Together, Alibaba and Amazon have about a $1.2 trillion market cap, ($483 billion for Alibaba and $720 billion for Amazon). Maybe they should unite. Not a chance for that to happen. The brilliant minds and egos of both Jack Ma and Jeff Bezos had the same global vision: Digitize Earth and everything on it. Ma’s original declaration, “Alibaba’s mission is to make it easy to do business anywhere.” Does that include outer space? Bezos said, “Our vision is to be Earth\’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.” His vision does include outer space.

Anyway, since they won’t be merging, which one is getting bigger faster? Bezos’ “day one” declaration (which is now declared every day) is that Amazon must “get big fast.”

According to a recent MKM Partners’ analysis, not only is Alibaba getting bigger faster, they predict Alibaba will be the first among its tech peers — Amazon, Apple, Google, Facebook and Tencent — to reach the “Holy Grail” of a trillion-dollar market valuation.

Analyst Rob Sanderson says, \”An argument can be made for each company achieving $1 trillion in market cap by 2020, with a case for Apple in 2019. (But) we think it\’s most likely that it will be 2021 when the barrier is broken by an internet company, and we think BABA (Alibaba — including Taobao, its consumer to consumer marketplace, and Tmall, the business to consumer marketplace may have the best chance for 2020 despite being the smallest of the mega-caps today.\”

The Global Race

Amazon dominates North America and Europe while Alibaba controls China and Southeast Asia. And there are still substantial runways for growth in each of their own domains. However, China’s size (population at over three times that of the U.S.) and overall economic growth (China’s middle class is currently larger than the entire population of the U.S.) looks like a much faster and longer runway for Alibaba. Accordingly, MKM Partners noted that online commerce in China is growing at more than twice its growth rate in the U.S. And Alibaba’s international growth is up 93 percent from last year in the most recent quarter, while Amazon’s growth for the same period is 29 percent. Alibaba’s shares have increased 81 percent over the past year against Amazon’s 71 percent increase.

According to Wikipedia, since 2015, Alibaba’s online sales and profits surpassed all U.S. retailers’ online sales combined (including Walmart, Amazon and eBay). Of note, we all remember Alibaba’s orchestration of China\’s Singles\’ Day into the world\’s biggest online and offline shopping day, with its own sales reaching over $25.4 billion on 11 November 2017.

Online sales penetration in China is the highest in the world, with 751 million people in China online, the majority accessing with a mobile device. But brick-and-mortar retail still accounts for around 85 percent of total retail sales. Will online growth slow down any time soon? Doubtful — only half the country is connected.

In 2010, the U.S. matched the number of online shoppers in China. But, projections for 2020 are that online shoppers in China will be over three times larger than the U.S. And China’s marketplace is global; 57 percent of global ecommerce will be in China next year. Alibaba has been around since 1999 building its incredible ecosystem from C2C marketplace retailer, Taobao and B2C marketplace, Tmall (including its new Luxury Pavilion). Plus, there’s everything in between: travel site Fliggy; fintech Alipay (accepted in 40 countries and 27 different currencies); Alibaba cloud; entertainment, music and sports services; Yahoo China; The South China Post; and many other entities, some partially owned.

Their strategy of converging the data from across all of their entities provides them with real-time personal identities of close to 600 million monthly active users (vs. an estimated 400 million monthly users on Amazon). With the same user ID, each person can be spotted anywhere within their ecosystem. This is consumer insight on steroids and can facilitate personalized experiences on every one of the Alibaba’s platforms. This also opens the floodgates to international marketers looking to tap into the Chinese market based on the ability to identify personal consumer preferences.

Different Models Favor Alibaba

In my opinion, the likely reason for Alibaba’s faster growth rate, in addition to its much larger Chinese market, is its business model. Alibaba merely provides a marketplace in which it facilitates businesses to operate. In fact, Alibaba’s name grew out of a magical phrase in the story of \”Ali Baba and the Forty Thieves\” in One Thousand and One Nights: “open sesame,” as a free or unrestricted means of admission or access.

Amazon’s name? Ah..well, think the world’s largest river in volume. I guess one could say it’s a metaphor for the largest in volume of stuff or of anything for that matter. Amazon provides a marketplace but also makes and sells its own goods and services.

