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Should Amazon Worry About Alibaba?

This article originally appeared Jan. 24, 2014, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.

China's Alibaba Group is widely expected to debut in the U.S. this year, which should be biggest initial public offering of 2014 for the tech sector.

But what has not been considered is how the e-commerce giant's move will potentially affect Amazon (AMZN).

Alibaba already has all it can deal with on its home turf fighting the mighty Tencent and its powerful WeChat app. Alibaba is worried that the Chinese are developing habits to buy things within WeChat and not going to the separate Tmall or Taobao sites.

Aside from that battle, there's no doubt that Alibaba will eventually bump into the powerful Amazon. Consider this: Alibaba has been investing in U.S. e-commerce companies that compete with Amazon. First, it was Scott Thompson's ShopRunner and then it invested in David Rosenblatt's 1stdibs.

Alibaba Vice Chairman Joe Tsai recently told me in a Forbes interview that expanding internationally is very much on management's mind, and they believe they can offer users and merchants a different experience than what they get from Amazon.

In Amazon's world, merchants are faceless providers under the Amazon tent. But many merchants want to offer a more customized experience to users rather than a one-stop shop-and-scroll based Amazon's price vision. Alibaba hopes to offer personalization. It will not have mass distribution centers across the U.S. like Amazon has, so Alibaba would be foolish to offer a similar experience. What Alibaba does have is lots of cash. It is about twice as profitable as Amazon and eBay (EBAY) combined and can deploy that cash if it wants to expand more aggressively.

The pie will continue to grow for all e-commerce companies, but Amazon has never faced as strong a rival as Alibaba. When eBay competed against Alibaba in China seven years ago, it had its head handed to it. Alibaba will be competing on Amazon's home turf, but it is very determined. In any case, it could certainly weigh on Amazon's stock once Alibaba formally sets up shop in the U.S.

At the time of publication, Jackson was long YHOO.


  Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

  Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

  He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

  You can contact Eric by emailing him at Dr.eric.jackson@me.com.

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