Largest e-commerceE-commerce has come a long way since its birth in late 1990s. Right now, there are so many e-commerce sites worldwide. In this article, we have a look at 9 of the largest e-commerce sites in the world. All 9 are publicly-listed companies, which made it easier to dig into their financial statements and analyse it.

  Founder(s) with technology background Profitable for last 3 years
Amazon Yes No
JD.com Yes No
eBay Yes Yes
AliBaba  No Yes
PriceLine Yes Yes
Expedia Yes Yes
Rakuten No Yes
GroupOn Yes No
ASOS No Yes

Amazon

Amazon.com in 1999
Amazon.com in 1999

Let’s start by talking about Amazon, one of world’s earliest e-commerce, and currently, world’s largest. It was founded in 1995 by Jeff Bezos, a former Vice President in investment company D.E. Shaw in charge of creating internet-based stock exchange for non public-listed companies. Amazon’s business model seems to be one of cutting off all intermediaries in the book supply chain to try to pass some savings to end customers. However, to achieve that, it ends up having to have large purchase volume commitment to publishers as well as large warehousing operation to store and manage its large book inventory. It has since expanded to add other revenue streams like providing e-commerce service for other retailers starting in 2006, and renting out its excess computing capacity to anyone who needs it via its Elastic Compute Cloud (EC2), also started in the same year.

Inventory turn-over & Return on Assets (RoA)

Amazon inventory turnoverAt the end of 2014, Amazon had $8.3b worth of inventory to support its business model. Amazon runs a pretty lean inventory in comparison, though. Its inventory turn-over was roughly 8x in 2014, very close to WalMart‘s 8.1x, and way better than Barnes & Noble‘s 3.4x. As a result of its business model, it also has large logistical fixed assets (comprising of high-technology warehouses and some transportation vehicles, I presume). Its fixed assets at the end of 2014 was a whopping $17b, consisting mainly of 100+ warehouses around the globe equipped with robotic equipments and also more than 1.5 million servers. Due to its net loss in 2014, the Return on Assets is horribly negative

Gross & net margin

Net incomeHere’s a surprising comparison: Amazon’s 2014 revenue of $89b is roughly the same size with Microsoft‘s $86.8b (their fiscal year ends 6 months apart though). However, Amazon managed to experience net loss of $241m on that revenue, while Microsoft squeezed net income of $22.1b. For 9 years between 2003 and 2011, Amazon did manage to consistently produce net profit.

Please note that the companies have different fiscal year ending. Barnes & Noble's fiscal year 2008 ended at Jan 2009, and they decided that the next fiscal year 2010 would end at Apr 2010 instead of Jan 2010
Please note that the companies have different fiscal year ending. Barnes & Noble’s fiscal year 2008 ended at Jan 2009, and they decided that the next fiscal year 2010 would end at Apr 2010 instead of Jan 2010

First of all, let’s see whether Amazon was getting enough volume discount from publishers to pass to its customers. At the start, when it was small, Amazon couldn’t push enough volume to justify publishers giving them better discounts than to other book distributors/retailers . However, as its volume grew, it should have been able to get better and better discount on par with the largest book retailers, and it probably did. But maybe in an effort to under-cut book retailers, it chose to maintain lower gross margin over some other large book retailers like Barnes & Noble (whose revenue it surpassed in 2002). In fact, it maintained gross margin similar to general retailer like WalMart

Brick & mortar net marginNext, let’s have a look at the typical net margin of book retailers before e-commerce era. As it turned out, it was already very thin anyway. Between 1996 to 2000, on good years, Barnes & Noble and Borders were just having between 2.1% – 3.5% net margin. However, this was common net margin in general retailers as well. So it seems that maintaining profit in retail is matter of consistency of excellent execution.

