to always learn and innovate. The worst possible scenario is a market or sector with a supposed, uncontested ‘top dog.’ If you think you have no competition, you’ll soon be proved wrong. You must also be willing to outwit and outthink your own best products and services. […] You have to have the courage to reinvent yourself
- Study the future, not the past. Our success in the future will be determined by the blueprint we draw today. Consider results in the long term, not just the near term. Don’t miss out on future opportunities or risk doing something short sighted. If you only consider near-term results, you won’t consider how things will change and you’ll miss out on critical opportunities
- Know when to go all-in, and don’t be afraid to do it. Leaders must be decisive and “all-in”, like players of the poker game Texas Hold’em. If you don’t know how to go all-in, you can’t play that game well. It is the same in business. At the critical moment, you need to be willing to lose it all to win big
- Buy, don’t bet. If you’re going to win a race, it’s more important to buy […] than just bet on it. At Alibaba, for instance, we choose to acquire a company rather than take a minority stake when it comes to important strategic projects that require real synergies and integration. We do this because making an acquisition is a responsibility and a commitment. Those who don’t want to share responsibility, and just want to invest, need to bet on several. They spread out their risk, but never fully commit […] We don’t do things that way
- Find people who truly see the big picture. There’s a Chinese poem that reads: “You can’t see the mountain from the mountain.” In other words, a mountain doesn’t look like a mountain while you are climbing it. It looks like rock and trail. For a full picture, you have to find distance or find people who can give you a different point of view
- Hire adventurers, not employees. Some job hunters want only that — a job and a paycheck. They think in the short-term. Those with an appetite for adventure, on the other hand, are comfortable with risk and change. These people want to build things and make their mark. When I talk to candidates for leadership roles, I say, “Let’s embark on an interesting adventure together. After 20 or 30 years, you can tell your grandkids about it.” I’ll also add, “If you’re just looking for stability, then don’t come here. I can’t guarantee that you’ll succeed, but I can guarantee you’ll have an adventure.” This approach always helps me find the risk-takers and those with fresh thinking
- Market entry strategy. Alibaba’s mission is to make it easy to do business anywhere. To do this, when entering a new market, it targets three main areas: (1) offering shoppers a wide range of goods and services, (2) expanding suppliers’ shopper base, allowing them to reach new customers and (3) enhancing businesses’ performance with technology
Forgot to read about the similarities between the two companies? Relax… find the first part of the article here.
That’s a wrap! What do you think about this comparison? I am looking forward to hear your opinions in the comment section below.
- For the Amazon Leadership principles, the official website: https://www.amazon.jobs/principles
- For the Alibaba leadership principles, the article created by the CEO of the company: https://www.cnbc.com/2018/09/04/7-leadership-principles-from-alibaba-ceo-daniel-zhang.html