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Alibaba, Amazon battle over US B2B market with rival platforms

Chinese e-commerce company Alibaba Group Holding Ltd. is battling its U.S. rival Amazon.com Inc. by trying to lure American business customers to its global business-to-business e-commerce platform.

It is a move analysts say could undercut Seattle-based Amazon on its home turf and ensure an ongoing battle between the two online retailers in the coming years.

Hangzhou, China-based Alibaba announced in July that it opened up its B2B e-commerce marketplace, Alibaba.com, to U.S.-based manufacturers and wholesale sellers for the first time. Now, for a fee, U.S. businesses can create their own digital stores on Alibaba.com and sell their custom and commodity items to a global base of more than 10 million buyers across 190 countries, including India, Canada, Brazil, and the U.S., the platform's largest buyer market.

Amazon Business, by comparison, offers U.S. small businesses free accounts to join a marketplace that connects businesses with millions of online buyers in eight countries, including Germany, France, Italy, Spain and Japan. Amazon declined to comment for this story and did not disclose a specific number of Amazon Business buyers.

"Rather than go travel to trade shows all over the world, [American companies] can join the Alibaba.com platform and sell to the world," said John Caplan, head of Alibaba's North American B2B unit, in an interview. "That's really significant for a small business here in the United States to try to build and get customers around the world without getting on the airplane."

Alibaba.com could pose a threat to Amazon's B2B unit, given the Chinese platform's ability to provide U.S. small business sellers with access to a much larger base of buyers, said Jillian Ryan, a B2B analyst with eMarketer, in an interview.

"If you're a B2B seller, it's really about knowing your buyers and where you can reach them," Ryan said. "If you're looking for a more global audience, Alibaba.com is probably the better marketplace for you. Amazon Business has more of a presence in the U.S., but they only reach a small handful of countries."

Facing off in the US

Both online retailers are dominant in their home countries but have been expanding their global reach in areas of the world including the Middle East, India and Singapore.

Now, they are facing off in the U.S. to capitalize on American business buyers who are increasingly adopting e-commerce for their procurement needs. Statista projects B2B e-commerce sales to reach $1.2 trillion in the U.S. by 2021, up from $889 billion in 2017. The U.S. is home to more than 30 million small businesses, a lucrative pool of potential customers for both companies.

"Alibaba is trying to go toe-to-toe with Amazon in this move," eMarketer's Ryan said. "They are all playing in the same bucket for sure. As B2B becomes less of an emerging trend, I think we'll have to see five years from now if there is room for two giants."

Ryan added that Amazon will likely feel competition from Alibaba.com because the Chinese company's platform is now allowing U.S. sellers to sell commodity items, including business supplies ranging from paper clips to mousepads, that are more commonly sold through Amazon Business.

Previously, U.S.-based businesses could only purchase products from Alibaba.com, where Chinese sellers regularly sell goods to members of the platform's 10 million-member buyer base.

Now the platform allows a U.S. business to sell to buyers in the 190 countries in which Alibaba.com operates.

"Essentially, this move showed Alibaba’s intention to compete on commodity items," Ryan said. "Of course, this requires attracting new sellers and buyers in order to be successful."

Growing B2B business

Alibaba.com is Alibaba Group's oldest platform, founded in 1999 by Jack Ma as a B2B portal to connect Chinese manufacturers with overseas buyers. At the time, it functioned more like a Yellow Pages directory. It has since evolved into a global procurement platform that allows customers to directly manage business relationships and complete transactions.

Alibaba.com allows businesses to chat in real-time with customers, negotiate contracts, and order and buy all the goods they need, Caplan, of Alibaba's North American B2B unit, said.

For Alibaba Group's fiscal year ending March 31, revenue from Alibaba.com was $1.22 billion, or 2.2% of total Alibaba Group revenue of $56.15 billion during that fiscal year. That is up from Alibaba.com's revenue of $761 million during the company's fiscal year ending March 31, 2015, which represented a 6.2% share of Alibaba Group's total revenue of $12.29 billion that year.