Shipping expenses can bite unaware e-commerce operators. Shoppers who are used to looking at prices in brick & mortar shops know that that price will be all that they will be paying at the cashier, plus maybe some taxes. So, these shoppers expect the same thing when they go shopping in on-line shops, except it’s not like that, since there is additional expense for shipping the goods purchased on-line to the shopper’s preferred address. In fact, a 2012 survey by Statista showed that shipping expense is the primary reason on-line shoppers abandon their shopping carts at check-out. To that extent, many e-commerce sites have gone out of their way to minimise how this cost appears to the shoppers. One way to do it is to absorb some (or even all) of the shipping cost. The revenue that Amazon gets out of shipping in 2014 is substantial at $4.5b, but it’s only enough to cover 51.5% of what Amazon considers as shipping cost, which also includes costs of sortation and its delivery centres. That means, Amazon absorbed a net of $4.2b for shipping expenses in 2014. That may seem like a lot of money, but without this subsidy, the rate of abandonment of shopping carts will increase and its base revenue from selling goods will also go down.

Zappos.com in 1999
Zappos.com in 1999

Now, let’s see the contribution of the numerous acquisitions that Amazon made to its bottom line. Zappos, which Amazon acquired in 2009, was started by Nick Swinmurn in 1999 and backed by angel investors Tony Hsieh & Alfred Lin (they made $265 million by selling their LinkExchange to Microsoft earlier in the same year). After the acquisition, their financial numbers have not been easily available, but we know from Fortune that their 2011 revenue was $2.158b and from Las Vegas Review Journal that their 2014 operating income was $54.5m (they held their 2015 all hands meeting in Las Vegas). Financial numbers for Internet Movie Database (IMDb.com), a movie review web site acquired in 1998, is also not easily available. Similar story with Alexa.com, a web statistics company acquired in 1999.

How about revenue from non e-commerce source? In 2014, Amazon reported other revenue of $5.6b, mainly coming from their cloud offering like EC2 and other services under the umbrella of Amazon Web Services (AWS). No doubt this ingenious way of renting out excess computing capacity helps Amazon in offseting its large technology overhead discussed below

Overhead

Amazon overheadAlready having increased its 2014 gross margin to 29.5%, Amazon needed to watch its overhead expenses. When they managed to get their overhead to around or below 15% of total sales between 2003 and 2011, they managed to consistently turned net profit.

Kiva robotic warehousing equipments in Amazon warehouse
Kiva robotic warehousing equipments in Amazon warehouse

Fulfilment expenses, mainly supply chain related expenses, amounted to $10.8b in 2014, representing 12.1% of total revenue, an increase from the years immediately before it. Amazon maintained 100+ high technology warehouses around the world, some equipped with robotic warehousing equipments from Kiva that it acquired in 2012. While this makes their warehouses more efficient, staffing and running these 100+ warehouses costs a lot of money.

Amazon.com visitors traffic
Amazon.com visitors traffic

In 2014, Amazon’s technology & content expenses amounted to $9.3b or 10.4% of total revenue, an increase from the years immediately before it. By now, it has to serve 150 million visitors per month. With more than 1.4 million servers spread across 28 data centres around the world, Amazon is quite possibly the company with the largest number of servers by far. Thankfully, this is partially off-set by revenue obtained by renting out excess capacity through its EC2 and other services under Amazon Web Services (AWS)

JD.com

JDLaser.com in 2004
JDLaser.com in 2004

Liu Qiang Dong/刘强东/Richard Liu started the practically identical JDLaser.com and 360Buy.com in 2004 as on-line catalog for his Beijing Jing Dong Century Trade. 360Buy.com was more popular, so JDLaser.com was discontinued after 2007. Starting from 2013, they’ve also been operating using another address: JD.com

JD.com seems to be able to manage excellent inventory turn-over of 10.9x (see comparison chart in Amazon’s section above). Gross margin is improving. Shipping expenses was 3.8% of revenue in 2014 and JD.com only charges part of it to its customers. As per published financial statements, the last few years of operation were still not resulting in net profit.

