UNIVERSITE CATHOLIQUE DE LOUVAIN LOUVAIN SCHOOL OF MANAGEMENT Alibaba vs. Amazon: A business model comparison Supervisor: Professor Paul Belleflamme Research Master Thesis submitted by Feifei Xu With a view of getting the degree Master in Management (in Business Engineering) ACADEMIC YEAR 2015-2016 Acknowledgement First and foremost, I would like to thank my academic advisor Professor Paul Belleflamme for his valuable help and guidance throughout the realization of this thesis. I am very grateful for his insightful comments and precise review of my work. I would also like to thank all the great people who have provided me with support and motivation during the writing process: my parents and family in China, my boyfriend, my friends and classmates, and all the wonderful individuals I have met during my internship in Beijing and my exchanges at the University of Cologne and the London School of Economics. i. Table of content Introduction ................................................................................................................................ 1 Part 1. Literature review ........................................................................................................ 5 1.1 The business model ..................................................................................................................... 5 1.1.1 Review of the conceptualization, definitions and classifications ...................................... 5 1.1.2 Commonalities across studies ........................................................................................................ 14 1.1.3 Differences between business model and strategy .............................................................. 15 1.1.4 Other common misconceptions .................................................................................................... 16 1.1.5 The business model as value driver and source of competitive advantage ............... 17 1.2 Comparison of business models .......................................................................................... 18 1.3 Concluding remarks and observations .............................................................................. 19 Part 2. Methodology .............................................................................................................. 21 2.1 Theoretical foundations ......................................................................................................... 21 2.1.1 Transaction costs economics ......................................................................................................... 21 2.1.2 The impact of ICT ................................................................................................................................. 23 2.2 Analytical framework .............................................................................................................. 25 2.2.1 Matching .................................................................................................................................................. 27 2.2.2 Assembling ............................................................................................................................................. 28 2.2.3 Knowledge management .................................................................................................................. 29 2.3 Choice of comparison target and data collection ........................................................... 29 Part 3. Company Overview ................................................................................................. 31 3.1 Alibaba .......................................................................................................................................... 31 3.2 Amazon ......................................................................................................................................... 32 3.3 Economics .................................................................................................................................... 33 Part 4. Analysis ....................................................................................................................... 37 ii. 4.1 Matching ....................................................................................................................................... 37 4.1.1 Search costs ............................................................................................................................................ 37 4.1.2 Negotiating costs ................................................................................................................................. 40 4.1.3 Enforcement costs ............................................................................................................................... 43 4.1.4 Summary and trade-off analysis ................................................................................................... 50 4.2 Assembling .................................................................................................................................. 51 4.2.1 Retail business ...................................................................................................................................... 51 4.2.2 Membership programs ...................................................................................................................... 54 4.2.3 Logistics and delivery ........................................................................................................................ 55 4.2.4 Payment ................................................................................................................................................... 56 4.2.5 Advertising ............................................................................................................................................. 57 4.2.6 Proprietary technology ..................................................................................................................... 58 4.2.7 Hardware ................................................................................................................................................ 59 4.2.8 Online-to-offline services ................................................................................................................. 60 4.2.9 Publishing ............................................................................................................................................... 61 4.2.10 FinTech .................................................................................................................................................. 62 4.2.11 Content production and streaming service ........................................................................... 63 4.2.12 Summary and trade-off analysis ................................................................................................ 63 4.3 Knowledge management ........................................................................................................ 65 4.3.1 Transaction ............................................................................................................................................ 65 4.3.2 Assembling ............................................................................................................................................. 66 4.3.3 Cognition ................................................................................................................................................. 68 4.3.4 Summary and trade-off analysis ................................................................................................... 69 Conclusion ................................................................................................................................ 71 References ................................................................................................................................ 75 Appendices ............................................................................................................................... 91 iii. List of abbreviations and acronyms AMS: Amazon Marketing Service AWS: Amazon Web Service BBS: Bulletin Board System B2B: Business-to-Business B2C: Business-to-Consumer C2C: Consumer-to-Consumer FAQ: Frequently Asked Questions FBA: Fulfilment By Amazon FinTech: Financial Technology FY: Financial Year ICT: Information and Communication Technology IPO: Initial Public Offering M&A: Merger and Acquisition O2O: Online-to-Offline P2P: Peer-to-Peer RTB: Real-Time Bidding SME: Small and Medium Enterprise SRE: Seller-Reputation-Escalation TBO: Tmall Box Office iv. 1. Introduction Although still lacking a clear conceptualization, the term “business model” has been an essential element in the vocabulary of consultants, managers and academics for a while. One of the main reasons for this is that a well-engineered business model has been defined as a key factor behind the success of a company that may, often, even beat a better idea or technology (Afuah, 2004; Chesbrough, 2007). The understanding of the concept is not universal among practitioners (see works by George and Bock, 2011; Osterwalder, Pigneur and Tucci, 2005; Nielsen and Bukh, 2011) but these are well aware of the power and necessity of a sound business model. A survey from the Economist Intelligence Unit (2005) revealed that 54% out of more than 4,000 senior executives believed that a company’s competitive advantage would depend on