There are three advantages for Alibaba’s model; they are more agile and unencumbered with production, logistics and inventory issues, and for the consumer Alibaba is a super app. People use it to live their lives. They can buy anything, but also use local services like food delivery or a massage, music, video, music, social media, pay your bills, etc. it’s also much more about discovery, engagement and experiences vs. a transaction. The app is made to entertain, rather than just for efficient one-swipe transactions. That’s why people spend around 30 minutes a day on the app and open it an average of eight times a day. It’s the difference between “shopping” online and just “buying” online. Finally, Alibaba is a more compelling and non-conflicting marketplace for third-party brands and retailers to join.

By non-conflicting, I mean Alibaba does not compete with the brands and retailers doing business in their marketplace. Amazon does. To describe Amazon as a “predator” would be an understatement. Whole industries get devalued overnight at the mere rumor that Amazon might be entering their turf. The “devil” or “Pacman,” as Amazon is variously called, gobbles up industries, kills friend and foe alike, even those operating on Amazon’s own platform (from which it is also taking commissions). And it is for this reason that brands and retailers are reluctant to operate in Amazon’s marketplace. Amazon owns the data from the millions of transactions made daily. And they use that data to find in-demand and underserved product categories, which they can then create and sell under any number of fast-growing Amazon private brands, thus competing head-on with their third-party clients, partners, or whatever you wish to call them. And now Alexa will also direct you to Amazon’s brands first, even if you are asking for the brand you have been loyal to for years.

Conversely, Alibaba’s stated mission is to make it easy to do business anywhere. When Jack Ma founded the company, his vision was to leverage the power of technology to create a level playing field for small businesses in China to compete on a global stage. Taobao is the site that still provides a market for consumers and small businesses to operate on.

Tmall, a B2C marketplace, was launched in 2008 as a spinoff from Taobao. Currently there are more than 100,000 brands operating on the site and Tmall accounts for over 50 percent of total online sales in China.

But the significant difference from Amazon is that Tmall is what it says it is: a mall. Brands like Nike or Zara or Apple build their flagship stores on Tmall’s virtual mall. Unlike on Amazon, where those brands’ storefronts will look like Amazon, on Tmall they look just as they do on their own branded sites. Furthermore, the brands own the customer experience, they own the relationship and they own the data. This means that Alibaba does not compete with the third-party brands. It’s a win-win, and they only succeed when the brands do well. Their interests are totally aligned.

A further major move by Tmall in 2017, it launched its Luxury Pavilion. Since China represents approximately one-third of the total global luxury market, this seems to be a no-brainer. By invitation only, the Pavilion currently has luxe brands including Burberry, Hugo Boss, La Mer, Maserati and Guerlain (LVMH) and Zenith, among others, offering products ranging from clothes and skincare products to watches and luxury cars.

This is a big jump ahead of Amazon who has been pursuing designer brands. It’s obvious that designer and luxury brands would opt for their own flagship stores on Tmall rather than getting lost on Amazon’s rather vanilla site. As I said, this isn’t rocket science when you’re serving China’s luxury obsessed consumers.

Alibaba’s “New Retail” Strategy

Even though Alibaba has a long and huge growth runway for its online business, they know the future of retail will be a seamless integration of both online and offline commerce, and they have been making investments into that strategy.

Hema, a grocery store launched in 2015 (currently at 35 stores), is an example of the New Retail online and offline integrated model. Hema digitalized the entire store providing consumers with a 3-in-1 retail experience that encompasses all modes and desires of modern urban shoppers — including technology-driven fulfillment of online delivery, seamless in-store purchases and in-store consumption. Consumers can place orders online and they can scan every product in store to find information about it. In turn, Alibaba can leverage consumer data, including purchasing habits and history and store visits to provide a more personal experience for each consumer. The power of Hema is in its integration with Alibaba’s ecosystem (Tmall, Taobao, Alipay, Cainiao), enabling the seamless experience. For example, Hema will work with Cainiao to bring fresh foods and produce already sold through Tmall directly to Chinese consumers in supermarkets.

Another example of the New Retail initiative is that Alibaba has been recruiting independent store owners in China to adopt its retail management platform in their stores. The platform is called Ling Shou Tong. Launched in August of 2017, by November of that year 600,000, or 10 percent, of China’s mom and pop shops were using it.

