Critical Analysis of Digital Business

Critical Analysis of Digital Business

  1. Introduction

With the popularity that the Internet and communication technologies have in the world, e-commerce is an increasingly used communication tool and trading platform. E-commerce is a business activity centred on information network technology and commodity exchange that belongs to the digital business process (Dumičić et al. 2018). An interesting fact is that as of 2018, there were 7.3 billion people in the world, of which 3.9 billion were Internet users. Not only that, 1.79 billion of these Internet users are e-shoppers, and this number will continue to grow(Statista 2019[u1] )[u2] 

In the year 2018, the data indicate that there were 7.3 billion people in the world and about 3.9 of the population was classified as avid users of the internet. Consequently, 1.79 billion of them showed significant interest in e-shopping, and the figure is projected to increase as the time goes.

 This shows that the e-commerce development trend is accepted by people.

Over time, e-commerce has become an increasingly more important and profitable component of global commerce. Experts predict that this growth will continue in the coming years (Dumičić et al. 2018). Therefore, to further understand and learn about the course of e-commerce, a critical analysis of e-commerce companies is necessary. This paper will compare the business models of Amazon and Alibaba and analyse their digital business strategies to determine the difficulties that the two companies are currently facing. The paper will conclude with feasible solutions to the companies’ problems.

  • 2.1. Key Partners

Amazon’s key business partners are search providers and social software companies. When the company was founded, Amazon used more than 5.8 million pay-per-click keywords on Google AdWords, Bing and Yahoo to increase product exposure (Mercer 2018). In the social software arena, Facebook and Twitter are currently partnered with Amazon. By launching the Amazon Birthday Gifts service, Amazon helps Facebook users send birthday gifts to their friends more easily (Indvik 2013). In February 2017, an MG-MI Newsletter showed that Amazon also established the Amazon Smile Foundation, creating a business relationship with charities.

Alibaba has many partners. In 2005, Alibaba’s Taobao network formed a strategic alliance with China Sohu. In 2006, Alibaba and the Agricultural Bank of China began to cooperate on the B2B (Business-to-Business) business payment system. In May 2010, Alibaba established a strategic alliance with Yahoo Japan through Softbank(Anwar 2017). In the next few months, Alibaba acquired two software companies from the United States and announced a strategic alliance with Microsoft to launch a new network called Etao (Anwar 2017). In addition, NBA China, Starbucks and Intel are all Alibaba partners (Anwar 2017).

  • Key activities

Amazon is a large B2C (Business to Consumer) model retailer that sells products directly to consumers through the Amazon platform. In addition to direct sales, Amazon Auctions and zShop are integrated into the Amazon market, providing a platform for people to sell second-hand goods (Investopedia 2019). Amazon also maintains a subscription-based business model through its Amazon Prime service and a small electronics product line (Investopedia 2019). These are Amazon’s e-commerce activities. Amazon is also involved in a number of other major activities such as creating and consuming electronic products, publishing, advertising and services and cloud computing services.

Alibaba has formed a relatively complete business ecosystem that includes many major activities (Tan et al. 2018). Although it is a company that uses the B2B business model, its subsidiaries, such as Taobao, belong to the C2C (Consumer-to-Consumer) business model. Alibaba has six major e-commerce services. Taobao and Tmall are e-commerce service providers that mainly provide a platform to connect buyers and sellers (Jones 2017). Alibaba Cloud is a cloud computing service that provides a complete set of services for merchants, enterprises and government agencies on the Alibaba Group e-commerce platform. Green hand logistics belongs to Alibaba’s logistics platform, providing platform services for enterprises. The Ant Financial Services Group mainly provides Alibaba with financial services such as Alipay (Anwar 2017).

  •  Key resources

Amazon’s core resource is its capital-intensive physical assets. Amazon has a large-scale IT system, warehouse and logistics system. These core resources are important factors for the company’s success. Amazon has a group of excellent and experienced R & D personnel that oversee human resources (Jones 2017). This resource ensures that Amazon always reflects creative ideas. Amazon’s large economy scale and strong financial resources have ensured Amazon’s giant status (Balea 2016). It is worth mentioning that Jeff Bezos is also one of Amazon’s indispensable core resources. He is an excellent, visionary leader.

Alibaba’s core resources are all online platforms (group resources) and network systems (massive e-commerce transaction data, etc.) owned by the company. Alibaba’s Taobao platform is Asia’s largest shopping site, and Alipay is the world’s second-largest mobile wallet provider (Embling 2018). In terms of capital, Alibaba’s total market capitalization in 2009 reached 96.5 billion Hong Kong dollars, becoming the world’s largest B2B e-commerce company (Anwar 2017). Alibaba’s market growth, expansion and business model are based on the vision of founder Ma Yun. Alibaba has 30 outstanding senior leaders, all of whom have led to Alibaba’s wealth (McGregor 2014). In terms of customer resources, Alibaba has a large user base and affiliates (Mourdoukoutas 2014).