As per last publicly available data in 2013, JD.com was serving around 7 million visitors per month

eBay

eBay.com in 1999
eBay.com in 1999

eBay was founded in 1995, by Pierre Omidyar, with simple premise of providing on-line auction site for anyone who wants to sell anything, and then charging commission on sales transactions happening on it. In 2002, it acquired PayPal, the on-line payment solution that filled the gap not served by Visa & MasterCard. In 2005, it acquired Skype, one of the first globally successful Voice over Internet Protocol (VOIP) communication provider, which was available to most consumers free-of-charge. In 2008, it introduced seller rating to help vet out bad merchants from its network. In 2009, it divested Skype. In 2011, it acquired GSI Commerce which provides e-commerce service for retailers. In 2012, it acquired Magento, open source e-commerce software. In 2013, sensing changing market attitude, it introduces capability to by-pass the core auction process and buy something right away. In 2014, eBay announced spin-off of PayPal.

eBay visitors traffic
eBay visitors traffic

eBay serves around about 45 million visitors per month using 50,000+ servers. It processed sales of goods worth $83b in 2014 and charged commission on average 8.43% of the transaction value. PayPal processed $227.9b of payment transactions in 2014 and charged commission on average 3.47% of the transaction value.

eBay have been able to manage to turn net profit from founding. They can do this because as market-place they are unencumbered by logistical burden, which can be quite costly. One particular acquisition, PayPal, has been nurtured so well that it now is almost the same size as the core market-place offering of eBay itself. What is even more amazing is that almost all major acquisitions managed to turn profit, except at the early days of Skype acquisition, which was not surprising since most users use Skype for free.

AliBaba

AliBaba.com in 2000
AliBaba.com in 2000

Ever since Ma Yun/马云/Jack Ma knew about the internet from his trip to US in 1995 as a English & international business lecturer in Hangzhou Dianzi University (杭州电子科技大学), he has been wanting the whole world to know more about China. Later that year, he set up ChinaPages.com just for that, but using only a server in his apartment connected to the internet via a modem. In 1998, he joined CoFortune Information Technology, a company set up by China International Electronic Commerce Center (CIECC) of China’s Ministry of Commerce (商务部), as General Manager. In 1999, he founded AliBaba, a B2B directory to help Small & Medium Enterprises (SME) in China introduce their products to the rest of the world in exchange for a small fee. It was the right time. China was opening up to market economy more and more, and its large labour force means that it can produce many things cheaper than any other country. As more and more stuffs were made in China, popularity of AliBaba also soared, along with its revenue. SoftBank was one of the early investors in AliBaba in 2000.

TaoBao.com in 2003
TaoBao.com in 2003

In 2003, AliBaba entered the domestic on-line market place business by opening TaoBao.com, even though another start-up called EachNet.com (acquired by eBay in the same year) already dominated that market for China. To compete, TaoBao.com initially offered its market place services for free, making revenue from other sources like advertising. As EachNet.com is being consolidated to eBay, which included the letting servers in US handle its traffic, TaoBao.com kept innovating. In 2004, AliBaba launched AliPay, an escrow service to facilitate transactions in TaoBao.com and others. In 2005, Yahoo invested $1b in AliBaba and let AliBaba managed Yahoo China. They entered into Technology & Intellectual Property Licensing Agreement (TIPLA) whereby AliBaba agreed to pay royalty to Yahoo. By 2006, TaoBao.com’s market share of 67% for domestic Chinese on-line market place was already much bigger than EachNet.com’s 29%. Starting from 2007, TaoBao.com began charging for its market place services

In 2007, AliBaba listed AliBaba.com (international B2B directory) and AliBaba.com.CN (domestic B2B directory) in Hong Kong Stock Exchange/HKSE/香港交易所, but excluded TaoBao.com (domestic C2C market place) and AliPay. In 2009, AliBaba launched AliYun cloud computing service. That same year, Jack Ma made him substantial owner of AliPay without prior approval from Yahoo and SoftBank. Also in the same year, after years of complaints about fraud in its on-line market place, AliBaba fired 100+ people, including 2 top executives. In 2012, AliBaba de-listed from HKSE. In 2014, AliBaba listed in NASDAQ, this time including TaoBao.com and the related TMall.com and JuHuaSuan.com, but still excluding AliPay.

