October
11
October
11

Case 1: Taobao vs. eBay China
E-Business Professor Qiu
Ivy Yuwen Cai

Case 1: Taobao vs. eBay China
E-Business Professor Qiu
Ivy Yuwen Cai

08
Fall
08
Fall

Ivy Yuwen Cai
E-Business
Professor Qiu
Case 1 Taobao vs. eBay China
Due Date: October 11, 2011

A Lesson of “Doing Business in China” eBay had failed to recognize that the Chinese market and its business environment are very different in comparison to the United States. In any country, having local knowledge of your market is good; having local leadership on the ground is better. However, eBay assigns its high management positions to people who are not from Mainland China, who lack understanding of the local market. The fact that eBay had a strong brand in the United States didn’t mean it would be a strong brand in China.
Security and Payment
One of the most important factors, which let customers make purchase decisions, is security, and security issues are mostly related to payment process. When competing in payment services, Jack Ma and his team use their Chinese “guanxi” with key government officials and leaders in the Chinese banking industry to secure and process payment transactions. eBay has introduced its traditional payment method, Paypal, while Taobao has introduced a similar one, Alipay. Before 2007, the difference between Paypal and Alipay is the process of payment. Through Paypal, buyers pay directly to sellers, without any third party involvement, but Alipay serves as a “middleman” for money transactions. If buyer A is willing to pay seller B for an item, the money will first be put in his or her account in Alipay, and B will be informed to send out the item. After A receives the item, he or she will confirm the payment in Alipay, and the seller will receive the payment. eBay did not understand that Chinese customers feel more secured to have a reliable third party involved with money transactions; no wonder cash on delivery is the most popular payment method in China. Though Paypal has also introduced a similar method to China, it was already too difficult to win customers back from Taobao. eBay’s “Global Platform” and Taobao’s “No-fee Model
Rather than adapt products and services to local customers, eBay stuck to its “global platform,” which did not fit local customers’ tastes and preferences. The goal of migrating eBay’s online platform to the US was to allow buyers from overseas to see the sellers and their goods from China, making eBay truly global. However, the migration backfired, with the changes to the platform resulting in slow-moving performance and unstable connections. Disgusted by the poor service and potential business losses, users quickly switched to Taobao. The moment eBay decided to enter in China with an inflexible notion of simply extending the business model across the Pacific Ocean was really the beginning of the end. China needs to be treated separately and business models need to be tailored in order to succeed.
Though eBay has the first mover advantage coming to the Chinese market; yet Taobao successfully overshadowed eBay by adopting a ‘free of charge’ strategy to compete with eBay EachNet’s ‘listing fee model’. Put it simple, unlike its American-owned competitor, Taobao was free! Though eBay significantly cut its prices to try to compete, and later it became free as well, but it was too little and too late.
Strategic Highlights of Taobao
Taobao strategically created a sense of community by allowing its customers to share knowledge through its instant messaging service. Such services can create stickiness for Taobao’s community and enhance the chances for online transactions—as customers have casual conversations online, buyers and sellers may get into each other’s mind with more depth. Rather than complicatedly going through the third party, fast and direct communication is preferred in China. This is an important tool that makes virtual trading real, while eBay failed to provide its customers with such service.
Also, Taobao was more customer focused and user friendly than eBay EachNet. Taobao’s listings appeared to be more customer-centric while eBay EachNet’s listings more product-centric. For example, Taobao’s listings were organized into several categories, such as “Men,” “Women,” and so on, while eBay EachNet stuck to its global platform, grouping users into “Buyers” and “Sellers.”
Soon after Taobao was launched, eBay signed exclusive advertising rights with major internet players, such as Sina and Sohu, with the intention of blocking advertisements from Taobao. However, Jack Ma and his team posted thousands of messages on bulletin board services (BBS) to introduce Taobao to Internet users. Taobao’s promotional strategy is cheaper and well matched with its customers demographic. Since most of the buyers are young professionals or students, BBS seems to be the place where the consumers would be looking on a daily basis. eBay: Staying or Exiting
While Taobao has dominated most of the market in China with its local knowledge as well as tons of strategic movements, eBay can pursue a plan B for its business development in China: linking Chinese entrepreneurs and exporters to eBay consumers in other countries, as well as providing sales opportunities for foreign sellers in China. Although eBay has minimal presence inside of China, it is still the most famous e-business player globally. To continue developing its business in China, eBay needs to shift its focuses to segments of the Chinese e-commerce market not dominated by Taobao's boss, Jack Ma, and his Alibaba Group. Taobao is dominant in China but has little consumer-reach outside the country. eBay can fully utilize its strength which is the import and export business by connecting international buyers and sellers together. While lots of foreign companies exited the Chinese market due to government regulation, eBay probably has little reason to fear any suppression, since its business of promoting Chinese exports well fits with China’s economic goals. With eBay’s global connections, there is still great potential for eBay to continue developing in China.
Recommendations for Sustainable Revenue Model of Taobao
Looking into the future of Taobao, it is likely to see an increasing trend of its revenue. Online advertising matters, as online shopping becomes a daily “must-have” for lots of young and professional customers, Taobao will be able to attract lots of online advertising opportunities from other businesses to boost its revenue.
Transaction commission will be the most exciting part of the Taobao growth in the years ahead. C2C platform is a trading platform, which provides an opportunity for the parties to the transaction. C2C transaction volume may not have as great B2B platform, but the number of C2C customers and its trading frequency will definitely expand in the future.
Taobao can also expand its value-added services. C2C site not only provides a platform for the parties to the transaction, and more for both sides to provide trading services. Very often, it can be really difficult for buyers to find the goods they want. This is where web search service can be introduced to improve efficiency. The seller can buy keywords to improve their product in the search results ranking to attract more transactions. Taobao can certainly benefit from charging certain fees from its value-added services.
In the next couple of years, massive advertising, transaction commission and value-added service revenue could be waiting ahead for Taobao.