Will Americans give up Amazon for Alibaba?
Relatively few American consumers had heard of Alibaba prior to its record-setting initial public offering (IPO). While many more may now be aware of the ecommerce giant as a result of the press surrounding the IPO, the question is whether that will translate to success for the company’s 11 Main site in the U.S.
According to a survey conducted by Ipsos for Thomson Reuters, 88 percent of Americans were not aware of Alibaba prior to its IPO. The company, which represents 80 percent of online sales in China, has succeeded with a marketplace strategy rather than as the primary seller of goods, a la Amazon.com. While that has worked in China, where consumers are willing to search through a sea of online stores for the deals they want, will large numbers of Americans be willing to do the same?
Whether Alibaba finds success here will probably depend on how much of the $231 billion raised in the IPO goes to raising the profile of 11 Main with American consumers.
When Alibaba launched 11 Main back in June, the site had on board more than 1,000 merchants selling arts and crafts, clothing, household interior products and toys. Part of the attraction is that small shops not only have the opportunity to be seen by more shoppers, but Alibaba is reported to be charging as little as half the going commission rate in the U.S.
In a RetailWire discussion from June, Paula Rosenblum, managing partner, RSR Research, wrote, "The success of 11 Main is completely dependent on what retailers do with the money saved from their low commission rate. If the retailers maintain the same price, the site will fail. If they pass at least a portion of the savings on to consumers, it’s going to rock the house."
Alibaba, as an Adweek article points out, has also invested $200 million in ShopRunner, a members-only site that charges a fee that roughly equates to Amazon’s Prime service. ShopRunner members get free two-day shipping, free return shipping and expedited checkouts. A wide number of retailers, including American Eagle Outfitters, GNC, Lord & Taylor, MacMall, Neiman Marcus, PetSmart and Tiger Directs Toys "R" Us, are on the site.
Discussion Questions
What will Alibaba’s IPO and the continuing rollout of its 11 Main site mean for online sales in the U.S.? How do you expect Amazon.com, eBay and other online sellers to react?
Online shopping seems to be heavily influenced by price, and these guys know how to squeeze those prices very low. It will be interesting for sure and certainly cause a ripple that will result in positive improvements in online retailing for the customer.
Alibaba is great! Their model works. However, China and the U.S. are very different. They are going to have to overcome the cultural differences to be successful in other parts of the world. Also, somehow keep those prices low.
If Alibaba is able to establish its brand, image and market itself well, there is no reason to believe it won’t compete with Amazon in the U.S. However, that would be a lot of ifs. It would be an understatement to say that Amazon has a very strong business in the U.S. with a terrific track record and reputation for variety, choice, price, ease-of-use and customer service. No competitor, albeit from any other part of the globe, would have an easy time taking significant market share away from Amazon.
Of the three global e-commerce powerhouses (Amazon, Rakuten and Alibaba), none has had breakout success outside of its home country. There are many reasons for this, ranging from cultural distinctions to advantageous local relationships.
Logistics will be key for Alibaba in the U.S. Amazon’s ability to offer millions of products for two-day delivery is the direct result of its capital investments in fulfillment centers.
When Alibaba invested heavily in ShopRunner, I thought perhaps a serious contender to Amazon’s logistics prowess was finally arriving, but it isn’t entirely clear whether that investment is more focused on exporting U.S. brands to China or importing Alibaba’s way of working to the U.S.
Regardless, it is a good thing to see more significant e-commerce competition on a global stage. I’m underwhelmed by 11 Main but excited for what’s to come.
While Alibaba has attracted attention on Wall Street, it has had little impact yet on Main Street. However, its PR exposure will continue to be of interest to current and potential online shoppers, which should have a positive impact on sales. I expect the major competitors to be vigilant and have aggressive defensive strategies in place.
11 Main and ShopRunner will receive the promotional push to get off the ground. That will lead to a trial by an expanding e-commerce buying group.
That’s when the test of success will come. Consumers in both the U.S. and China have some very significant concerns that are important to them, and it’s not all about price. Consumers on both sides of the pond have expectations of: 1.) Flexible return policies, 2.) Free shipping or members-only opportunities (which both have), 3.) Value/low prices, 4.) Ease of return, 5.)Live or e-chat customer service, and 6.) A website that offers ease of use and navigation.
Like with all businesses that excel, it will come down to execution of their strategies. Amazon and other online sellers are not going to go to sleep. They will fight for ground. In the process, they will expand e-commerce overall. Opportunity and advantage for the consumer.
My point of view has evolved. 🙂
11 Main has been a complete disappointment to me. Its prices are too high and its products boring. Plus, I was vaguely offended that its first promotion (around July 4) was “Made in America.” I felt like I was being taken for a fool.
If this is all they’ve got, it’s not going to be successful here.
I remain way more interested in Alibaba.com itself, as a B2B resource for the small retailer. Those prices are great, and it really does level the playing field a bit for the independents in certain categories.
