Is Amazon Smart, Or Just Desperate?

I came across an odd piece of news the other day, saying that Amazon (AMZN) has “quietly launched” an online store on competitor Alibaba’s Tmall platform. It’s puzzling to say the least, and it makes me wonder if Amazon, which must pay Alibaba a commission for every product it sells through its Tmall virtual storefront, is using this as a clever way to make inroads in the Chinese market, or if CEO Jeff Bezos is just desperate. To give you an idea of how bizarre this is, consider the brick-and-mortar equivalent of Target (TGT) opening up a mini-store inside a Wal-Mart (WMT).

Struggling is an Understatement

For the majority of the developed world, Amazon is the king of e-commerce. For example, in the United States, Amazon was bringing in more sales than the next 12 competitors combined in 2013. It’s also the most-visited online retail site in Europe. But in China, its four-year-old site only takes in 1.3% of the market’s online business-to-consumer sales, putting it in eighth place overall. Tmall, on the other hand, dominates the market with a whopping 57.6% of all online retail sales transactions.

The scene in China is so bad for Amazon that one analyst, Aram Rubinson of Wolfe Research, estimates that the company is losing $600 million per year (Yikes!). So would it be too harsh to consider Amazon desperate? I don’t think so. Just like eBay, Amazon’s attempt to encroach on Alibaba’s space has been futile, so these seems to be the last stand.

Is Alibaba Worried?

It seems as if Alibaba (BABA) also benefits from partnering, if you can put it that way, with Amazon. In the past, the company has faced aggressive scrutiny from the Chinese government over counterfeit products sold on its platforms. Having Amazon there is a reputation builder, giving the company more credibility. Also, apparently Alibaba isn’t too worried about Amazon taking away too much of its market share.

Also, interestingly enough, Amazon’s move came shortly after Alibaba announced it would be moving across the Pacific to compete with Amazon’s cloud-computing segment on its home turf. The company already offers its cloud services to 1.4 million customers in China, and will begin by focusing on Chinese enterprises in the United States. However, in the second half of this year, it will expand to international clients.

Conclusion

It looks like these two giants are beginning to spar in preparation for a huge showdown. It’s been a long time coming, but it’s likely that no one considered that this is the way it would go down. At this point, it’s unclear if Amazon’s success on Tmall will have much effect on its Amazon-China site, but there’s obviously an opportunity for Amazon to capture some sales. By the same token, Alibaba stands to potentially see a major increase in revenues without any sort of investment. The question is, how will these two major market players start to react to each other now that they’ve finally met? Ladies and gentlemen, let’s get ready to rumble!