The strategy and success of Amazon.com

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A vignette within Ch 11 explores online commerce and, in particular, the strategy and success of Amazon.com. Online retail sales in the United States will reach $1 trillion by 2025. The Chinese retail conglomerate, Alibaba Group, had online sales in 2018 totaling more than triple that of Amazon. Alibaba’s Tmall (Amazon’s competitor) is expected to become the largest individual ecommerce site within the decade, surpassing Amazon in total revenue. Alibaba combines business-to-business, business-to-consumer, and consumer-to-consumer transactions under a single ownership umbrella, while Amazon specializes primarily in just business-to-consumer sales. Amazon not only hosts third-party sellers but also acts as a direct merchant. Amazon buys and sells merchandise, ships products, and warehouses inventory. This direct-seller approach allows Amazon to adapt quickly to changes in demand, but their margin is tightened by the necessary investments, like labor and warehouses. Alibaba is a “mere” facilitator for sales between third parties; thus fixed assets are minimal. However, the company cannot control shipping and distribution, so third-party mistakes reflect on Alibaba. The company does not gain financially from direct-to-consumer selling. The geographic positioning of Amazon and Alibaba affects their potential future growth. While the future growth potential of Amazon is somewhat limited, Alibaba has yet to enter the North American market. Thus, Amazon must expand its market area. Alibaba is better positioned, as only 50 percent of China has Internet access. Long-term success for each company is yet to be determined. Both the managers will be called to develop and initiate new strategies. • Reflect on the differences that exist between the markets and strategies of Amazon and Alibaba. How can the companies plan for the future? • What are the reasons for Amazon’s success as an online retailer? What factors explain Alibaba’s success? • Submission should be 2 pages long. Be sure to add your name to the “header section” of the paper and save it as a pdf file before submitting. Be sure to use 1″ margins and double spacing. See Section 3: Assignments for additional details.

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