🛒 How Amazon Failed in China?
Three Disruptions that Stopped Amazon's Flywheel
In span of 15 years, Amazon went from a market leader with more than 20% of China's e-commerce market share to a minor contender. In 2019, Amazon tapped out. It discontinued its e-commerce service in China.
Amazon's global playbook worked in UK, Germany, and India. Why not in China?
Flywheel Got Challenged
Amazon entered China with the acquisition of Joyo.com and rapidly expanded its market presence. Amazon's customer-first strategy was effective. It offered consumers low-price, good quality goods and delivered them fast. During the first couple years, Amazon's flywheel spun fast.
However, such momentum was undercut by local e-commerce upstarts. Alibaba and JD, in their face-off against Amazon, were fearless.
Seller Disruption
Instead of adopting Amazon's customer-first strategy, Alibaba took a seller-first approach. Alibaba believed the growth secret was to have more sellers sell more products on its platform. It executed relentlessly with a single goal in mind: to reduce the cost of running online business for sellers.
It waived listing fees to attract sellers, built an instant messaging tool to facilitate buy-seller communication, and launched a payment tool Alipay to streamline transactions. It also created an ads system that allowed sellers to move up their product ranking.
Amazon, on the other hand, took its customer-first principle to extreme. It was not willing to give any preferential treatment to sellers, even though it would mean more product offerings and site traffic.
It did not bother implementing a chat feature, citing that a good digital shopping experience should require little human involvement.
To help customers identify good sellers from a pool of competing merchants, it rolled out a Buy Box feature. However, only a few sellers were qualified to receive Buy Box under Amazon's strict algorithm.
As a result, more sellers exited Amazon and moved to Taobao and Tmall.
Logistics Disruption
Unlike Alibaba, JD took a different angle of attack. It went straight up to challenge Amazon's core strength - logistics.
With its 11 fulfillment centers established in China, Amazon had early advantages. JD recognized the importance of owning its own integrated logistics network. It went extra miles to build not just what Amazon had already, but what it was missing. JD ramped up its logistics infrastructure and even built its last-mile delivery team. Amazon, however, still relied on local couriers to deliver packages. In 2011, JD launched same-day delivery for free, a perk that almost no customers would resist. Amazon's same-day delivery was only available back home in the U.S., and it was not even free.
Price Disruption
Alibaba weakened Amazon's product selection. JD threatened Amazon's logistics. But what came next would be absolutely fatal - price war.
With capital from investors, Alibaba and JD was ready to burn however much it takes to grab customers.
Besides the general pricing strategy, Alibaba and JD both created shopping festivals that had Chinese characteristics. Alibaba established the Double 11 Shopping Festival (also known as Singles' Day) as an annual promotional event. JD followed suit and created June.18th shopping festival, an auspicious date contains Chinese's two favorite numbers, 6 and 8.
Amazon, however, did not respond. It believed that the price war was not sustainable. The odds of winning the war against Alibaba and JD were low. To them, winning the market meant survival. To Amazon, China was not its must-win market. It could invest the money in other more winnable markets.
Since the shut down in 2019, Amazon China has restructured its line of business, now focusing on global selling, Kindle, and AWS. I hope Amazon will regain its footing amid the cross-border e-commerce wave in China.