Taobao Turns Ten: A Look Back

Taobao Turns Ten Today: A Look Back

By Tracey Xiang on May 10, 2013

Taobao – “exploring treasures” in Chinese – now is a household name in China. Ten years ago, Alibaba wanted to try out the online auction by putting up a Nokia phone online. That phone turned out to be the first item on the customer-to-customer platform. eBay-like auction, however, never prevailed in China. Taobao simply became the biggest marketplace for online retailing. The total value of transactions processed through Taobao was 34 million yuan in 2003 while the number for 2012 (Tmall is included) was over one trillion yuan ($ 161 bn). It processes 24 million yuan worth of sales each day, said Jack Ma at Taobao’s tenth anniversary event tonight. There are over 6 million retailers on the platform serving almost every Chinese netizen. Peripheral industries including e-commerce solution and logistics were created or boosted thanks to Taobao. To this day, in most places in China, even if some Chinese don’t buy anything on Taobao with their own fingers, they must have young colleagues in the office or relatives to do it for them — recognizing it, Taobao even rolled out a program called Cousin letting people who are capable of using Taobao to purchase and make payments for other people.Evolution

In October of the year when Taobao was founded, Alipay was born to resolve concerns about online shopping safety. The escrow payment solution allows users to release payments temporarily held by Taobao after confirming the receipt of goods. Alipay was later spun off as an independent business and becoming Alifinance who’d create more financial services for the online marketplace.

Wang Wang, the in-site instant messaging tool launched in July 2004, enabled retailers to offer customer service before, during and after a purchase, and reach customers. Now Chinese users have got so used to be called “Dear” by Taobao retailers in Wang Wang conversations.

In 2006, a business-to-consumer platform, which was renamed Tmall in 2012, was established under Taobao. As a deposit is required to set up a store on Tmall, a majority of small businesses still are on Taobao. One year after it, Alimama, an online advertising program, was released.

Later on several internal projects were hived off to become important sub-businesses of Taobao’s, such as Etao the shopping search and Juhuasuan the group-buying platform.

eBay

The story about the war between eBay China and Taobao must be remembered as a classic case. People started using it to explain how complicated China market is and how an ignorant and arrogant western player can’t win in China.

When eBay just entered China by acquiring Eachnet, Taobao waived all fees for operating a store. Jack Ma told his employees that they were not allowed to make a profit in a three-year period.

Three years later, Taobao claimed it had gained over 70% of the customer-to-customer online shopping market. eBay then faded out of Chinese consumers’ sight.

Domestic Competitions

Except for Eachnet which was founded by a Chinese in China and was defeated as part of eBay, a plenty of local competitors emerged. But no one got in the way of Taobao.

Paipai, Tencent’s answer to Taobao, was released in 2005. It turned out that it wasn’t so easy as channeling users from its huge user pool to the games platform to play games and pay for virtual items or other game-related services. It’s not until it took a controlling stake in 51Buy, a business-to-consumer site, around 2012 Tencent’s e-commerce business began to gain some traction.

Baidu rolled out one, Youa, in 2008, declaring to beat Taobao in three years. Taobao blocked Baidu search engine from indexing its content in no time. About three years later, in April 2011, Youa officially closed the C2C platform.

Business Model

It has been free to set up a Taobao store and no extra charges is imposed. Some paid services, like virtual items for decorating stores, were available later but only generated minor revenues.

After Yahoo! China was took over and didn’t perform, Alibaba grabbed the lead of its search business to build the in-site search service for Taobao. Paid search and Google AdSense-like contextual ad program launched later became the platform’s major revenue sources.

Given Baidu cannot generate search results about Taobao items, it’s safe to say Taobao and Tmall have the biggest market share in e-commerce search marketing.

Jack Ma once said other Chinese e-commerce players were all wrong. To my understanding, he referred to those B2C businesses who were trapped in price wars. If you compare the margin of search marketing with that of selling goods at low prices, you may agree with Mr. Ma. JD.com (formerly 360Buy) , as a B2C player at the beginning, opened up its platform to hold third-party retailers. It is said JD.com saw the growth of third parties at twice the rate of its own B2C business. Dangdang, Vancl also opened up their platforms recently.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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