The e-commerce realm is ripe with competition. While Amazon (AMZN -1.44%) has become the 800 pound gorilla in the e-commerce space, consumers have plenty of other options.
One online marketplace that has risen in popularity in recent years is Temu, a Chinese e-commerce platform operated by Pinduoduo. In the last couple of years, Temu has done a respectable job expanding outside of China, and is now heavily penetrating the U.S. and many European countries.
Amazon has taken note of Temu's rise, and recent reports suggest the big tech juggernaut has a plan to fend off its Chinese counterpart.
Chinese e-commerce is gaining momentum, and...
Similar to Amazon, Temu's primary value proposition is that the platform offers a variety of consumer goods for affordable prices compared to traditional brick-and-mortar retail. Moreover, Temu has garnered significant traction with highly coveted millennial and Gen Z shoppers.
Some of the reasons Temu appeals to younger demographics is that the company has done a good job bridging social media to online commerce. Specifically, Temu advertises heavily on platforms such as Facebook and TikTok while also bringing an element of gamified shopping.
The strategy appears to be working well, as Temu is currently the top downloaded shopping app in Apple's App Store and the second most downloaded app overall across all categories.
Image source: Getty Images.
...Amazon is not taking the competition lightly, but...
Amazon has taken note of the competitor's swift rise, and recent news sheds light on how the company plans to compete with Temu.
According to several media outlets, Amazon will be launching a new marketplace specifically focused on low-priced goods sold by Chinese merchants and shipped to consumers directly from China.
While it is not yet known when Amazon will launch this service, I see it as a clear indication that the company views Temu as a legitimate threat and is essentially copying the platform's model in an effort to keep buyers and sellers within the Amazon ecosystem.
Although this idea is intriguing, it's eerily similar to something the company did in the past.
...will Amazon's plan work?
Two of the most popular online marketplaces are Etsy and Shopify. Etsy is essentially an online craft market, as many of the goods on the company's platform are unique, handcrafted, and made by artists. Similarly, Shopify has given rise to numerous independent storefronts both online and in physical retail settings.
The common theme between Etsy and Shopify is that both marketplaces have succeeded in promoting independent retailers selling artisan goods, and are looking for alternatives to large parties such as Amazon.
Back in 2015, Amazon launched an extension to its core e-commerce store called Handmade By Amazon.
Handmade By Amazon was the company's response to bring more unique products to its platform as opposed to just being a landing page for less expensive generic products that could be found in physical retail outlets.
While Handmade By Amazon might look like a great idea on the surface, there are a couple of issues with it.
First, Etsy and Shopify have a first-mover advantage when it comes to acquiring independent sellers. Second, many online shoppers look to Amazon specifically because the company sells products that can be found at most convenience stores or big-box retailers, but at a reduced cost. In other words, Amazon's target customer isn't necessarily the same shopper going to Etsy and Shopify.
Furthermore, considering both Etsy and Shopify are both very much still intact, it's not as if Handmade By Amazon put either platform out of business. That has me asking whether launching Handmade By Amazon was even worth the investments of time, advertising, and development.
While I find the idea of a Temu competitor interesting, I wouldn't encourage investors to pour into Amazon stock based on this recent development alone.
Considering the ideas explored above, I'd be a little skeptical that Amazon's new China-focused marketplace will do much to deter existing Temu shoppers. I think the bulk of Amazon's future growth lies in artificial intelligence and cloud computing, as opposed to online shopping.
