The strategic response
Noting that Ebay in China was charging users to list products and services, Taobao allowed them to list for free in order to build a big cohort of sellers and buyers. Critical mass would eventually attract revenue-generating activities, such as online advertisements.
Taobao also presented itself as very much a Chinese enterprise. For instance, the screen names of online moderators were derived from characters in popular Chinese kung-fu novels.
Next, Taobao aimed to be more innovative than Ebay in customer service. In 2003 Taobao started Aliwangwang, its instant communication tool, to help buyers and sellers interact.
It also introduced the online payment system Alipay a year later. Online credit card or debit card payment was very rare in China and customers usually paid cash on delivery. Alipay formed partnerships with leading Chinese banks and signed a long-term agreement with China Post, which meant customers without a debit or bank card could fund their Alipay accounts at any of its 66,000 offices.
Final result
Taobao developed into a diverse e-commerce platform where businesses sell a very wide range of items to online shop owners who then sell on to consumers.
At the end of 2006, Ebay shut its main website in China and formed a joint venture with Hong Kong- headquartered Tom Online.
Taobao continued to build a network of ventures around its core operations. In 2007 it set up Alisoft.com, where small Taobao sellers could buy customized software from independent vendors to help with functions such as customer relations or managing inventory.
In 2008 Taobao integrated Alimama.com, an online ad company with a network of more than 400,000 specialized websites where Taobao sellers could affordably post ads to reach their target audiences.
These complementary ventures formed a network, with Taobao at the centre surrounded by interlinked companies. All cross-sold and cross-marketed each other’s services and offered packaged deals to Taobao sellers.
As this “ecosystem” developed it attracted other businesses to use Taobao, Alipay, Alisoft and Alimama’s platforms to provide further customized services to Taobao sellers.
The extent and reach of the ecosystem became too hard for rivals to replicate.
By 2010 Taobao served more than 80 per cent of China’s e-commerce market, with 170m registered users and revenues of more than Rmb20bn from online advertising and fee-paying services such as shop design and sales training.
Meanwhile, Ebay moved its business focus to cross-border e-commerce, where Chinese consumers sell to overseas consumers. It holds a leading position in that segment.
Key lessons
First, Taobao provided services and solved problems for the smaller businesses that are the driving force behind China’s economic boom. For instance, Alipay enabled people to pay for goods and services easily.
Second, Taobao set up or integrated services that complemented each other and used this ecosystem to create a bar to competition.
Third, Taobao identified how to help people buy and sell. By making online shopping easy, safe and fun it helped many first-time online buyers build confidence in e-commerce.
COMPANY ‘S PHILOSOPHY
Jack Ma , CEO of Alibaba argues that another key to Alibaba's success has been a set of priorities different from those of many other companies. Ma says he couldn't disagree more with those in the U.S. and elsewhere who say enriching shareholders is a corporation's top purpose. That's the sort of thinking that led to the world economy's current mess, he says. "A lot of people thought I was stupid and crazy when I said customers are No. 1, employees are No. 2, and shareholders are No. 3, but that's our philosophy," he says. "Shareholders, I respect them, but they're No. 3."
SWOT ANALYSIS
Strengths
- Offered its services free of charge. So it was very popular among the consumers.
- Strong base of 32 million registered users in around 2008.
- Business units presidents had the freedom to make independent decisions.
- Undersatnding of the local culture and a strong understanding of the chinese consumers and an attitude of informality were the key strengths of the company.
- Busy web design with strong colors(for example- site was noisy with lots of links.
- Alipay has reduced the settlement risk and thus transactions has become more easy.
- Instant messaging service, Wangwang allowed buyers to directly haggle with sellers.
Weakness
- Too much dependent on business of the clients i.e. there is no strong back up plan to respond to recession.
Opportunity
- Going to untapped regions or markets of various part of the world like India, and other South East Asian Countries.
- Merging smaller companies to get their customer database and expanding to each and every corner of China.
Threats
- Business units might compete with each other in terms of resources also.
- Companies doing e-commerce can enter the Chinese market with the similar strategy as that of Taobao.
- World Economic Recession has a direct impact on e-commerce business as that of Taobao’s.
- Advancement in hacking might lead to huge losses in business. For example – of hackers hack Alipay.
GOING GLOBAL
Now, Ma is pushing Alibaba in new directions. The company has launched local versions of its B2B service in Japan, South Korea, and India. In November, it slashed the $7,000 price for Gold Supplier membership by more than half to hold on to customers. It has 43,000 today. On Mar. 31, Alisoft announced it would give its Shopkeeper—a package including accounting, inventory management and customer resource management software—to small and midsize users for free.
And Ma has plans to expand Alibaba's presence worldwide, spending $30 million on marketing to expand small offices in the U.S. and Britain. The company will add 5,000 employees, mostly in China, to raise its head count to 17,000. Not many companies are hiring these days, but Ma says Alibaba has to expand. "Our customers want to be global," he says.