This Is Amazon.com's D-Day And The Alibaba Troops Are Disembarking

Summary

  • Alibaba is about to open a store in the U.S.
  • Selling through Alibaba will be massively cheaper than selling through Amazon.com, so the suppliers will have much higher profits or much lower prices when doing so.
  • 3P selling through Amazon.com is Amazon.com's most profitable segment, having a threat to that segment is a major threat to all of Amazon.com.

Even as Amazon.com (NASDAQ:AMZN) celebrates the incoming smartphone bomb and Goldman Sachs adds the stock to its conviction list (where no one ever gets convicted), the wheels are already in motion to bring Amazon.com what is probably its greatest challenge ever.

I am talking about Alibaba landing in the States. Much like Normandy, this is Amazon.com's D-Day. And it's fitting that it happens at a time where Amazon.com is being seen as acting like the Nationalsozialistische Deutsche Arbeiterpartei with its suppliers.

Alibaba is no simple threat to Amazon.com. Alibaba is the largest e-commerce company in the world, and the most profitable as well. It dominates e-commerce in China, using an e-commerce model which is similar to Amazon.com's 3P (third party) model, but does not include Amazon.com's sprawling - and unprofitable - warehouse network.

Three reasons why the threat is immense

There are three main reasons why the Alibaba threat cannot be underestimated. These are:

Alibaba is much cheaper for the suppliers

This is very easy to understand. Selling through Amazon.com is expensive. A supplier can pay anywhere from 10-50% of its revenues to Amazon.com for countless commissions, and these keep going up year after year.

Amazon.com needs to charge this much for two reasons:

  • Its outstanding customer service. Many customers have already experienced how, after some kind of error or disappointment, Amazon.com tells the customer to keep the product and he's still refunded. This, along with many other initiatives, had a massive cost. While Amazon.com eats the cost, it has to get paid for it;
  • The fact that a large part of Amazon.com is unprofitable, and thus needs 3P to subsidize its operations.

3P selling is a wonderful business for Amazon.com. It's thus a tremendous threat if that business - which has been winning against eBay (eBay) due to

This article was written by

Paulo Santos profile picture
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Author of Idea Generator
Our goal is to beat the S&P500 and to provide consistent positive returns.

Portuguese independent trader and analyst. I have worked for both sell side (brokerage) and buy side (fund management) institutions. I've been investing professionally for around 30 years.

I have a Marketplace service here on Seeking Alpha called Idea Generator that's focused on real-time actionable ideas based on valuation and catalysts. The Idea Generator portfolio has beaten the S&P 500 by more than 51% since inception (2015).

I trade futures, stocks from the long and short side, forex and options. . I can be reached at paulo.santosATthinkfn.com.

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