  •  Value propositions

Amazon’s value proposition has four main points, which are customer-centric, low prices, fast delivery speed (often same day with options of free 2-hour delivery), and vast selection (“earth’s biggest selection”). Amazon is relying on these four value propositions to gain consumer love (Uenlue 2018).

The value proposition of Amazon is intertwined among the aspects such as customer centric, low prices, fast delivery and wide selection. The company relies on these elements, to attract customers hence boosting its returns significantly(Uenlue, 2018)

Alibaba’s value proposition has three main points: make the world’s business easy (Jones 2017), relies on customers to surviveand integrity management (Song 2014). All of Alibaba’s business activities are based on these three value propositions.

On the other hand, Alibaba is governed by three values propositions which are customer centered, making the business easy, and integrity(Jones, 2017 & Song, 2014). They have helped the company to compete favorably with others in the same space of operation.

  •  Customer relationships

Amazon primarily builds relationships with customers through sales and the distribution of merchandise, along with the provision of personalized membership services through Amazon Prime (Wells 2016). In 2006, Amazon launched Amazon Web Services, a cloud computing service that helps businesses send notifications, streaming video, and sync data(BBC News 2015). Amazon Bookstore also invites customers to write book reviews that provide value to other book lovers (Quora 2015).

Alibaba mainly establishes relationships with consumers by providing an online platform to instigate and monitor payments with integrity. In addition, it also providing financial services, online automation services and online community services with individual users, Alibaba has established deep connections with their customers. The company works with users to maintain a good, cooperative relationship and create value together (Anwar 2017).

  •  Channels

Amazon and Alibaba’s distribution channels are similar. They both sell their products and services through websites, apps and online clients.For example, Alibaba sells products through Taobao and Tmall, and provides financial services through Alipay. On the other hand, Amazon sells goods through and uses AWS (Amazon Web Service) to provide cloud services to consumers (Investopedia 2019).

For example, Alibaba utilizes Taiobao and Tmall to position its products to the customers, and uses Alipay payment method. Likewise, Amazon leverages on to reach out to potential clients.

  •  Customer segments

The target customers of Amazon and Alibaba are similar. They include individual users, teams, small and medium-sized enterprises, etc.These are all in the mass market where customers have roughly the same needs and problems. In addition, both companies decided to diversify their retail operations by selling cloud computing services, so they began to cater to completely different customer segments with completely different value propositions – the website company, which is diversified market.[u3] 

The two companies have excelled in meeting the varied demands in the society, by focusing on the needs of the individual groups. The customers can be divided in form of age, or the level of income. Careful study of the operations of Alibaba and Amazon, one is able to find the commodities that they can afford, hence making these online businesses appeal to a wide range of customers. In both cases, they have diversified their operations by selling cloud computing services to different clients thus widening their scoop of return.

  •  Cost structures

The cost structures of Amazon and Alibaba are also similar – the development and maintenance of the network platform, the processing of big data, the infrastructure expenditure of the company’s operations, legal taxes, employee salaries, marketing, etc.

  •  Revenue streams

Three-quarters of Amazon’s revenue comes from electronics and merchandise sales, and 23% comes from offering digital media content (Wells 2016). Another part of Amazon’s revenue comes commissions that Amazon collects from third-party sales on (Wells 2016). Last, Amazon collects revenue from Amazon Web Services, a cloud computing service that charges companies fees for hosting websites and other applications (BBC News 2015).

Alibaba’s revenue is mainly derived from advertising and services provided to its suppliers (Macauley 2015). Revenue is earned by selling ads for select pages and search results. Alibaba also earns revenue from membership fees (China TrustPass members), Alisoft sales, Alipay and merchant loans, trade training, Alibaba Business School education industry income and rookie logistics (Anwar 2017).

  •  Social factors

According to Stastata (2019), the number of Internet users worldwide is currently 3.9 billion, up from 3.65 billion the previous year. The total number of Internet users and the amount of social consumption is increasing rapidly. Consumers have also gained a positive attitude toward online shopping. These changes have promoted the rapid development of e-commerce. These changes have been very beneficial for Amazon.

In a global environment, Alibaba and Amazon enjoy the same favourable social factors. Alibaba does have some advantages in terms of the number of customers and the number of potential customers though. As of December 2017, there were approximately 772 million Internet users in China, while the United States had only 312 million Internet users (Statista 2019).

  •  Legal and ethical factors

The United States has a relatively comprehensive legal norm system for e-commerce that includes regulations for mail and telephone orders to protect online shopper power. To a certain extent, this protection promotes consumer spending desire. However, in 2013, the US Senate voted to pass the Market Fairness Act which allows the collection of online sales tax. This has had a negative impact on Amazon (Bignami 2015)Because this will lead to an increase in Amazon’s cost.[u4]  since it increases the cost of operation significantly.Amazon has also displayed tax evasion behaviour which has seriously affected the corporate image (Thompson 2019).

