Shoppers will spend record sums online in the next few weeks—in China for Singles Day on November 11, in America on Black Friday and around the world in the run-up to Christmas. E-commerce has been growing by 20 percent a year for a decade, shaking up industries from logistics to consumer goods. Nowhere does debate about what this means rage more fiercely than in America, where thousands of stores have shut this year and where retailing accounts for one in every nine jobs.
Astonishingly, online shopping is only getting started. Last year it amounted to a mere 8.5 percent of the world’s retail spending. In America the share was about 10 percent. Its effects on business and society will be huge—not only because retailing is a big employer that touches many industries, but also because its two greatest exponents, Jack Ma and Jeff Bezos, founders of Alibaba and Amazon, have used it to amass a new sort of conglomerate.
The question is whether its creation will foster competition or demand restraint.
In the past two decades, Alibaba and Amazon have added ever more services, from cloud computing to video. The firms’ businesses will reinforce each other as consumers and companies become more likely to use their platforms and as diverse sources of revenue and data power further growth.
As a result the two giants sit at the center of all sorts of activity. In America Amazon is showing, week by week, the havoc that an innovative e-commerce firm can wreak in a giant, mature market. In China Alibaba is showing how dramatically one company can reshape business in a fast-growing economy. They will not conquer every industry they touch—but, as they expand, few companies will change as many sectors in as many places.
Through one lens, this is a boon for competition. The e-commerce sites of Amazon and Alibaba lower barriers to entry by providing a simpler, cheaper way for small manufacturers to distribute goods and find potential buyers. Local manufacturers are challenging multinational giants. Consumers benefit, because they can choose from more and better products than ever.
As the giant e-commerce platforms grow, however, so does unease about their might. With access to cheap, patient capital, Amazon can make big investments, including in warehouses, artificial intelligence and other companies such as Whole Foods, the grocery chain it bought for $13.7 billion this year. Those investments, combined with the vast amounts of data it collects the consumers and businesses on its platform, mean that competitors struggle to keep up.
Amazon’s challengers should learn from China, where Alibaba’s rivals are teaming up. Tencent began as a gaming-and-messaging company. It now has a thriving digital-payments business and is the biggest shareholder in JD.com, Alibaba’s closest e-commerce competitor. JD.com is working with other retailers and tech firms too: In August it announced that shoppers could buy through Baidu, China’s leading search engine.
Amazon’s would-be competitors might follow a similar path by forging partnerships. Wal-Mart, another investor in JD.com, seems to be adopting JD’s tactics, making its products available through Google’s voice assistant to counter Amazon’s Alexa. Facebook wants to make it easier for customers to buy goods featured in its ads. Google, to the horror of some privacy advocates, is tracking consumers to help brick-and-mortar shops see which online ads work. American companies may yet catch up with their Chinese counterparts.
© 2017 Economist Newspaper Ltd., London (October 28). All rights reserved. Reprinted with permission.