AliBaba financialsAliBaba only discloses financial statements for its public-listed subsidiaries, so TaoBao.com’s revenue for 2011 and earlier are not published and AliPay’s revenue has never been published at all. It’s obvious that TaoBao.com has been the largest revenue contributor for the group for a while. An estimate puts AliPay’s 2013 revenue at RMB 13.8b. Since 2006, AliBaba’s public-listed subsidiaries has been been producing consolidated net profit.

TaoBao 2014 GMVIn terms of business volumes, the domestic Chinese on-line market place handled by TaoBao.com, TMall.com, and JuHuaSuan.com processed much larger goods sales than eBay does globally. AliBaba disclosed via its AliZila.com that AliExpress.com, its international on-line market place, processed goods sales worth $4.5b in the year ended 30 Jun 2014.

AliBaba group visitors 2013On term of server loading, due to the size of the Chinese domestic market, TaoBao.com & TMall.com each has to serve more Chinese customer visits per month than eBay does globally, based on last publicly available data from 2013. The traffic to the domestic sites TaoBao.com & TMall.com far outpaced the traffic to international sites AliBaba.com & AliExpress.com.

PriceLine & Expedia

Next up are the On-line Travel Agents (OTA) PriceLine and Expedia.

Hotel reservation site Bookings.NL was founded by Geert-Jan Bruisma in 1996. In 1997, Michael Kenny of Anacott Asia Pacific in Thailand started hotel reservation site PlanetHoliday.com (Robert Rosenstein then invested in this business the next year). In 1998, Jay Walker’s Walker Digital launched PriceLine as OTA. In 2003, PlanetHoliday.com became founding member of Agoda and Agoda.com was launched the next year. In 2005, PriceLine acquired Bookings.NL and that same year they began to have another web address at Booking.com. In 2007, PriceLine acquired Agoda. In 2013, PriceLine acquired Kayak.com, a travel meta-search site.

Microsoft founded Expedia as its On-line Travel Agent site in 1996. In the same year, SABRE, one of 4 major Global Distribution System (GDS) that air lines use to sell tickets launched Travelocity to try to expand its business into OTA. In 1999, Microsoft spun Expedia off in an IPO. In late 1999 and early 2000, 4 major US airlines, namely Delta, United, Northwest, and Continental started their own OTA, Orbitz. In 2001, Hotel Reservation Network (HRN), a business owned by USA Interactive, bought Hotels.com address and launched its hotel reservation site there. By 2003, USA Interactive, which had changed its name to IAC/InterActiveCorp, had owned 100% of Expedia. In 2005, IAC restructured some of its properties like Hotels.com and travel destination review site TripAdvisor under Expedia and spun it off. In 2011, TripAdvisor was spun-off by Expedia in an IPO. In 2012, Expedia acquired Trivago, a travel meta-search site. In 2015, Expedia announced the acquisition of Travelocity & Orbitz

Global Distribution System (GDS)

Rather than each air line having their own Computer Reservation System (CRS) and have all interested travel agents around the world connect to it, a number of airlines chose to band together and use shared reservation system called Global Distribution System (GDS). There are still a number of airlines, however, that still uses their own CRS instead of using shared GDS. Right now, there are 4 major GDS:

OTA can connect to GDS via its Application Programming Interface (API) when it wants to try to book flight or flight segment that involves participating airlines. For all other airlines, if their respective CRS has API, then OTA can set separate connection to the CRS, but otherwise, OTA may have to resort to screen-scraping (automate the filling of screen form and reading of response) on the airlines’ reservation web site.

