Alibaba insider explains why Amazon lost in China and how it applies to India’s current ecommerce rise

x-VP of Alibaba Porter Erisman has written a book. Six Billion Shoppers. He explains the rise of Alibaba and how ecommerce is different in China and India.

From China to India to Nigeria, e-commerce is entering a golden era in countries that were long left out of the e-commerce gold rush experienced in the West. If the story of the first twenty years of e-commerce’s growth was set in developed markets, the story of the next twenty years will be set in emerging ones. The rise of e-commerce in emerging markets is being driven by three major trends: widespread internet adoption, a rising middle class, and, most importantly, innovative new business models that serve the needs of local customers better than the models used by western e-commerce giants.

Technology pioneers all tried to apply either the eBay or Amazon model. Even Amazon tried to apply its US model to the China market.

The problem is that to build an Amazon – especially on the original model from the US that was more inventory-led – you need scale and efficiency, both of which are very difficult to get in the early stages of ecommerce in an emerging market. So for example in China, Amazon wanted to apply the US model through their acquisition of the local player [Joyo], but it was difficult because you didn’t have efficient logistics and payment yet. For Amazon to try and manage everything in the whole purchase process was just too expensive.

I think in India now, where they have a major focus, they’re trying to do it differently.

To get around India’s restrictions on foreign retailers, Amazon created a marketplace model for India, ostensibly a departure from its inventory-based US model. But it also created subsidiaries Cloudtail and Appario to operate like sellers on the platform and comply with government rules, although it can be viewed as indirectly holding inventories. Indian ecommerce player Flipkart has taken a similar path with its subsidiary seller WS Retail. The marketplace model has proved a blessing for ecommerce growth, helping many brands become online sellers, even though it was initially a response to rules made to pacify offline retailers.

Alibaba focused on the asset-light C2C (consumer-to-consumer) Taobao marketplace before shifting focus to B2C (business-to-consumer) with Tmall. Is that how it was different from Amazon?

Entrepreneurs would rather run their own business, even if it’s making ball bearings, than be working as a middle manager in a big company in China. India has kirana [small store] – owning a little shop, charting your own destiny, that was the spirit in China of the early ecommerce users.

The big brands and retailers didn’t focus on ecommerce because they looked at this data and said, “If only 1 percent of products in China are bought online, why bother? We’ll just stick with the traditional retail.” So it was the scrappy entrepreneurs who made ecommerce work in China through really a C2C model.

Sellers want and wanted their own shop online, just like they’d have a kirana in India or a small mom-and-pop shop in the street. But eBay tried to lock the users into a system where they couldn’t really communicate with the buyers.

China started with C2C and then basically the consumers began to say, “Hey we would like to know we’re getting real products and we’re willing to pay a little extra for that.” And the legitimate sellers were saying, “We want a place where we can sell our products and differentiate ourselves from the cattle feeders.” So that’s why Alibaba created a separate Tmall.

There’s no real room for brands to create a rich experience and that’s fine in the US where people are already familiar with the brands from other channels. But in a country like China or India where a new middle class is emerging and they are not as familiar with all these new products and brands, it helps for a marketplace to have a dynamic and rich platform that allows branding.

There need to be more videos and demos.