I don’t think Amazon and eBay have much to be concerned about this year and next, but agree with Paula’s comment, “The success of 11 Main is completely dependent on what retailers do with the money saved from their low commission rate. If the retailers maintain the same price, the site will fail. If they pass at least a portion of the savings on to consumers, it’s going to rock the house.”
Alibaba’s strength is in China, not the U.S., so they will have some growing pains here. Amazon, eBay and other e-tailers will follow Alibaba’s progress and take action as necessary.
11 Main is not a serious play at this point. They don’t have an audience, a critical mass of merchants or a differentiated experience.
They do offer a lower take rate for merchants, but that alone won’t attract sellers without a critical mass of customers.
BABA did not do the IPO to enter/win the U.S. market. They correctly feel there is much more growth in the Chinese market (where they have a huge head-start) than there is opportunity in the U.S. They are putting more money into ShopRunner and enticing U.S. brands to sell in China than they are in 11 Main. Frankly, at this point, I don’t see them making a major investment to win U.S. consumers when there are so many better returns for their capital. There are still huge investments that need to be made in China. At the moment there is not reliable distribution infrastructure for e-commerce goods, only 50 percent of China currently has internet access, etc.
Alibaba came to the U.S. for the capital market, not for the consumers.
Completely agree with Jason Goldberg. Alibaba is just learning about and testing the U.S. market, developing their network, etc., right now. One can see how they are putting the pieces of a marketplace together through their investments in 11 Main, ShopRunner, Fanatics and Tango. I can say confidently that 11 Main is not going to be their mass-market offering. But in the short-term they will focus on China, where they still have to fight it out for the mobile market. For more of my thoughts, please see my interview last week with Reuters.
We Americans tend to be very patriotic at times, and I am thinking this may be one of those times. Unless 11 Main passes on great savings and offers good ole’ American “best in class” service, my two cents is not on ’em!
The Alibaba IPO and 11 Main have nothing to do with each other. The over $20 billion that was invested in Alibaba was invested because of its Chinese and future business, not its potential U.S. business. I would guess that despite all the hype and press about Alibaba, still a minute number of people have heard of 11 Main. Even fewer will associate Alibaba with 11 Main, and that is the way it should be.
For its entry in the U.S. Alibaba designed a business model that will not compete with Amazon and eBay. It will stand on its own for a unique customer. But, be assured, while the U.S. provides a business opportunity, the future for Alibaba and the use of funds from their IPO are not going to focus on the U.S. It will focus on China, Asia and the rest of the world. That is where the bulk of the business will be. And that is where they will compete against Amazon and such. Within five years, the majority of Amazon’s revenue will be outside the U.S. (It is already 40 percent.)
They will not waste their funds on going head-to-head with Amazon in the U.S., they will skim the unique customers and develop a profitable business.
11 Main will have a difficult path to success as even an average competitor in the market. I am more interested in following Alibaba’s success after the IPO. Americans will be interested in how they can save money on the site. But if that savings comes with too much of an effort in our “find the easy way” of life, their success will be hard to achieve.
The middle of September roll out of Alibaba’s IPO was no mistake. This was designed to instill hype and curiosity just in time for the Christmas retail market. The war between Bezos and Beijing will take a toll on the brick-and-mortar stores and a lot of e-commerce smaller guys and gals. His relationship with employees will contribute very strongly with the continuing fall from the number one slot. As for Beijing, they will take their lower prices, quality and service directly to the consumer for at least this year. The future is wait and see.
Competition is always great for the consumer. While I, like 88% of Americans, never heard of Alibaba until just recently, as a result, it is going to be hard to determine how they are going to fit in. Only time will tell. Pricing and service will be the determining factors and not the name Alibaba or the fact the company is from China.
If they have competitive pricing and good service, they will fit in to being just another resource for purchasing online. The products themselves are purchased more on the manufacturer’s quality and reputation.
This just adds to the evolution of a truly global economy which is currently taking place.
“(O)ther online sellers” is right, because I can’t see how Alibaba is anything other than “just another seller”… at least at this point. And with only a 12% penetration rate into the public’s conscious – at least prior to one of the most hyped IPO’s in history – I don’t see that changing soon.
I see continued success for Alibaba, less so for 11 Main.
Alibaba is primarily a B2B site, and that is the company’s core. Furthermore, it was cultivated and grown in China and tailored to succeed there. For it to succeed in the U.S., they need to take the core B2B model they know so well and modify it to suit U.S. tastes and cultural norms.
11 Main is a different story in that it is meant to be a B2C site, which is not their greatest area of strength. As such, they are not only dealing with cultural differences, but also a significant difference in business model.
Generally, increased competition is a good thing, but I do not see 11 Main posing a threat to Amazon or eBay, or having a significant impact on online sales in the U.S.