Free of charge, Alibaba\’s retail platform gives brick-and-mortar stores technological tools such as a digital inventory management system, to facilitate direct shipment of products from Alibaba to the store. They also recommend what the shops should buy and how to display products to maximize sales and profits. In return, Alibaba receives data on consumer behavior from the stores, as well as the ability to use the stores as fulfillment centers. This allows Alibaba to add brick-and-mortar shopping behavior to its algorithms, which can improve its capabilities both online and in-store. Meanwhile, using stores as fulfillment centers can help Alibaba build out its omnichannel options.

What else? Alibaba has made investments in grocery (SunArt), department stores (Intime), electronics/appliances stores (Suning), home Improvement (Home Times), and O20/food delivery/local services. That’s an expansive playing field by any standard.

Is There a Foreign Invasion Pending?

Because of the entrenched dominance of each brand in their own home bases, neither is currently inclined to fully invade the other’s market for growth. The investment in time and money to enter into a ferocious battle to eke out another share point, with great risk of failure, and for a lot of other reasons, doesn’t make sense, particularly since there are other untapped global markets of opportunity. In fact, Amazon’s minimal efforts in China, achieved a 2 percent share, which has steadily decreased since 2011 to a 1.5 percent share today. Alibaba’s share is 51 percent and JD.com has about a 20 percent share.

Specifically, India, Australia and Singapore are attractive targets for both. From a macro perspective, Alibaba and Amazon are pursuing a foothold in these countries using different strategies. Just as they do in their home markets, Amazon acquires while Alibaba invests. Accordingly, Alibaba has invested in twice as many companies as Amazon, while Amazon has acquired five times more companies than Alibaba.

Having established a dominant position in North America and Europe, Amazon is aggressively entering India and also making moves in Australia and Singapore. Alibaba controls China and has made a string of strategic partnerships and investments in Southeast Asia. Specifically, Alibaba invested $4 billion for an 83 percent share of Lazada, the leading online marketplace in Southeast Asia, thus shoring up its leading position in that region.

But the real near-term battlegrounds will be in India, Australia and Singapore.

India

With millennials making up a third of its population, India has the highest growth potential in the region. According to research conducted by Morgan Stanley, in 2009 the online market totaled $3.9 billion. In 2016, it had jumped to $15 billion, and they project it will soar to $200 billion in 2026. According to a report by consulting firm Praxis Global Alliance, Flipkart, including its fashion unit Myntra, is the market leader with about a 40 percent share, while Amazon has close to a 30 percent share. Snapdeals has a minor share and is being eyed by Flipkart as a potential acquisition candidate. Alibaba is a late entrant, and according to CB Insights, they may be in the very early stages of building a “super app” that will allow it to combine all of its various assets. This could resemble the design of Tencent’s WeChat app.

Australia

Australia’s current retail market is very segmented, and even though 88 percent of its population are active internet users, online sales comprise a mere 7 percent of total retail sales, compared to 9 percent in the U.S. and almost 20 percent in China. And because no one retailer or retail sector dominates the market, there is an open field for Amazon and Alibaba to battle for a leading position.

Singapore

As the most modernized country in Southeast Asia, and as a top financial hub, and with 82 percent of its population actively using the internet, Singapore is another prime battleground for the two giants, who are currently the two major players in the region. Alibaba, with its subsidiary Lazada (headquartered in Singapore), has the edge. Alibaba is currently outpacing Amazon in page visits by close to a million a month vs. about 700 thousand for Amazon.

Who Will Win the Global Race?

The philosophical differences between the founders of these two giant brands, at least as publicly recorded, could not be farther apart. From the genesis of the brand names: Alibaba, open sesame, “a free or unrestricted means of admission or access,” with a mission to make it easy to do business anywhere and to align its success with that of its third-party retailers and brands. Amazon, “to be a customer-centric company: to build a place where people can come to find and discover anything they might want to buy online,” followed by “get big fast,” which leads to “whatever it takes,” which has led to competing with its third-party operators.

Take your pick. Philosophy alone will not win. But, in my opinion, the positive, sharing mission along with a more agile and unencumbered business model, gives Alibaba the long-term edge.