As with any other travel agents, the commission from sales of air line ticket is regulated by IATA (International Air Transport Association) or local travel agents association (e.g. AsITA / Association of Indonesian Travel Agencies), and vary between 5-9%

Agency or merchant model

For hotel and other travel-related booking, there are 2 business models:

  • agency model, whereby the OTA simply acts as reservation hub for multiple hotels or other travel providers. Hotels set the price that is displayed in OTA. OTA usually provides web site and API to ease the information exchange with the hotels. Commission is 10-20% for this model. Bookings.NL operates using agency model
  • merchant model, whereby the OTA makes bulk blanket booking commitment for certain period, which may have to be paid upfront, in exchange for higher discount (20-30%). The OTA then re-sell the rooms to its customers at higher price. Agoda and Hotels.com operate using merchant model

Business volume

Things have changed since PriceLine and Expedia founding in 1990s. At that time, practically no air lines offered on-line reservation and PriceLine and Expedia filled that gap. Since 2000, more and more air lines have been providing on-line reservation on their web site. Given that there are usually only few air line choices anyway for each route, customers sometimes choose to browse directly from each of the air lines’ on-line reservation system, rather than using travel agents. Hotel choices in any given city, however, can be in the hundreds. Hence, customers prefer to browse for hotels on OTA rather than each hotel’s on-line reservation site.

No wonder then, by now, hotel reservation contributes the largest commission revenue instead of air line reservation for both OTA. For PriceLine, its hotel-only reservation sites Booking.com and Agoda.com already contributed 78.7% of its total 2014 revenue, not counting hotel reservation in PriceLine.com itself. Expedia declared that 70% of their 2014 revenue came from hotel reservation commission. For hotel reservation, PriceLine sold 346 million room nights in 2014, while Expedia sold 183.6 millions room nights. PriceLine also sold 7.8 million air tickets in 2014, while Expedia doesn’t release the number of air tickets it sold.

Gross & net margin

It is somewhat tricky to compare PriceLine’s and Expedia’s revenue and gross margin since PriceLine seems to record gross booking as revenue for some of its services like Name Your Own Price while Expedia only records net booking as revenue. Anyhow, based on the published financial statements, PriceLine initially grew faster than Expedia, which was founded 1 year earlier. The consolidation of multiple properties of IAC/InterActiveCorp under the Expedia brand made the re-stated consolidated revenue of Expedia jumped in 2003 ahead of PriceLine. 2003 was the year when Expedia became wholly-owned subsidiary of IAC and stopped trading independently in the stock market. PriceLine surpassed Expedia’s revenue again in 2010 and has been bigger than Expedia since.

Expedia somehow managed to have significantly better gross margin for most of the time since its founding, some of it must be addressable by the fact that PriceLine records gross booking as revenue for some of its services (hence it has to record the price it received from the travel providers of those services as cost of revenue). For net income (loss), both companies were understandably experiencing net loss in the first few years of operation. For PriceLine, the net loss at the beginning was exacerbated by the $998m cost it incurred in 1999 for the share warrant it sold to some airlines, which gave them right to buy PriceLine share at a price that was obviously too low compared to the actual performance of its share price once it went public that year. This was the .com bubble after all. In 2000, PriceLine was also hit by $189m write-off of its defunct subsidiary WebHouse, which sold discounted groceries and petrol on-line. On top of that, in the same year, PriceLine was hit with combined $66.8m special & restructuring charges for winding down part of its operation. On 2005, PriceLine realised income tax benefit of $156m from its deferred tax which was booked due to the large losses in the first years of its operation. For Expedia, the volatility to its net income happened in 2008, when it wrote down $2.8b of good-will

IT overhead

In term of server load, PriceLine as a group has to serve significantly more visitors per month in 2013 (the last publicly available data) than Expedia & subsidiaries. However, PriceLine’s consolidated Information Technology expenses (excluding computer equipment depreciation) in 2014 is significantly lower than Expedia’s consolidated technology & content expenses for personnel & overhead (also excluding depreciation of technology assets)

