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Why Alibaba and Office Depot Are Forging an Alliance

Eric Volkman, The Motley Fool

Alibaba.com, the business-to-business (B2B) trading platform run by Chinese e-commerce giant Alibaba Group (NYSE: BABA), and U.S. office supplies retailer Office Depot (NASDAQ: ODP) have unveiled a new partnership aimed at the high-potential U.S. small-business segment.

It's an interesting tie-up that has the potential to be beneficial for both companies if managed well. Here are the key points we know about it so far.

Office Depot store interior

Image source: Office Depot.

Small business, large ambitions

Office Depot's official press release on the arrangement said that it "will focus on several key areas expected to provide U.S. entrepreneurs and business owners access to a single online destination to access one of the world's largest [catalogs] of goods and services across all product categories."

That destination is a new Web portal titled, somewhat plainly, "Office Depot on Alibaba.com." This concept marries Office Depot's big footprint on the U.S. small-business segment with Alibaba's massive supplier network and wide range of products, tools, and services for such clients.

"The goal of this collaboration is to empower U.S. small- and medium-sized businesses (SMBs) to grow by tapping into the global B2B e-commerce marketplace." Office Depot wrote in its press release. The company cited a U.S. International Trade Commission statistic saying that this market was valued at just under $24 trillion.

Partner priorities

The terms of the deal are broadly outlined in an Office Depot filing with the Securities and Exchange Commission. The two companies' obligations spelled out in the document are as follows:

  • Office Depot salespeople will steer clients to Alibaba.com for products that Office Depot doesn't sell.
  • Office Depot is to participate in coordinated marketing efforts to drive business to the partnership's Web portal.
  • When a planned supply and logistics agreement is signed, something that's planned for later this year, Office Depot will accept deliveries from select Alibaba.com suppliers and distribute them to buyers.
  • Alibaba.com will furnish Office Depot's sales force with relevant sales materials and training.
  • Alibaba.com must work with Office Depot "to analyze customer behaviors and [provide] certain details with respect to recipients of the products."

The initial term of this agreement is 125 days. After that, either party can terminate it, provided they give the other 30 days' notice.

Detailed financial terms of the arrangement were not made public.

The big boys of B2B?

The numbers behind this collaboration are very large.

That almost $24 trillion in the global B2B sphere alone is staggering. On top of that, we have a deep pool of over 10 million U.S. Office Depot business consumers serviced by an army of salespeople 1,800-plus strong, according to numbers the partnership provided. Alibaba.com, meanwhile, brings 150,000 suppliers to the table. That means if neither offers a particular good, it probably doesn't exist.

There are a lot of moving parts to this collaboration, and certainly many fine points to be smoothed out. The portal is already live and running, and it features plenty of merchandise deals across a range of product and service categories -- not to mention assertive branding for both partners.

Neither Office Depot nor Alibaba.com has publicly released revenue or profit estimates from this new partnership. With only the outline of the partnership agreement available for view, we can't model its potential with much accuracy.

What we can say is that both companies are well-established operators in their respective segments, and both have abundant resources they're bringing to the table. Given that, it looks like a collaboration that could be quite a boon for each, although it's in still in the early days.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.