It’s Alibaba, Not Walmart, That Amazon Should Really Be Worried About

One of the hot business parlor games these days is playing “Who is the biggest threat to Amazon AMZN ’s dominant e-commerce position?” Most of the players invariably answer Walmart WMT , and while it’s the obvious choice, it’s also the wrong one.

The reality is that Walmart is so far behind Amazon in online sales, despite its recent gains during the pandemic, that it will never come close to catching up and being a real head-to-head competitor. Just as the discount retailer segment never caught up to Walmart in physical stores, so too will Amazon hold off any real threat from Walmart—or any physical retailer for that matter.

But Alibaba BABA , now that’s a different story. Rightly or wrongly described as the Amazon of China, Alibaba is now focusing more and more of its attention on the American market, especially with initiatives in the business-to-business sector.

And while it, too, has a long way to go to become competitive with Amazon, Alibaba has both the technical and financial resources to become its most serious challenger. Yes, Alibaba, at about $72 billion in annual revenue is less than a third the size of Amazon ($280 billion) but its dominant position in Chinese e-commerce gives it a special expertise to do battle with its American counterpart.

Let’s not forget that it’s not a straight apples-to-apples comparison between the two e-commerce giants either. Amazon is as much a digital services and advertising company with a significant percentage of its revenue coming from the non-retail parts of its business. And Alibaba’s key differentiator is its incorporation of social media into its core Taobao e-commerce site, one of more than 800 social media products the company offers. It makes Alibaba not just the Amazon of China, but also the Facebook/Instagram/Twitter of the country as well.

But it will matter less if it can’t export its success to North America. And that’s something Alibaba is working on aggressively, starting at the B2B level. Amazon’s business-to-business efforts are less well known than its consumer interface but it’s a substantial business, representing perhaps as much as 10% of its overall revenue depending on how you define it. But the Chinese company has decided it’s the most vulnerable to competition, particularly during the pandemic crisis.

In early June, Alibaba introduced a series of services for small- and medium-sized businesses, including dozens of virtual trade shows where merchandise can be viewed and ordered in the absence of in-person events canceled due to Covid-19. It also created special financing and transportation services for these businesses suffering during the shutdown. These efforts come on top of several English-language initiatives launched last year at the B2B level.

“Social distancing doesn't mean businesses need to compromise on building connections with sellers and buyers, or sharing knowledge and insights,” Alibaba said on its website announcing the virtual shows. “US Online Trade Shows are real-time interactive, curated experiences designed to help buyers and sellers meet — all online. The monthly category-specific events feature top sellers promoting their products with interested buyers ready to do business.”

Part of this play reflects the fact that many of these smaller e-commerce sellers see Amazon as the enemy and don’t want to do business with them. While Alibaba does sell direct, its American business remains small so it’s not as much of a threat to these smaller and medium-sized sellers.

Speaking to the Modern Retail e-letter recently, Andrew Lipsman, principal analyst at eMarketer, said “Many brands or manufacturers (that) have resisted Amazon now feel like their backs are against the wall…and may be more receptive to adopt new channels.”

And Alibaba’s efforts are not just restricted to the B2B world. In China with its 65 InTime department stores shut down earlier this year due to the pandemic, the company went aggressively into live streaming where online hosts sell products virtually. The retailer has always done these but doubled the number of livestreams to 200 during the pandemic; online sales now represent 20% of its overall volume. Store officials say it could go to half if the pattern continues.

Alibaba’s physical store efforts go beyond the InTime brand, which it bought in 2017. Its most high-profile retail outlet is Hema, a 150-unit grocery chain in 21 Chinese cities that is considered the most technologically advanced physical retailer in the industry, far outdistancing Amazon’s modest Go program. Integrating physical store attributes with digital tools, Hema has been called “the most futuristic retailer” in the world.

Amazon remains the most dominant retailer in its channel in North America since the peak days of Sears Roebuck nearly a century ago. And it’s not in any danger of losing its place in the retail hierarchy anytime soon. But like its namesake character, Alibaba is determined to create some true magic in the marketplace.