Chinese Internet Company Alibaba Group Holdings Ltd. has launched 11Main.com, an online store for U.S. customers. The announcement was received with a degree of alarm by the media, referring to Alibaba’s landing in the States as “Amazon.com’s D-Day,” an immense threat to the company. But let’s clear the air; who is this newcomer and how is its offering unique?
Indeed, Amazon is currently the top-of-mind retailer for online goods and many are convinced the extension of Alibaba into the U.S. market will shake the foundations of Amazon’s dominance in the sector. According to BBC News, the total value of goods sold on Alibaba’s platform last year exceeded that of Amazon and eBay combined. However, analysts predict it may be difficult for Alibaba to break into the crowded online shopping scene in the U.S., where products rise in popularity through customer ratings and expensive marketing pushes.
11 Main will differentiate itself from Amazon through its hand-picking of the independent shops and neighborhood businesses available on the site. Based out of San Mateo, 11 Main will launch in the U.S. with over 1,000 shops including small vendors such as Mabel Chong Jewelry, AXL Brand, NV Blue, Featherweight Clothing Co., and others. Each specialty vendor is selected by invitation to represent the “diversity of Main Street” according to Mike Effle, the General Manager of Alibaba. The site will strive to present innovative products and one-of-a-kind items not available through mass retailers via a “beautifully designed experience.”
Further, 11 Main will not be attempting to compete with Amazon’s technical ownership of the delivery process. At L2’s first Amazon Clinic in February, RBC Capital Markets’ Internet Analyst, Mark Mahaney explained that Amazon has halved its warehouse distance from the 50 largest cities in the US in the past few years. This is a seemingly tough act to follow for 11 Main. However, modeling after its mother company in China, 11 Main will not be handling merchandise. Rather, it will provide an online marketplace for sales, leaving fulfillment to the merchants and effectively acting as a broker and taking a 3.5% cut of each transaction, according to the Associated Press. Meanwhile, Amazon will continue to manage the logistics of its increasingly efficient product delivery process.
According to Mabel Mclean, L2’s Research Lead on the upcoming L2 Amazon Intelligence Report, 11 Main’s relatively low 3.5% cut of each transaction is the greatest threat for Amazon which charges 10-50% to suppliers. This discrepancy would be a strong incentive for vendors to migrate towards a platform like 11 Main, pressuring Amazon to reduce their percentage. This, in turn, would induce stress on the e-commerce company’s competitive advantage as much of this income goes to fund their exceptional customer service and free shipping, both differentiating factors fueling their revenue stream.
In February, L2 Founder, Scott Galloway, described Amazon as the upcoming “Atom Pipe for America,” a position that it will likely retain for the foreseeable future despite the landing of Alibaba on U.S. shores.
For more information on the role of Amazon in the digital landscape, stay tuned for L2’s full report on Amazon, coming later this month.