China announced the “Measures for the Management of Online Transactions” in January 2014 (China E-commerce Information Platform 2014). These measures protect the legitimate rights and interests of consumers and operators and promote the sustainable and healthy development of a network. Despite this, there are still problems with online shopping such as fake products and weak online payment security(Agag 2019). These integrity and ethical issues have deterred many consumers from increasing their online shopping habits . The proliferation of fake goods in Taobao is very serious(Macauley 2015), negatively impacting consumers’ desire to shop and affecting Alibaba’s sales .

  •  Economic factors

Macroeconomic development will continue to rise. The World Bank also expects global GDP to continue to rise (The World Bank 2019). The overall economic development of e-commerce is good. Global online retail transactions have grown, increasing by 24.8% compared with 2016. Along with these positive trends, operating costs will also rise (Statista 2019).

  •  Political factors

During Trump’s tenure, anti-monopoly enforcement has been more stringent and unfriendly, hindering Amazon’s development in the United States (Anderson 2019).

Alibaba has a good relationship with the Chinese government, allowing the company to operate in a positive political environment (Quora 2015). Due to China’s emphasis on e-commerce, many relevant policies have been introduced, creating a good development space for Alibaba. After China joined the WTO, the government also started promoting the development of e-commerce(Li and Cadell 2019).

  •  Technological factors

With the rapid development of the big data era, cloud computing services have rapidly progressed in function development. As a new business model and technology, AWS has created a first-mover advantage and subsequent high growth for Amazon (Crawford 2019). Mobile technology is also constantly being updated, and the popularity of smart terminals has also promoted the development of online shopping.

In addition to the benefits of environment popularity and smart terminals, Alibaba has been promoting growth by updating and developingtechnologies. Alibaba’s technological products include a series of platforms and software.

This article provides a critical analysis of the internal and external environments of Amazon and Alibaba. Both companies are the largest e-commerce companies in their respective countries, but their similarities are limited to this. Each company uses a different business model and operates in a different economy.

First of all, the economic strength and brand influence accumulated by Amazon through long-term development has become a weapon to maintain its dominance.

Amazon’s economic strength and brand influence has become a strong tool to compete with the incumbent in the market, thus dominating international markets.

In addition, it can also launch its own internal brands in different product categories through reverse integration. The popularity of the e-book Kindle series proves this. In the context of economic globalization, the expansion or acquisition of enterprises is also an opportunity. However, for the e-commerce industry, low barriers to entry are a threat to all e-commerce businesses. More and more people are involved which means competition will become more intense. Government and laws are also potential threats. Unfavourable policies and regulations have the potential to affect the development of Amazon.

In contrast, the development of Alibaba cannot be underestimated. Many Chinese banks and credit companies have fully participated in the field of e-commerce creating conditions for in-depth development. The global cloud computing market is also growing rapidly allowing Alibaba Cloud to have very good prospects. In recent years, Alibaba has been looking for new partners. Cooperation with companies such as Starbucks, Siemens and Disney would greatly promote the development of the company. Despite this positive outlook, Alibaba still faces many risks. First, China’s e-commerce is still developing and the Chinese government may impose taxation on market operators and buyers like Alibaba. This would greatly increase the pressure on the seller. Second, Alibaba needs to face challenges presented by other Internet companies established in China. Most importantly, China may continue to introduce new laws and regulations to manage the Internet industry and Alibaba needs to make adjustments to adapt to them to continue to be successful.

Next, based on the company overviews, this article provides some suggestions the companies could consider to help them maintain a competitive advantage and create greater value.

First, Amazon must insist on reverse integration and launch its own internal brands in different product categories. Second, a good partner can usually bring huge benefits so it is necessary for Amazon to either insist on expansion or acquisition or, through strategic cooperation, open a physical store in the United States to enhance the consumer shopping experience. Third, to maintain brand image, in addition to ensuring product quality, Amazon must actively cooperate with government and legal requirements.

Alibaba needs to first strengthen the punishment for supplying counterfeit and shoddy products, purify the online shopping environment, improve the online shopping process and effectively protect the rights and interests of consumers. Second, with the ruralisation of Alibaba and the introduction of an internationalization strategy, the rural and international markets both have great potential. Alibaba should persist in advancing into the rural e-commerce and international markets to seize the market share.

For existing companies like Amazon and Alibaba, improving and innovating business models is paramount. True innovation consists of reshaping business models and finding new ways to create value, do business and acquire rewards (Crawford 2019). If Amazon and Alibaba can find a balance between business models, they can help other companies achieve incremental growth by optimizing existing businesses and creating new revenue and value sources to achieve transformational growth.