Rakuten

In 1995 , Hiroshi Mikitani/三木谷浩史, a Harvard Business School MBA graduate, left his investment banking job in Industrial Bank of Japan/IBJ/株式会社日本興業銀行 to start a management consulting company called Crimson Group. He then started Rakuten (楽天株) in 1997 as on-line market place. In 2001, Rakuten entered OTA business. With his financial services background, Rakuten acquired on-line securities brokerage DLJDirect SFG (joint venture between US’ DLJDirect & Japan’s Sumitomo Financial Group) in 2003 and acquired Aozora Card from Aozora Bank in 2004. Still in 2004, Rakuten formed Golden Eagles baseball team. In 2007, Rakuten acquired Voice over IP (VoIP) provider Fusion Communications. In 2008, Rakuten acquired dating site ONet.JP. Rakuten then strengthened its financial services presence by acquiring the wholly electronic and totally branchless 9 years old eBank in 2009 and 5 years old insurance e-commerce Airio in 2012.

Rakuten Travel revenueRakuten processed sales of goods worth ¥2t domestically within Japan and ¥164.9b internationally through its numerous overseas acquisitions & subsidiaries in 2014. In USD terms, this is still considerably smaller than AliBaba’s domestic market places (TaoBao.com, TMall.com, JuSuaHuan.com) or eBay (please refer to comparison chart in AliBaba’s section above). Rakuten Travel is also much smaller than PriceLine or Expedia, at ¥34.7b revenue in 2013.

Rakuten revUnderstandably, the first few years were bringing net loss. After producing net profit in 2005, Rakuten incurred a restructuring charges of ¥20.8b for its credit card business in 2006, which resulted in net loss for the group that year. The year 2008 was not very good for stock market because of the sub-prime crisis in the US and it affected Rakuten adversely as well since some of the investment securities it held went under-water. Rakuten wrote down ¥67b in securities that year to account for the fall of the stock price for TBS and several others. Rakuten incurred yet another restructuring charges of ¥77.1b for its credit card business in 2011.

Based on last publicly available data from 2013, Rakuten.co.JP handles about 12 million visitors per month

Rakuten visitors

GroupOn

ThePoint.com in 2008
ThePoint.com in 2008

In 2007, Andrew Mason, employee of InnerWorkings, managed to get the company’s co-founder, Eric Lefkofsky, to invest in ThePoint.com. ThePoint.com was a web site where people can ask other people to give to a cause, but the giving will only take place when enough people are persuaded to join that cause. In 2008, they focused the concept a bit more for group coupon in GroupOn.ThePoint.com whereby a business can ask other people to buy a discount coupon to enjoy the products/services of the business, but the buying will only take place when enough people are persuaded to buy the coupon.

GroupOn revenueGroupOn‘s coupon sales actually has very good gross margin at around 85% during the last 5 years. However, they have not been able to grow the coupon sales since 2011, partially to mushrooming of competitors doing the same thing (LivingSocial.com etc). The growth came from their e-commerce, but that one has pretty low gross margin, at only less than 10% during the last 3 years. As a result, the fast growth of their e-commerce is actually bringing down the over-all gross margin. Coupled with the fact that GroupOn’s Sales, General, & Administrative (SG&A) expenses are relatively very high, hovering around 40-50% of revenue during the last 4 years, this means that it was hard for GroupOn to squeeze net profit.

GroupOn serves around 6 million visitors per month

GroupOn visitors

ASOS

AsSeenOnScreen.com in 2000
AsSeenOnScreen.com in 2000

Nick Robertson and Quentin Griffiths, founder of Entertainment Marketing, founded AsSeenOnScreen.com in 2000 to let people buy things they see in movie or television program. In 2001, they started to use shorter alternative address: ASOS.com.

ASOS has expanded to quite a few geographics globally. In 2014, its revenue from outside UK is larger than its domestic revenue. ASOS has been able to maintain relatively high gross margin for fashion retailing, partially maybe because it also sells its own fashion label whose costs it can tightly control. This gives them room to execute well and produce net profit consistently for the last 11 years.

ASOS serves close to 3 million visits monthly

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