8 Lessons Amazon Could Learn From Alibaba
If you’re the best, learn from the rest. Alibaba must have done some things right that a humbled Amazon turned to its rival for help, 11 years into China. Alibaba has surpassed Walmart to become the largest retailer worldwide. On November 11th Singles Day, Alibaba sold over $17.8 billion worth of goods within 24 hours, in what has become the world’s largest shopping event that Alibaba created 7 years ago. In the spirit of learning from the rest, I put together 8 things that I think Amazon could learn from Alibaba. As Sun Tzu said in Art of War, if you know your enemy and know yourself, you will not be imperiled in a hundred of battles.
1. Embrace the “Infrastructure” Mentality
Amazon, given its vision to be earth’s most customer-centric company, takes an asset heavy approach to better ensure customer satisfaction. Some examples include a self-owned logistics network for fast delivery and private label products for quality with value. On the other hand, Alibaba’s vision is to make it easy to do business anywhere. So it has taken an asset light approach, i.e. no proprietary logistics to compete with 3PLs(3rd Party Logistics), no fulfillment to compete with resellers, nor private labels to compete with brands on its platform. This approach focuses on enabling all types of businesses, big and small, with infrastructure in the marketplace, payment, credit, finance, and big data, etc.
So Alibaba’s Taobao and Tmall are all marketplaces as infrastructure for brands to sell anywhere. This way, not only does Alibaba have zero inventory and higher margin, but also it becomes preferable for any brand to go global with. And consumers follow where brands go.
2. Embrace Payment as infrastructure.
Alibaba’s success has a lot to do with the fact that it was the first to promote escrow payment system(i.e.Alipay) when there wasn’t much trust online in China. Alipay, a PayPal type of online payment service, now has about 427 million monthly active users and handled three times the amount handled by Paypal in 2014. Any business, in and out of Alibaba’s marketplaces, online and offline, can easily tap into this enormous user base, even highway toll.
On the other hand, Amazon relies on bank accounts, debit, and credit cards heavily and doesn’t support payment at either non-Amazon site or offline settings, leaving Alipay in a better position to serve those users. So is the case with rural China, a big part of India and many other emerging countries, where Amazon and Alibaba are looking to for their global expansion. Amazon just launched an invite-only Payments Global Partner Program in April 2016 to promote “pay with Amazon” feature across other e-commerce platforms. Before this program becomes widely successful, Amazon has a lot to do to step up its payment infrastructure.
3. Embrace Credit Rating as infrastructure
Amazon doesn’t really have any credit rating product. But what Sesame Credit(SC) has enabled Alibaba to accomplish demands Amazon’s attention. Sesame Credit, resembling FICO+ZestFinance, is both a credit rating and management system. Leveraging SC scores, an aggregate score of five aspects including credit history and user behavioral, Alibaba is able to provide micro loans without collateral while dramatically lowering default rates. As of Feb. 2016, Alibaba has provided over $6.6 billion in loans to SMBs. Alibaba also provides “Good(meaning SC scores >600)” users with an immediate amount of monthly expense credit money. For users in less developed regions, say 700 million people in rural China, Sesame Credit money will serve as almost their first ever “credit card”.
What’s more, both private and public entities can integrate SC scores into their system via an API provided by Alibaba. For example, banks prevent fraudulent credit cards 3 times more often with 10% less manual work, automatically parceling out high-risk users and simplifying procedures for low-risk users; and hotels can provide “Good” users faster check-ins, and waiver of a security deposit; Hangzhou City provides municipal incentives for citizens who share their “Good” scores.
4. Embrace Finance as infrastructure
While Amazon hasn’t innovated much in terms of fintech since the launch of Rewards card in 2002, Alibaba’s Alipay has evolved into an expansive portfolio. Its offerings include wealth fund(Yu’E Bao), micro loan(Mybank), insurance(Ant Insurance), commodity futures(Cunjin Bao), credit card(Sesame Credit money), product crowdfunding(Ali Crowdfunding), equity crowdfunding(ANTSDAQ), etc. Yu’E Bao (Leftover Treasure), an on-demand investment fund that pays commissions higher than interest rates, rose to $92bn in asset under management within one year of launch and became a global top 4 wealth fund. The more users are trained in wealth management, the more they find Alipay sticky and save their money in Alipay account.
