Navigating E-commerce: Alibaba, eBay and Amazon

The world of ecommerce has broadened the ability of sellers to meet buyers despite geographic constraints.  The number of sellers, buyers and intermediaries continue to increase and scope out new niches.  One of the first ecommerce providers, Amazon (AMZN), broke new ground as to what exactly they represented in the global marketplace. 

The advent of Amazon.com Inc. challenged Wall Street’s straightforward, silo view of industries, creating a conundrum: Were they a technology company that provided the platform from which goods were exchanged, or were they a media company that provided the platform to advertise goods, or were they a retail company from which manufacturers sold goods?  This new paradigm presented by Amazon spurred a novice category, which combined all three –technology, media and retail--becoming known as ecommerce.  And because of its far-reaching implications, ecommerce spewed out many and various competitors at a rapid rate.  But each of the competitors has different strategies and unique selling propositions that separate themselves from a crowded pack.

Alibaba, eBay and Amazon

Three of the most prominent e-commerce players in the market today, Alibaba (BABA), eBay (EBAY) and Amazon, operate in homogenous, complementary and parallel verticals, but provide distinctive user experiences. 

Alibaba, based in China, operates the largest by volume global marketplace.  According to its recent prospectus, Alibaba describes its business as an ecosystem with functional “marketplaces as a platform for third parties.”  Although they participate in various lines of businesses, one significant point of fact is that Alibaba does not “engage in direct sales, compete with our merchants or hold inventory.” Alibaba generates revenue based on several sources-- (1) fees determined by the number of units sold in its retail centers and the number of paying members in its wholesale centers; (2) fees from its online marketing and internet infrastructure services; (3) commissions from Alipay transactions, Alibaba’s third party online payment solution, and (4) membership fees from its storefronts. 

eBay, primarily known for its auction-style retail format, creates a platform for individual users and merchants to sell goods to consumers.  eBay, based on a description from its recent 10-K, is “primarily a transaction-based business that generates revenue from the transactions and payments that we successfully enable.” eBay’s unique selling proposition is to connect willing buyers and sellers and make transactions possible using either a traditional price-setting structure or an auction type format.  eBay’s business model not only generates revenue from the transactions between buyers and sellers, but also from payments through its third party payment system, PayPal.  PayPal has established itself as a payment of choice for many different vendors and venues online and through mobile devices outside of eBay.  In fact, eBay expects “to become the digital wallet of choice for consumers and merchants to pay and get paid virtually anywhere, anytime and on any Internet connected device, whether they are online or in the physical world.”  Additionally, eBay procures fees from its marketing services, specific storefronts like StubHub, and its technology platform.

Amazon, the trailblazer for ecommerce, has four primary lines of business--consumers, sellers, enterprises, and content creators.  Based on management’s discussion in its recent 10-K, Amazon “designs our websites to enable millions of unique products to be sold by us and by third parties across dozens of product categories.” Sellers are allowed to sell goods and they pay Amazon a fee-fixed, or per unit activity fee.  Amazon also provides an online platform for independent authors and publishers of books, music and films. One area that distinguishes Amazon from many ecommerce competitors is its comprehensive logistics capabilities. 

Feature Comparison

Although these companies operate in overlapping businesses, there are several notable distinctions among them detailed in the following table.

The Bottom Line

Amazon, eBay and Alibaba share the principal trait of providing an interface where buyers and sellers come together to exchange goods.  Additionally, each delivers a mechanism for payments to be executed (via a proprietary third party payment system like PayPal (eBay) or Alipay (Alibaba) or a co-branded credit card (Amazon).  And while they share other likeness related to advertising and technology services, the differences are more profound. Amazon has some exclusive traits like its logistics and inventory capabilities, manufacturing and self-branded products and content provisions; eBay is unique in its auction style retail offerings; while Alibaba offers perhaps the most wide-ranging services through their ecosystem.   

Disclosure: At the time of writing, the author did not own any shares in the companies mentioned in this article.