While Alibaba.com generates a tiny slice of Alibaba Group's overall revenue, it represents a chance for the company to gain a toehold in the U.S. B2B market and dovetails with the company's larger ambitions for globalization. Alibaba Group hopes to generate half of its sales from outside China by 2025.

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Alibaba Group also operates the Tmall and Taobao business-to-consumer e-commerce platforms in China and various other businesses, including a digital media and entertainment division.

Caplan declined to provide a specific number of customers who have joined the Alibaba.com platform since July.

But he said in an interview that the Alibaba.com platform has "six times more new U.S. sellers joining the platform on a monthly basis here in the United States" than from anyplace else in the world.

"We're off to a great start," Caplan said. "What the U.S. sellers on the platform are seeing is greater growth in demand compared to sellers in other parts of the world as measured by traffic and inquiries they are receiving."

The company is also working on outreach efforts in cities across the country, Caplan said, including Los Angeles, New York, Chicago, and Atlanta, to promote Alibaba.com, whose U.S. sellers include Boca Raton, Fla.-based Office Depot Inc. and Robinson Fresh, a global produce company.

Amazon does not break out revenue for its Amazon Business unit but stated in a 2018 blog post that Amazon Business generates sales of more than $10 billion on an annualized basis.

According to company marketing materials, Amazon Business' customers include nearly 80% of the 100 largest enrollment education organizations, 55 of the Fortune 100 companies, and more than half of the 100 biggest hospital systems. More than 40% of the 100 most populous local governments are buying on Amazon Business.

The platform is just one part of a larger system that has catapulted Amazon from an online bookseller into the world's largest e-commerce company in terms of market capitalization. As of Dec. 12, Amazon has a market cap of $867.01 billion, compared with Alibaba Group's market cap of $548.99 billion, according to S&P Global Market Intelligence.

Amazon's revenue during the 12 months ending Dec. 31, 2018, reached $232.89 billion, more than double the $107.01 billion in the 12 months ending Dec. 31, 2015.

Competitive market

As a new entrant to the U.S. B2B market, Alibaba.com will have to invest in continuous efforts to onboard sellers and provide assistance with pricing and product content, Ryan said.

"Buyer onboarding and enablement will be a big deal for Alibaba in order to be successful," Ryan said. "This means making sure that new sellers know the ins and outs of the platform and have best practices and training in place to start off strong and continue to sell."

According to Alibaba, new business sellers sign up for either a basic plan that costs $2,399 or a premium plan for $4,199 for the first year of service. Businesses then pay $1,399 annually for each year thereafter to continue selling on the platform.

Unlike Alibaba's fee structure, Amazon Business sellers can sign up for free accounts that provide them with digital storefronts, but Amazon takes a percentage on all purchases transacted on the platform, Ryan said.

It will be up to American businesses to calculate which platform is a more cost-effective avenue for B2B sales, Ryan said.

"If you sell a lot of volume on the platform, you are not going to pay as heavy of a cut [on Alibaba.com] as you would to Amazon," she said. "It could make sense for some, but if you are a B2B selling on Amazon, it might worth considering Alibaba as an additional channel to reach your buyers."

Trade tensions

Alibaba.com could face challenges recruiting small U.S. businesses at a time when the ongoing trade war between the U.S. and China has thus far resulted in tariffs on $550 billion in Chinese imports, experts say.

David Camp, co-founder and partner with Metaforce, a marketing company, said in an interview that it is "not an auspicious time" for a Chinese business like Alibaba to be trying to build a base of customers in the U.S.

"I think it's partly a cultural phenomenon and it's partly a political phenomenon particularly today in this very tribal political time that we are living in," Camp said. "Americans are being programmed by their government to view the Chinese and Chinese businesses with great suspicion."

On the flip side, Alibaba.com might present U.S. small businesses with an alternative to Amazon, which is undergoing significant scrutiny by the U.S. government for antitrust and data privacy issues, he said.

"There are plenty of American businesses that think Amazon is becoming too powerful and taking too much of a share of their sales," he said.