It’s an e-commerce turf battle — and it’s just getting started.
With online commerce projected to more than double over the next four years, Alibaba, Walmart, Amazon and the other major powers are fighting it out in regions ranging from India and South Asia to Western Europe, America and all points in between.
In the big markets, that means feeding already developed platforms with more brands and adding services and other benefits to attract and keep customers in their e-commerce ecosystems. In newer markets, the plan of attack is to sweep in quickly, grab a dominant position, build out the necessary infrastructure and catch the steep part of the growth curve.
The weapon of choice in that scenario is increasingly the strategic acquisition.
On Tuesday, Daraz Group, South Asia’s largest e-commerce player, said it had been bought by Alibaba for an undisclosed sum. Founded in 2012, Daraz brings the Chinese giant a platform with two million products from 30,000 sellers and 500 brands.
Daraz has five million customers across Pakistan, Bangladesh, Sri Lanka, Myanmar and Nepal. But that’s just the start. The deal is expected to help Daraz grow more in its key markets, which are home to 460 million people, 60 percent of whom are under the age of 35.
It’s those types of relatively untapped markets that have the giants scanning the globe for deals.
In must-have markets with even more potential, the giants are clashing directly at the bargaining table.
Last week, Walmart Inc. reportedly won the fight for India’s Flipkart with a projected $15 billion deal that elbowed out Amazon. If the reports are true — and Walmart is expected to reveal the deal later this week — what the brick-and-mortar giant really bought was an entry into a new front in the broader global struggle.
The Indian e-commerce market had been a fight between Flipkart and Amazon, a strong number two. Now it’s Walmart and Amazon squaring off for control in a country that’s home to 1.3 billion people — nearly one-fifth of humanity.
For Walmart, that’s a new fight with a familiar foe — and one where it is investing heavily to gain ground against the Seattle-based behemoth, which dwarfs Walmart online. Already the retailer spent $3.3 billion to buy Jet.com in 2016 and reassert itself in U.S. e-commerce. Meanwhile, Amazon is going after Walmart in brick-and-mortar grocery — where it is minute compared to the Bentonville company — with its $13.7 billion deal to buy Whole Foods.
But even as Walmart and Amazon duke it out in relatively developed markets like the U.S., observers say there is still plenty of room for the little guy.
David Bassuk, global cohead of retail at AlixPartners, said there is space in the U.S. online market for many voices, including giant platforms and smaller players focused on individual categories.
“The game isn’t over with two players,” Bassuk said. “There are multiple business models emerging.”
Whatever the model, companies can gain advantage through momentum.
“Brands are looking to be with the leader and brands are looking for growth and it’s kind of a snowball effect,” he said. “As a brand or a business like Amazon starts to get bigger, the snowball effect happens and it gets bigger and bigger.”
That rush for growth is part of a competitive dynamic that promises to reshape the commercial world (at least for as long as shareholders are willing to let the e-commerce powers chase growth above all else).
While it’s Walmart and Amazon vying right now for the future of the American market, it’s Alibaba vs. JD.com in China and Amazon vs. Zalando in Western Europe.
And, in addition to South Asia, there are other, still-developing fronts as well as smaller players looking to get big and plenty of unanswered questions. How many big players can really fit in the mammoth U.S. e-commerce market? Who will win Russia? Or South America?
The ultimate answers to those questions are important and the stakes are exceedingly high.
EMarketer said global e-commerce sales are slated to jump 112 percent over the next four years, from $2.3 trillion last year to $4.9 trillion in 2021. And the breakout of that broader trend by region shows across the board growth, with eMarketer predicting:
• Asia-Pacific e-commerce sales up 145 percent to $3.3 trillion by 2021.
• North America, 75 percent to $851 billion.
• Western Europe, 44 percent to $512 billion.
• Central and Eastern Europe, 92 percent to $86 billion.
• Latin America, 82 percent to $81 billion.
• The Middle East and Africa, 110 percent to $49 billion.
But just jumping into a market and riding the growth up, no matter how fast, is not enough for the likes of Amazon or Walmart or Alibaba.
“These are now increasingly global companies,” said consultant Greg Portell, lead partner in A.T. Kearney’s retail practice. “So while they have their strengths, it’s very short-sighted to think that they can live in one market or another. They have to create competitive pressure on their competitors so they don’t get it back the other way. All of these companies are under enormous pressure to grow. Even in markets that are fast-growing, they need to find that next story that makes them relevant.
“As long as growth is the success metric, entering any market becomes almost an accretive story,” Portell said. “If the calculus changes and the criteria becomes profitability, repeat customers and assortment, that becomes more of an investment decision.”
For now, it’s growth that matters, so having access to the billions of dollars necessary for empire building is vital.
“Players who can access the institutional equity markets right now have a huge advantage,” said Shyam Gidumal, Northeast consumer products and retail market segment leader at consultancy EY. “You’re not seeing very many people who are the indigenous local player — that is the private equity-driven start-up — who is able to scale at the rate [necessary].”
Gidumal said companies need not only to build scale, but they also have to pay to acquire customers. And right now, investors are OK with that.
“The public markets oftentimes have a fashion component to them, a trend component to them, and this is on trend for the public market right now,” he said.
Clearly, many investors have seen the success of Amazon, which famously invests in growth at the expense of profits, and have become more comfortable with firms spending to expand if that bigger footprint seems to be working.
Trends, however, come and go and investors could start to demand more proof of profitability. The rules of engagement also could change.
“A lot of the evolution is going to depend on what happens with the data and who owns the data,” Gidumal said. “To the extent that the companies continue to own the data, there’s a big advantage to having that kind of global scale. If we’re going to a world where a consumer owns their own data and you’re only renting it to the retailer for that particular transaction, in markets where that turns out to be the case, I think you’ll see a different operating structure.”
For now, the growth of e-commerce and its potential are simply too great and the powers are barreling ahead with such force that momentum isn’t expected to give way anytime soon.
Before cutting a deal for Daraz, Alibaba had already invested $2 billion in Southeast Asia, buying e-commerce player Lazada and gaining access to the company’s local language platforms and logistics in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Recently, the company said it was investing another $2 billion to accelerate growth in the region.
But even these investments are not enough to ensure domination.
Asked on a conference call with analysts what it will take to be the winner in Southeast Asia over the next three to five years, Alibaba executives said it was still in the early days and they were still working to build a new ecosystem in the market with payment and logistics infrastructure and the right partners.
Joseph Tsai, Alibaba’s executive vice chairman, pointed to Indonesia, which is one of the region’s largest e-commerce markets, but has gross merchandise value of less than $10 billion a year.
“We’re really at probably the first pitch of the first inning of the game,” Tsai said. “It’s very, very early to tell, too early to tell, really.”
But the Chinese giant is still leaving little to chance, dispatching a key leader, Lucy Peng, to supercharge the region as Lazada chairwoman and chief executive officer.
“We have just completed our rearchitecting of the technology platform, which will enable us to very quickly launch products, user facing, features and products on the mobile platform,” Tsai said. “And that will lead to a better user experience and very quick response to the market changing dynamics.”
And the market dynamics there — and everywhere else — seem to be doing nothing but changing as the big powers around the world vie for the consumer of the future.