5. Embrace Complementary Partnership
Unlike Amazon, Alibaba doesn’t own trucks or any fulfillment infrastructure. To strengthen its logistics, Alibaba in 2013 partnered up with the four most influential logistics companies in China to launch Cainiao Smart Logistics Network, a central analytic platform to automatically select the most suitable logistics company to ship products from seller to buyer. Cainiao now handles more than 70 percent of China’s express packages and spans 2,800 county districts inside the country and 224 countries and regions globally. And it’s expected to support daily package deliveries of 200 million. Alibaba is likely on its way to forming an Indian version of Cainiao Logistics Network, while Amazon is building warehouse after warehouse in India.
6. Embrace Big Data as SaaS
As to cloud infrastructure and cloud computing, Alibaba, the largest cloud provider in China, has a long way to catch up with AWS in terms of commercialization and is open to learning from Amazon’s strengths. Alibaba has quickened its investment in Alibaba Cloud, now the fastest growing unit of Alibaba, and is helping “Smart City” projects to ease traffic congestion and searching extraterrestrial lives. Alibaba also launched cloud partnership with Intel, Equinix, etc, to boost global expansion.
One thing about Alibaba’s big data strategy that Amazon could learn though is its marketing platform-Alimama. Excuse the confusing name, but it’s essentially a big data marketing platform that provides cross-screen marketing and data-driven product development service. Alibaba has overtaken Baidu to lead China’s digital advertising market this year and has helped brands like P&G test new products and hone their marketing strategies through the use of consumer purchasing and preference data. Amazon does have some basic advertising operation yet lags far behind Alibaba.
7. Embrace Online to Offline Integration
Online to Offline Integration brings the convenience, transparency and accessibility of digital shopping to almost any physical stores. Users can pay at KFC or farm market type of physical stores and can also order food delivery type of local services via an app or website. Mobile payments, like Alipay, are a great enabler for O2O as users can simply pay anywhere by scanning a QRcode. Alibaba put all local service businesses under its O2O arm Koubei which is valued at $8 billion, and also invested $1.25 billion in food-ordering app Ele.me. HSBC estimates the Chinese O2O market at over $1.6 trillion and will be one of the fastest developing segments in China. Amazon also launched its Local Services in 2015. The service is still a new kid on the block rolling out to 50 cities in the US, and has a singular focus of migrating offline information to online, without bringing online to offline via mobile payment.
8. Embrace Creative Event Marketing
Singles Day, Nov. 11th, was an obscure, half-joking, anti-Valentines meme among Chinese university students before 2009. Alibaba, started in 2009 to do big promotions on the day under the theme of Treating Yourselves To Something Nice and nowadays the one-day promotion has morphed into the world’s biggest shopping event. Sales of Alibaba alone on 11.11.2015 are more than twice the size of Cyber Monday and Black Friday, combined.
The successful operation of Double 11 is truly a testament of Alibaba’s cloud infrastructure, payment processing, logistics fulfillment, content production and campaign running. Alibaba hired veteran Hollywood producer David Hill to orchestrate a big 4-day gala leading to the shopping festival, inviting David Beckham, Kobe Bryant, Katy Perry to act as “global ambassadors” and is estimated to draw a viewership of over 100 million people. Amazon has certainly been taking notes. Amazon manufactured its own Prime Day shopping event in 2015 and its second Prime Day(Jul.12.2016) became its biggest sales day ever, with sales at about $525 million.
As fast evolving as modern tech landscape is, it’s less about what advantage a company has over its competition today, but more how fast it can learn and adapt.
As the two titans take their aim at India among other emerging markets, they will compete head-on with each other more often. And their battle in India will be the first hard war to tell who has really got it.
As a former A16Z and Nielsen, now studying Entrepreneurship at Marshall Business School, I write about product, marketing, technology, and innovation. Read my previous post Why I’m not going back to A16Z