Rivals? Actually, Amazon Is Looking to Alibaba for Help in China

The U.S. Powerhouse Has Only a 1% Share of the Market in China vs. Alibaba's 61%

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An Amazon distribution center in the U.S.
An Amazon distribution center in the U.S. Credit: David Paul Morris/Bloomberg

Alibaba is the acknowledged master of e-commerce in China. What's surprising is that even Amazon seems to be acknowledging it, too.

Amazon has its own online sales site in China, but it just opened a pilot store on Alibaba's Tmall marketplace, where it is one shopfront among many in a virtual mall that includes masses of Chinese brands, as well as global players like Nike and Burberry.

Amazon's shop focuses on selling imported goods, from wine to toys. The company says the official launch will be next month, with more international brands joining later. About a fourth of the brands are Amazon exclusives, like Logan, Panama Jack and Moc Moc.

The move puts mighty Amazon in the odd position of seeking a sales boost from a company that's often painted as a rival. (The two have very different models. Amazon sells goods directly to consumers, while Alibaba is an intermediary that connects sellers and buyers, and it makes most of its money from selling ad space on its platforms. Shops on Tmall have to pay it a commission for sales, and presumably Amazon does too.)

Alibaba has been competing with Amazon on many fronts. This week, the Chinese giant opened a cloud computing center in Silicon Valley. Last month it started drone deliveries, something Amazon's Jeff Bezos dreams of but which U.S. authorities have restricted for now.

So why is Amazon working with Alibaba in China? It's all about traffic. Amazon.cn sold 1.3% of China's online business-to-consumer merchandise by value in 2014, according to Chinese research firm iResearch; for Tmall the number was 61.4%. Online shoppers in China often go straight to Alibaba's platforms when they want to search for a product, bypassing search engines, brand e-commerce sites and Amazon.cn.

Data from China's iResearch shows the grip Alibaba's Tmall has on the marketplace
Data from China's iResearch shows the grip Alibaba's Tmall has on the marketplace Credit: iResearch data

Yet the deal isn't one-sided -- China-centric Alibaba can use Amazon too in its push to go global and lure more prestigious global brands to sell on Tmall, says Julia Q. Zhu, founder of Observer Solutions, a China e-commerce advisory.

"Amazon can get traffic and pick up users from Tmall's huge user base, and Tmall probably considers Amazon has a lot of resources in terms of international brands and suppliers," she said. "It's win-win."

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